by Stephanie Kelton
This article was originally published by New Economic Perspectives, 04 May 2013.
Steve Kraske of The Kansas City Star recently interviewed me for a piece about austerity. The story ran in today’s paper. It doesn’t provide much depth (unlike bloggers, journalists have strict space constraints!), so I followed up with a few comments on the Star’s website. I thought I’d share them here, since I’m always trying to improve the way I communicate these ideas with non-economists. So here’s my best effort to make the anti-austerity case in simple terms.
by Shah Gilani, Money Morning
TBTF is the acronym for “too big to fail.”
It’s the crazy notion that certain banks are so large and systematically important (which really means so threatening to financial systems) that they must be kept alive by the government, because their failure would wreak havoc on the economy.
How will they be saved from their own greed? And how will we be saved from their greed so we can kneel at their altars another day?
by Jonathan Denn
This article was originally published by New Economic Perspectives
This demonstration will work well in the classroom or barroom. There are five levels, the first is designed for someone who knows nothing about sector balances, each level adds a new variable and complexity.
You’ll need three rolls of pennies and three people. One person is the “Government US”, the second is the “Private Sector US”, and the third is the “Foreign Sector.” For the sake of simplicity, G=Government, P=Private Sector, F=Foreign Sector.
The game starts with G having all the money. Why? Because the United States has a monopoly issuing the dollar, or in this case the penny. So, to begin with G buys goods and services from the private sector P, like paying the brave men and women in the armed forces, teachers, buying airplanes, ships, tanks, research, roads, all the things to serve the public purpose. Now some of these purchases go directly to the F, like humanitarian aid, or goods or services that are not available domestically or are cheaper oversees (or politically prudent). For this example, let’s crack open the penny rolls and capitalize the game (our country), and spend 100 to the (P)rivate sector, 10 to (F)oreign sector, and 40 remains with (G)overnment.
Bail-out Is Out, Bail-in Is In: Time for Some Publicly-Owned Banks
by Ellen Brown, Web of Debt
“[W]ith Cyprus . . . the game itself changed. By raiding the depositors’ accounts, a major central bank has gone where they would not previously have dared. The Rubicon has been crossed.”
— Eric Sprott, Shree Kargutkar, “Caveat Depositor”
The crossing of the Rubicon into the confiscation of depositor funds was not a one-off emergency measure limited to Cyprus. Similar “bail-in” policies are now appearing in multiple countries. (See my earlier articles here.) What triggered the new rules may have been a series of game-changing events including the refusal of Iceland to bail out its banks and their depositors; Bank of America’s commingling of its ominously risky derivatives arm with its depository arm over the objections of the FDIC; and the fact that most EU banks are now insolvent. A crisis in a major nation such as Spain or Italy could lead to a chain of defaults beyond anyone’s control, and beyond the ability of federal deposit insurance schemes to reimburse depositors.
The new rules for keeping the too-big-to-fail banks alive: use creditor funds, including uninsured deposits, to recapitalize failing banks.
But isn’t that theft?