In Bondage


When the State spends more money than it receives in taxes — a fact indelibly written into the bond — it is deliberately committing an act of bankruptcy. The use of the word investment in connection with a bond issued by the State is a treacherous euphemism.

Government bonds (gilts) are considered to be a safe haven for the cautious investor as the return is guaranteed by the government issuing the bond. A guarantee met by taxation of the people, not by any government fiscal prudence, a guarantee that invariably requires government debt refinancing.

And yet this month the bond markets surged again after vows by Mario Draghi to protect the euro, the President of the European Central Bank (ECB)  Mario Draghi  vowing that:

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”,

“To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate”.

Confirmation that the ECB has the means to save the euro have yet to be confirmed. It could continue with more quantitative easing and call it by another name such as longer-term refinancing operations (LTROs). At a press conference in December 2011, Draghi is also recorded as saying:

“No matter what the legal trick is, I think what matters for the people and what matters for the confidence and credibility of the institution is the spirit of this provision of the Treaty“. 

“The European Financial Stability Fund is like a government. Giving money to governments is monetary financing”.

“The Treaty prohibits monetary financing. 

Any ambiguity in Draghi’s statements and the options available to the ECB, being lost to bond market traders in yet another moment of euphoria.  The Independent newspaper wrote November 2011;  What price the new democracy? Goldman Sachs conquers Europe, stating that the political decisions taken in the coming weeks will determine if the euro-zone can and will pay its debts, and Goldman’s interests are intricately tied up with the answer to that question. Adding the remark from Simon Johnson, author of the book 13 Bankers,that:

“At least European politicians aren’t ‘bought and paid for’ by corporations, as in the US. Instead what you have in Europe is a shared world-view among the policy elite and the bankers, a shared set of goals and mutual reinforcement of illusions.”

In referring to  the Italian Prime Minister Mario Monti, the article added that an appointment putting a senior adviser at Goldman Sachs in charge of a Western nation, makes the political power of an investment bank something that may be considered politically toxic. In  imposing rule by unelected technocrats the normal rules of democracy are suspended, and perhaps democracy itself. To date, the political decisions taken, and the actions of the of the European Central Bank (ECB), European Commission and International Monetary Fund (IMF), are difficult to reconcile with any democratic intent.  Any market euphoria may have more to do with the perceived proxy power of Goldman Sachs, in which the mutual reinforcement of a shared set of goals may or may not be an illusion.

SPIEGEL ON-LINE INTERNATIONAL published an article this month, with the title How Greece Could Save on Defense Spending. According to the independent Stockholm International Peace Research Institute (SIPRI), Greece is one of the top five arms importers globally, last year spending€4.6 billion on defence. Much of the weaponry imported bought from German and French manufacturers, deep cuts to the military could actually conflict with the interests of Greece’s largest creditors.  The seeds of  any ‘euro crisis’ may have resulted in the politically toxic European fruition of Goldman Sachs’ apparitors, but they were sown much earlier. The defence expenditure of Greece was never sustainable, either inside or outside the euro, other than by an issue of government bonds to cover the debt. And therein is the nub of not just a euro crisis but a global crisis of government debt, the solution being a global race for ‘economic growth‘. The global race for economic growth has always been one of ‘beggar my neighbour‘,  a toxic policy in which a shared currency offers no guarantee of a share in economic growth, and there are no points for guessing where that road leads. The shared set of goals and mutual reinforcement of illusions  among Europe’s policy elite and bankers, is reflected in the mutual reinforcement of disillusions shared by those subject to the machinations of this coterie.

3 responses to “In Bondage

  1. Pingback: The Troika & The IMF | Aasof getting serious!

  2. Pingback: The rich will always be with us (2013) – Bemused - My Telegraph

  3. Pingback: The rich will always be with us (2013) | Assof's Reflections

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Hello, I’m Ed Conway, Economics Editor of Sky News, and this is my website. Blogposts, stuff about my books and a little bit of music

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