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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 27, 2011 at 9:55 AM

Looking back: Privatized profits, socialized losses

Most of the respondents to Friday’s poll said the eurozone crisis would be the event of 2011 that most of us later look back on as the most important development of the year. The jobs crisis came in second. I was a little surprised that more didn’t vote for the turmoil in the Middle East. Between Iran’s nuclear quest, the Arab Spring destabilization and Iraq quickly falling into sectarian infighting after most American troops exited, the potential consequences for oil prices are profound.

Some weren’t satisfied with any of the answers. I’ll blog on a few of their topics this week. “Mud Baby” quotes a Reuters story: “Multilateral institutions, particularly the IMF, have responded by pumping an unfathomable amount of financing into Europe [the Fed has done the same in the US]. But, instead of reversing the disorderly deleveraging and encouraging new private investments, this official financing has merely shifted liabilities from the private sector to the public sector.”

Mud Baby goes on: “This describes what is at the heart of this disaster. The private financial institutions are still running the show, and the perpetrators of the collapse are still running roughshod over everyone else (let’s call them the 90 percenters) with no end in sight. The shift this set in motion that is tilting modern society toward neo-feudalism could well be the story of our lifetimes.”

It’s a good point. Most of the advanced world is still awash in debt, obligations to pay that will never be paid, toxic assets swept under the rug and onto the Fed’s books — and Wall Street is back to its old games. One can make an argument that these aggressive monetary responses were necessary to prevent a financial collapse. But little reform followed the bailouts. And growth is too slow, and incentives too distorted, to allow the old system to wring out the bad and seed new enterprises.

Urbanist James Howard Kunstler may have it correct when he writes, “Who is still not impressed with the ability of these central banks, and their owner-operators, to keep re-circulating immense loads of notional money? Alas, every wash-rinse repeat cycle leaves the certificates a little paler and thinner, and it won’t be long before they just appear to be blank paper. But rackets as grand and insolent as these would not be possible, except in a culture so estranged from truth that anything goes over without notice.”

And Don’t Miss: Economic downturn took a detour at Capitol Hill || NY Times

Today’s Econ Haiku:

Closing stores at Sears

It’s where America shops

Not so much today

Comments | More in Bailout, Banking

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