Exactly the opposite

Excessive lending, enormous public debt, huge public employees? salaries, all of these factors have been targeted worldwide as reasons for the economic crisis.

The truth, in fact, is exactly the opposite.

These key factors: excessive lending, enormous public ? and private ? debt, and the huge salaries of public employees, have actually postponed the raging of the crisis for a long time. These factors concealed the fact that the economic system was unable to grow without borrowing, and unable to function without artificially high wages reinforcing demand and keeping the market moving. They concealed the inability of the system to provide consumption and employment to present generations without debting the future ones; without colonizing the future (Academic Fotis Lysandrou).

The supporters of austerity claim that the salaries in the Public sector are unacceptable and provocative. And I would add, even more so in the banks (something they forget to mention with banks being private) and in the big private enterprises. The question they do not dare touch however, is how, after the restoration of a fairer distribution of income, the system can pull into growth orbit again.
Depriving the market of all this purchasing power, how does the system restart?

“The recovery of the economy on much healthier and viable basis will be achieved if there is a correction of the two very basic problems, which are the imbalances of public finances and the thoughtless and without targets credit expansion, which undermined the growth potential? was declared by Finance Minister Charis Georgiades. This position has been repeated again and again by numerous officials and Mass Media.

The truth however, is exactly the opposite. It is the ?imbalances of public finances and the thoughtless and without targets credit expansion? that kept the world as well as the Cypriot economies in a functional state; thoughtless, without targets, ?dirty? policies, which incorporated a host of financial games and methods. These methods in Cyprus took the form of fooling and maneuvering the rest of Europe; done by offering Russian deposits (huge deposits of unknown origin) a 2% higher interest rate than depositors could find in the rest of Europe (this fact may be a possible explanation for the ?punishment? that the Europeans imposed on Cyprus through the haircut of deposits). These huge deposits, which kept the economy moving by reinforcing the bubble in real estate (the banks in reality were ?begging? customers to borrow money, as a result of the huge deposits they had accumulated); by supporting the economic activity through lending, through thoughtless and without targets credit expansion.

But now, how could the economy ? after the burst of the ?banking bubble?: in the USA with the collapse of Lehman Brothers in 2008, or in Cyprus with the collapse of Laiki and Bank of Cyprus in 2013 ? move back into growth mode, either in Cyprus or elsewhere?
Joseph Stinglitz, a Nobel Lauriat and ex-Chief economist of the World Bank, while commenting on European affairs expressed the conviction that the policies of austerity are a recipe for suicide.

As recently concluded by the IMF, austerity measures contribute to the deepening of the recession when they are simultaneously imposed in numerous countries. The International Monetary Fund?s top economist [Olivier Blanchard] acknowledged that the fund blew its forecasts for Greece and other European economies because it did not fully understand how government austerity efforts would undermine economic growth.

Austerity measures have already proved to be a disaster everywhere they have been imposed. They annihilate the market and reinforce the decline, resulting in a bigger debt burden. This is one of the outrageous facts of the crisis; (a truth that is being hidden by the establishment and the mass media) in a time where people are being severely deprived of basic means of survival and are reaching the limits of desperation just for the sake of repaying debt, the very same debt burden is increasing.

The latest statistics of Eurostat depict an increase of public debt, for the 2nd quarter of 2013, in Cyprus, Greece and the Eurozone. At the end of the 2nd quarter of 2013 the public debt of Cyprus rose to 98.3% of the GNP, from 83.1% at the end of the 2nd quarter of 2012. During the same period, the public debt of Greece rose to 169.1% of GNP, from 149.2%, and in the Eurozone to 93.4% from 89.9%.

All of the officials in the right wing spectrum, but also officials of the whole political spectrum in general, who support the austerity policies, using a host of witticisms ? whether consciously or out of ignorance-will soon be exposed irrevocably and put aside.
At the same time the suggestion for reverting to the national currencies, which is the basic alternative that has been suggested by the Official Left, at least in Cyprus, is equally a path to disaster.

The crisis has been looming for decades, and the trigger for its outbreak was given by the collapse of the colossal financial institution ?Lehman Brothers? in 2008, in the USA. In a matter of days the World Financial System was blocked, exposing most of all, the unbelievable, without precedent in history, interdependence of the national economies worldwide.

Reverting to the national currencies has only but the aim of devaluating the currency so as to make ones products cheaper in comparison to foreign products. However, it is beyond the boundaries of even fantasy for someone to hope that there can be a national solution, or that one could find a way to pull their country back into growth orbit again in a world where surrounding countries are in free fall.

The World system is exhausted, possessing no potential whatsoever for entering a developing mode again. This will be the most brutal, tragic truth which will be reconfirmed again and again during the entirety of the coming period.

 

Soteris Vlachos

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