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Debt Rattle Aug 14 2014: Life and Times in Propagandistan

Courtesy of The Automatic Earth.


Marjory Collins Italian-American banner parade, Mott Street, NY Aug 1942

The UN said earlier this week that in east Ukraine over 1000 people – a conservative estimate – were killed during the last fortnight in the battles over Donetsk and Luhansk. Today, there are again reports of more heavy shelling by the Ukraine “army”, and dozens more deaths, while the Russian aid convoy is still not – allowed – anywhere near the cities.

At this rate, who’s going to be left to receive any of the food and generators and sleeping bags? I have a dark suspicion that if we don’t resolve this issue, and fast, we’re going to regret that for a very long time.

For “us” to be subsidizing this sort of military operation, a policy largely underwritten and justified by unsubstantiated blame claims in a media-wide campaign about a tragic plane crash 4 weeks ago to the day, is not something even a single one of us should be proud about, let alone happy.

We should all feel deep shame and guilt. How can we at the same time denounce one genocide and sponsor another? Our leaders may not care about a dead body or two more or less, but that doesn’t mean we shouldn’t either.

And how many hundreds of American soldiers are already back on the ground in Iraq again, while their army commanders emphasize the limited scope of air strikes? Are we supposed to just wait for the PR spin to serve up the justification for boots on the ground in their thousands? What’s it going to be this time? And how wrong is Ron Paul in suggesting this is a trap?

Whatever it is, we better make it fast, and step on the gas, or Europe will no longer be of much help. Well, either that or their domestic problems will; become the very driver for their involvement in warfare abroad. Even the Germans are sending support in Iraq now, right after the US announced they found there are far less Yazidi people on Mount Sinjar than someone told them there were. Perhaps they should all ask Putin to help. With both aid and intelligence.

And grout. The Mosul dam was built on gypsum and needs daily injections of grout – a liquified cement – or it falls to pieces. No need to bomb it. And that would mean flooding Baghdad – and the US multi-billion Green Zone. Mission accomplished.

However that may be, 6-7 years into the famed recovery, of which we’ve, come to think of it, seen about as little evidence as of the alleged rebel/Russian involvement in the plane crash, Germany’s GDP drops. Now, you’re thinking, so did US GDP earlier this year, and we spun our way out of that without a glitch. All under control, Captain, my Captain.

But Germany has 27 weaker vassal states on its back, and if it can’t even carry its own weight anymore, then what’s next? Obviously, there are plenty of experts claiming it’s a temporary thing, but when temporary gets to mean 6 years and more, it becomes meaningless.

Then again, so much in the propaganda machine we live in, that dictates what we think about the economy and about politics, is devoid of any real meaning, and the machine’s still going strong, fueled by the people’s unquestioning ignorance and their fear of losing their comfy plush caves. Baby, it’s cold outside. Older than Rome.

Spain was supposed to be the leading example of what weaker European brothers could do. Turns out, that was also just spin. Industrial production does not fall in economies recovering from gutter scraping circumstances. France is a basket case. A basket increasingly filled with stale bread and cheap wine.

Other EU nations report actual growth, but why should we believe any of them? Why should we believe any of this has to do with anything but appearances?

One country where keeping up appearances simply doesn’t work anymore – and that’s saying a lot these days – is Italy. A new young prime minister was elected on big promises – and already failed miserably. Nothing can save Italy as long as it’s part of the Eurozone. Or Greece, or Portugal, or Spain. Policies will be set according to what the richer nations want and need, and while the disadvantages of that can be hidden in times of plenty, they stand out all the more in poorer days.

On the surface, Italy doesn’t even seem to do that bad. It has a primary surplus, for one thing. It’s just that, as Ambrose Evans-Pritchard writes:

Output has collapsed by 9.1% from the peak, back to levels last seen 14 years ago. Industrial production is down to 1980 levels. [..] Bank loans to business are still falling at a rate of 4.5%. [..] The debt ratio may test 140% by the end of the year, uncharted waters for a country that effectively borrows in D-Marks.

It’s the debt that does in Italy, at least as long as it’s denominated in euros. Tempted by manufactured low yields on its bonds, Rome lets the debt soar on:

Ambrose calls for spending, he’s a Keynes man. To him, the failure is the resistance to more spending, in the spirit of the Fed, and Tokyo and Beijing, by Brussels – or Berlin.

But I think it would be, and would always have been, borderline lethal, since it would be like throwing debt on top of the debt Himalayas. There is a limit beyond which more spending cannot possibly be of any help, and the entire western world passed that limit many years and many trillions of dollars and yen and euros and liras ago. What’s left is the interest payments that are certain to burden us like so many Quasimodo’s for many years to come.

No, Ambrose has it right in some of his other comments

Mr Renzi is on his own. He faces an ECB that has fundamentally violated its contract with Italy, letting EMU-wide inflation fall to 0.4% knowing that this causes the Italian crisis to metastasise.

Italy must look after itself. It can recover only if it breaks free from the EMU trap, retakes control of its sovereign policy instruments and renominates its debts into lira, with capital controls until the dust settles. Italy would not face an immediate funding crisis since it has a primary budget surplus. Its net international investment position is -32% of GDP, compared with -92% for Spain and -100% for Portugal.

There is no easy way to leave the euro. The interlocking structures of monetary union have gone much further than a fixed exchange peg. Vested interests are powerful and merciless. But it is not impossible either.

The matter will surely come to a head as Italy’s debt trajectory hits the danger zone. This time it may not be quite so clear that the country wishes to be rescued on European terms. Mr Renzi may appropriately conclude that the only possible way to deliver on his Risorgimento for Italy, and to craft his own myth, is to gamble all on the lira.

I don’t see Matteo Renzi crafting his own myth, I don’t see him sticking around long enough. Someone’s got to take the blame, and no matter how much choice Italy has by now, there’s always room for one more.

But I do think that at some point Italy will see there are no other choices left but to be its own boss.

It’s just that the sooner it does, the better it would be by far. It’ll be much harder when everyone else is running for cover too.

It would seem however, that Italy’s own propaganda machine needs to be silenced first. And that’s never easy.


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