European Union leaders gather for their first summit of 2012 as a deteriorating economy and struggle to complete a Greek debt writeoff risk sidetracking efforts to stamp out the financial crisis.
EU chiefs arrive in Brussels about 2 p.m. today to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Jan. 28 they expect to complete a deal in coming days after bondholders signaled they would accept European government demands for a bigger cut in their debt holdings.
Uh huh. That’s not the problem. The problem is that Germany is screaming that Greece must surrender its national sovereignty in order to continue to receive “help”, effectively becoming a vassal state of Germany.
In the meantime Sarkozy says he’s going to unilaterally impose a financial transactions tax. One wonders how he’s going to pull that off, given that I don’t think France re-installed a King. Or did they?
Here in the US we still won’t face reality — although it’s at least being talked about in the media now.
The level of debt held now by governments, the financial industry and especially consumers remains a greater drag on the U.S. than in 1983, Reinhart said Jan. 27 in a radio interview from Davos on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. In the third quarter of 2011, total household debt was 86 percent of GDP, compared with 47 percent in the third quarter of 1983, according to the U.S. Commerce Department.
“The capacity for households to carry on to be the engine of growth that they have been in past recoveries is simply not there,” said Reinhart, a senior fellow at the Peterson Institute for International Economics in Washington.
Until this is recognized and we adjust for it we cannot have the sort of “recovery” everyone wants to see. That is, we never hit the bottom, we never purged the bad debt, and we never set the stage for a “recovery”, instead covering up the problems with more debt and fraud.
In the final three months of 1983, average after-tax personal income had risen 4.2 percent from a year earlier, adjusted for inflation, according to the Commerce Department. In the final quarter of last year, it had dropped 0.8 percent.
Now now, let’s stop the intentional misuse of statistics there Bloomberg, and instead look at what we had just started doing back in 1983….
So did personal income actually rise? Hmmmm…. we added, in 1983, a bit more than $100 billion in GDP. But we also added $176 billion in debt, which means we were borrowing the so-called “increase” in after-tax personal income, we were not earning it. Indeed, here’s the debt and GDP addition numbers for the quarters from 1981 through 1989:
|Quarter||New Debt||New GDP|
We didn’t grow at all — we borrowed from roughly 2x to nearly 5x the increase in output each and every quarter during Reagan’s so-called “recovery”!
This is the fundamental scam that we have run for the last 30 years and we’re still not talking about it honestly! Until we do and we reconcile the overblown asset prices and costs that go into both business and personal life that have come with this debt there can be no durable recovery — only further attempts to blow more Ponzi-style bubbles.
The problem is that in order to blow another asset bubble you need to find an asset where leverage is reasonably low and can be cranked up so as to support it, at least for a while.
But we seem to be all out of those unencumbered assets……