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Yesterday, as an act of protest against austerity measures and the economic crisis, Dimitris Christoulas, a 77-year-old Greek pensioner, shot himself in the middle of Syntagma Square, outside the nation’s parliament. On him was found a suicide note encouraging Greeks to rise up. By the evening a crowd of thousands had grown in the park chanting “this was no suicide, it was a state-perpetrated murder”, with some battling riot cops. His action wasn’t unique, recent data shows a 18 percent increase in Greek suicides in 2010, and a 25 percent increase in Athens last year. Italy, too, has been witnessing this horrifying trend, with three high-profile suicides this week over personal financial nightmares, following two people who set themselves on fire last week.
These tragedies give a glimpse into the hellish personal conditions spawned by recent cuts, and the anger that’s brewing as a result. Youth unemployment has passed 50% in Spain and Greece, the highest numbers seen in over a decade. With welfare and other safety nets the axe, many are left with nowhere to turn.
Many have mused Mr. Christoulas’ death or one like it will have effects like that of Mohamed Bouazizi, a young Tunisian fruit-seller who set himself ablaze in front of government offices last January, sparking a revolution in Tunisia and arguably the Arab Spring itself. More protests are planned today in Syntagma Square.
Yesterday also marked a grim day of financial self-destruction as worldwide markets suffered their second-worst day this year so far, especially Europe. Since the lows of late last year most markets have been rebounding with a vengeance since then, with some gaining around 30% or more in value. This has had many analysts shaking their heads, arguing that nothing’s really changed underneath all the newly found enthusiasm and hype. Governments and central banks have been pumping the economy with printed money (“liquidity”, bailouts etc) for years now, and selloffs yesterday were sparked on both sides of the Atlantic when hints were dropped that they might not keep doing it. While it’s true that some economies (particularly on this side of the Atlantic) are seeing some signs of cautious improvement, there’s still a lot to be worried about in Europe and Asia, as well as again-rising oil prices, one of the main catalysts for the last collapse. Beneath all this are a few scary trends, like record-low volatility, a rise in insider-selling (corporate leaders selling their own stock) and the recent rapid fall of results vs. expectations (“the economic surprise index“). Of course predicting and analysing markets will always be a bit like astrology, but there are more than enough reasons to be concerned here. Another crash right now could spell disaster for many.
Austerity is only beginning, but it’s already proving to be a social and economic nightmare. It’s one thing to impose cuts on a populace which holds rallies and marches in opposition. It’s another to keep doing it when people start killing themselves in public squares as acts of protest. This is the worst crisis Southern Europe has suffered since the wake of WWII, and many elderly folks are now drawing parallels to the fascist dictatorships which they lived through in their youth. The region is a powder-keg, and if its rulers don’t change course it’s going to explode.
“The Tsolakoglou government has annihilated all traces for my survival, which was based on a very dignified pension that I alone paid for 35 years with no help from the state. And since my advanced age does not allow me a way of dynamically reacting (although if a fellow Greek were to grab a Kalashnikov, I would be right behind him), I see no other solution than this dignified end to my life, so I don’t find myself fishing through garbage cans for my sustenance. I believe that young people with no future, will one day take up arms and hang the traitors of this country at Syntagma square, just like the Italians did to Mussolini in 1945.”
Dimitris Christoulas’ Suicide Note
To sum up the last 24 hours we’ve seen a fall of 2-4.5% around the globe in the world’s markets. After last week’s similar tumble, things are not looking good. As the European Markets are now opening and again falling, we’ll see how far this madness can go.
Viewing the longer-term trends of months and years, it looks fairly clear that we’ve entered a period of intense “volatility”. This may be a warning sign of a far worse crash to come, or it may signal the beginning of a slower, staggered fall. Where or when this might bottom out is anyone’s guess, but I highly doubt yesterday was it.
The risk now is that people are expecting a crash. Rest assured, plans are quietly being made to ‘liquidate’ fortunes at the first sign of serious trouble. Many doubtlessly already have been, and that’s likely a major driver behind these sudden drops. These plans can’t be shared (that would defeat the point), and “trouble” is highly debatable. As a result, nobody really knows where the “tipping point” lies which will drive the crowd off the cliff.
All of this might be thoroughly entertaining if the homes, incomes and livelihoods of billions of people weren’t at stake.
This week the world inched fatefully closer to economic apocalypse. All week, the world’s markets have been jumping up and down like a pile driver operated by a speed freak. Of course there’s no way of telling if or when a total cataclysmic crash might take place, but it’s clear that we can no longer discount the possibility. When markets crashed in 2008, much of the world was caught off guard as almost nobody (in the mainstream) dared predict it. If another crash comes now, it may well be (in part) because everyone is expecting it. Doom and gloom prophecies which were once limited to the “fringes” of anarchists, conspiracy theorists and peak-oilers, are now front and centre in much of the business press.
Many people are very angry, especially at Standard & Poor’s for sparking the sell-off by downgrading America’s credit rating. There’s even talk of official inquiries. And while I have no love for S&P, I have to say I’m not convinced. Obama may insist that America is “really” worthy of a AAA rating, but is it? The financial leaders of the US are now learning what it’s like for the rest of us. Credit ratings are set in arbitrary ways by unaccountable institutions, and aren’t always fair. They can destroy your ability to get out of a bad spot, and there’s rarely much you can do about it. Why is a downgrade such a frightening notion? Because for a few decades now, America has run a hefty trade deficit with the rest of the world, and their main export has been money. Their size, might and various post-war treaties granted their dollars special status as a de-facto global currency. If the value of US dollars or bonds comes into question, so does the global economy.
This notion has come up a few times in the last decade, with the most common “solution” involving replacing it with the Euro. This is no longer an option – America may have a bit of a debt crisis on its hands, but the EU now has half a dozen. Nor would Chinese money be a solution, given their current inflation crisis. The ugly truth is that we are now all too integrated for a purely regional crisis.
The other convenient demon for the recent sell-off would be the debt ceiling debate amongst America’s Government. There’s no doubting that this spectacle was shameful, childish and unbelievably irresponsible. Spending two weeks threatening a nation and the globe that you’ll default on your debts over petty policy disputes virtually guarantees that somebody’s going to declare you a “credit risk”. Some have gone so far as to call it a “the Tea Party Downgrade”, though there’s more than enough blame to go around. What the Tea Party did was prove their unparalleled ability as a vocal minority to push this brinksmanship even further to suit their own twisted beliefs. If the recent Wisconsin protests were a demonstration of how little popular support they actually have, the debt ceiling row was a show of how much influence they hold among policymakers.
With the G7 pledging to preserve ‘liquidity’ and the Fed promising not to raise ultra-low interest rates for at least another two years, there’s little doubt that bailouts are still on the agenda. Have we learned nothing from the last three years? Using public money to prop up private failures has only made the situation far worse, engendering “austerity” measures we clearly can’t afford, and generating no end of civil strife.
It’s time to be honest – there is no easy answer here. Speculators, hedge fund traders or irresponsible bankers might not have helped, but this crisis runs much deeper. The fact that the Tea Party or Greek Parliament can bring us this close to a meltdown only goes to show how much pressure is building.
What will come of all this? Consistent market failures demand a system change or face collapse. People have been predicting the collapse of capitalism since at least the time of Marx, and we haven’t seen it yet. Markets have imploded many times, but in the end there’s still governments to bail them out. After the last time, the word “socialism” was thrown around often, but no real spreading of wealth or sharing of resources took place. The largest corporations are now more profitable and consolidated than ever. What’s evolving in America is much like China – a wholesale breakdown of the (thin) boundaries between businesses and government – threatening rise of a more blatant type of technocratic rule. How far would those with power go to keep it? As far as they feel they need to.
If we can’t start talking seriously about alternatives now, then when?
As of this writing, the NYSE has fallen, in a week, nearly halfway from it’s high of the last year to the low, and there’s fears that it may not stop soon. Losses of 2-3% a day on the TSX, NYSE and S&P 500 are beginning to add up. This comes on the heels of Standard and Poors downgrading the American national debt from triple-A (the highest rating) to AA, as well as the ongoing European debt crisis.
Obama plans to go on the news at 1pm to talk about the economy and Afghanistan. The EU has already begun buying bonds to attempt to stave off crisis, and the G7 announced last night that it’s ready to “pump liquidity into markets” and do “whatever is necessary” to “maintain stability”. It’s beginning to look a lot like 2008 all over again, and though a cataclysmic crash may not come today or tomorrow, the past week’s chaos only goes to show how close one could be.
The emerging crisis is spurring more than a little bit of discord amongst the ruling classes. Many are attacking S&P for their downgrade of America’s credit rating (and now a wide range of others). Others, though, are pointing out the unbelievably embarrassing debt-ceiling debate the other week as evidence that it was justified. Some have even called it “the Tea Party downgrade”. European nations are turning on each other over the issue of bailing out poorer economies and putting Germany at odds with the poorer nations over debt repayment. Bank of America is sinking like a rock, and Obama’s on any time now. Can he turn this around? And if so, for how long?
Update: Obama finally came on, nearly an hour late (boosting markets slightly from their hour he was MIA). His speech could be defined, in precise economic terms, as “drivel”, making claims such as “the markets still believe we’re AAA” and “our problems are immediately solvable, and we know what we need to do to solve them”. Bold words for a man talking while the NASDAQ is down over a hundred points, and the NYSE well over three hundred down. The market has resumed dropping since.
Update 2: Markets are now closed, having suffered fairly steady losses through the day. Obama’s speech was widely received exactly like above, and did nothing to stop the crash. Markets dropped 4-7% in New York, Toronto and London, leaving many wondering how tomorrow will play out. Remember it’s only an hour or so now before Asian markets start opening, and after they close; Europe. By the time we wake up tomorrow morning, this situation may have gone a long way towards getting better – or worse.
Many of us have always been sceptical of emissions trading schemes. Stock, futures and currency markets are so full of speculation, manipulation and outright abuse that it’s hard to imagine such a system ever doing something meaningful about Climate change.
The idea simply raises too many questions. Essentially, it privatises pollution in which the legal right to pollute can be bought and sold. Who gets the privilige of spewing greenhouse gasses? Like any kid of private property, the issue of “who gets it first” is essential. Do we award these credits to big polluters based on current emissions? If we do, is that not essentially paying them for being the worst culprits?
The European Union’s markets have not been doing well. Most recently, traders have been outraged at poor press releases by the EU as to policy (which types of emmissions would be banned, and when) which caused some of the biggest swings in carbon price ever. Worse yet, a rash of digital thefts in Eastern Europe have pocketed tens of millions worth of credits. The term “Mickey Mouse Markets” is being thrown around, and I don’t blame anyone who uses it. If not even the traders are happy here, then why are we still embracing this ridiculous notion?
Carbon-trading markets represent everything which is wrong with the modern use of the term market. Every aspect of these markets is crafted by governments and corporations to reflect their interests, and create a playing field in which they can still maintain control. What is bought, sold and traded is not real goods, but state-enforced control over production processes (their emissions). There’s nothing free or fair about the trade that takes place on carbon markets – any more than there is on currency or stock markets. You can never have free or fair trade when some players start out with thousands more chips than others.
If people can’t recognize the economic incentives to not pollute which already exist, a pittance from carbon markets won’t change anything. I’d love to be paid for riding my bike instead of owning a car, but in reality, I am. It saves me the better part of a thousand dollars a month. Pollution does’t happen by accident – it happens because twisted regulation schemes of “property ownership” promote it. And another one of these twisted schemes isn’t an answer.