By Nomi Prins
As newly resigned International Monetary Fund head Dominique Strauss-Kahn (aka DSK) hunkers down in his jail cell, IMF news has fallen into two categories. The first involves salacious details of his alleged attempted rape, and the second, questions about whether his absence will keep the IMF from its main focus of constructing pro-bank bailout packages for Greece, Portugal and other struggling European countries. Both categories miss the devastation the IMF causes, regardless of who heads it.
Meanwhile, the global economic assault caused by the misguided IMF and EU notion that public spending cuts and national infrastructure fire sales should be enacted to make up for bank rampages marches on. Rather than clamping down on banks and working on debt reduction strategies, bailout loans remain designed to keep banks solvent, investors shielded from loss, and outside buyers interested.
Though he had designs on leading France—from the socialist side, no less—DSK is nothing more than a proponent of very nonsocialist measures when it comes to other countries. His actions at the IMF speak louder than any words to the contrary.
It doesn’t matter whether DSK or anyone else from the euro power contingent heads the IMF; its practices will remain the same. Weaker countries get economically bullied in order to benefit stronger ones through bailouts rife with measures to pound people and aid banks and international firms. For, to the IMF and European Union elite, the “confidence” of free-flowing, unencumbered capital trumps the financial security of local citizens.
That same idea is central to the big bank bailout and subsidization strategy of the U.S. Federal Reserve, Treasury Department, current and prior administrations and most of Congress. The threat in 2008? A worse crisis will occur if the financial system isn’t saved. The related threat surrounding the debt cap debate today? A worse crisis will occur if we default on the debt we created to save the financial system. As for jobs … yeah, we’ll get back to you on that.
When the pre-2008 global bank pillage hit a brick wall, governments and central banks rushed to reward banks with trillions of dollars of subsidies, using the excuse of avoiding larger catastrophe. To the powers that be, it might take time to increase employment, but no time could be wasted propping up the global financial system. In their minds, pensions and teachers cause budget failures, not debt created for banks.
Here in the U.S., the lie is that boosting banks will lead to a trickling-down economic prosperity for the greater population, despite all evidence to the contrary. In Europe, the lie is slightly different, because economic security of the population runs a distant second place to preservation of the euro as an overriding currency, meaning the repayment of debts by outer European to core European countries.
Yet, neither the IMF nor the Fed and Treasury Department strategies even attempt to target problems like raging unemployment, or renegotiating personal or small business debt from the ground up. Instead, they deign to extract more from the citizens that had nothing to do with causing the financial collapse. Austerity measures, in any form, are a cruel weapon against a public forced to be economic collateral damage to unaccountable banking systems given cheap solvency.
As here, unemployment rates in Europe have risen substantially since the global banking debacle, and ongoing protests have followed. Today, the Greek unemployment rate stands at 14.2 percent. One out of three people under 24 years old can’t find a job. In Ireland (the recipient of a harsh $133 billion bailout package that required $23 billion in pension payment cuts), the jobless rate is 14.7 percent, and, similarly, the youth unemployment rate has tripled since 2008 to more than 33 percent. Spain has the euro zone’s highest jobless rate, 20.7 percent, with youth unemployment over 40 percent. These figures are only worsening under the burden of austerity.
On Monday, the IMF and EU approved a 78 billion euro bailout for Portugal (two-thirds of it will come from public program cuts). Portugal’s jobless rate jumped to 12.4 percent. Blame for Portugal’s weak economy has been cast on a Socialist government that didn’t embrace spending cuts quickly enough. But what’s more telling than this unsubstantiated claim is that private Portuguese banks tapped their bailout government guarantees to raise cash before the ink on the bailout agreement dried.
In echoes of our own bailout, the EU and IMF were concerned that not providing banks a way to raise more money would hurt the Portuguese economy further, since banks would lend less. Yet the bailout agreement contained no requirement for banks to lend locally, instead requiring severe public spending cuts, tax hikes (on people, not international companies) and more aggressive privatization programs.
Meanwhile, thousands of people are again striking in Greece, as the IMF and EU discuss more austerity measures, and thousands more are protesting in Spain fearing the same. People don’t need cuts in social programs and wages, they need jobs. They don’t need their countries racking up more debt to sustain flailing banks or the favor of global capital markets through fire-selling their infrastructure.
Last November, at the European Banking Congress and Central Bank Conference in Frankfurt, Germany, it was DSK (in a pot-calling-kettle-black sort of way) who pointed out the dangers of our own debt being so high and the necessity that the Fed bolster the dollar. That didn’t exactly endear him to Fed Chairman Ben Bernanke, who spent his speech defending QE2 and blaming dollar problems on a slowly recovering global economy, while avoiding mention of the debt-bank connection.
Avoidance, it turns out, is a useful strategy. Last week, Bernanke urged Congress to approve another debt cap increase. The Fed has amassed $2.5 trillion of debt on its books (including $1.5 trillion in treasurys shell-gamed from the Treasury Department and nearly $1 trillion of mortgage-related securities it won’t sell for fear of hurting the values of similar securities on the banks’ books). It’s being used for nothing helpful to the general economy. A simple transfer of any of it would solve the debt cap problem in a nanosecond. Going a step further, an exchange of any of the $1.4 trillion of excess bank reserves receiving interest from the Fed would do the same.
Our public debt ballooned under Timothy Geithner by more than $4 trillion. But rather than even considering taking some back from the Fed’s balance sheet, Treasury Secretary Geithner threatened to halt civil service retirement and disability payments to free up borrowing capacity, repeating almost verbatim similar threats made by John Snow, George W. Bush’s treasury secretary at the end of 2004.
This is exactly the kind of thing going on in Europe, with a mild twist. If we can’t raise enough debt for banks, we’ll take it from citizens. Even though creating debt (massive debt) for this reason has not helped the general economy, nor will it.
Meanwhile, the global “remedy” for depressed economies and debt-bloated banking sectors remains to do more of the same and pretend it will lead to a different outcome. Sadly, there is no way this strategy will result in more stable economies. What we can expect instead is a further slide into global economic depression.
AP / Shannon Stapleton, pool
Focus on DSK: Dominique Strauss-Kahn, former head of the International Monetary Fund, is seen through a video camera viewfinder at his arraignment Monday in Manhattan Criminal Court.