Five-day chart of major financial indexes as of 11:40 a.m. May 25, 2010. (source: Google Finance)

The Financial Times and New York Times are reporting large selloffs today in Asian and European markets, and they’re expecting the tidal wave to hit the US markets this morning. Pre-market futures are in negative double digits, so it looks nasty.

Markets are apparently spooked by continuing belligerence from North Korea towards the South — which is probably solvable — and declining confidence the Europeans have sorted out how to prevent a lending freeze up while the IMF and Euro-based governments are telling their citizens they have to accept wage and benefit cuts and other drastic austerity measures.

We’re watching a huge mess unfold that seems likely to affect us too. This is hardly my area, but the “smart people” out there are telling us the countries on the Euro have an inherently unworkable system: they share a common currency, but don’t share a common fiscal/budget system or sufficiently integrated central governing system. We do.

Unlike the US, Greece and Portugal and Spain can’t print their own dollars/Euros, so their Ben Bernankeopoulus can’t easily drop Euros out of a helicopter to stimulate their economies. Their economies are in the tank for reasons familiar to the US — e.g., huge housing bubbles that burst (Spain), out-of-control financial dealings by the largest banks, and lack of competitiveness (Greece). The resulting great recessions are driving huge budget deficits as each government receives less tax revenues but must pay out more for safety net services. It’s like California, but without a federal stimulus plan.

So their budget deficits relative to their respective GDP’s are scaring their own Pete Petersons; they’re the bankers/bond holders who would lose a bundle if any government defaulted on its debt. Just like here, there’s a plague of these people worried that weaker governments might default on their own debts, and that would be bad for bond holders and other lenders, including all the banks. Sound familiar?

Save the Euro! Save Europe! Only what they really mean is Save the banks! Save the bond holders!

Two weeks ago they agreed to have IMF and the European Central Bank (ECB) do what Hank Paulsen, Bernanke and Geithner did in 2008 and into 2009: create a massive fund of hundreds of billions of Euros to buy sovereign debts and backstop bank assets, and try to convince the “bond vigilantes” betting against them that they’re not going to let the system crash.

And who will pay for this save-the-creditors strategy and the governments behind them? Well, the folks rioting in Greece seem to think they are about to get the shaft but no better future. So instead of creating stimulus packages to pump their economies back into growth, or forcing the creditors to take a haircut (that’s called “restructuring”), Europe’s financial elites have decided to impose severe austerity on national budgets and ordinary people. Because, you know, their wages and benefits are too high to be competitive, and they don’t work hard enough or long enough. And all those safety net programs that serve to allocate wealth more equitably and avoid poverty for millions? Too extravagant. Down with socialism!

Take a close look at this, because that’s exactly how the folks on the President’s cat food commission think and how the Peter Peterson staffers that support it want you to think. If you’re just plain folks, you life is too good, and if we try to sustain you in the declining middle class to which you’ve become accustomed, then the financial sector can’t possibly make as much by looting the nation’s wealth and your retirement. Down with Social Security!

So let go of those unions and decent wages; forget about retiring early, and stop complaining about your lack of affordable health care and the fact the richer are still getting richer and have seized an even bigger piece of the pie.

It would be irresponsible to ask the privileged to sacrifice, and we can’t possibly stay safe unless we’re bombing a dozen countries at once. It’s time we looked out for those bond holders.

More/related:

Financial Times: Summers calls for new mini-stimulus

NYT: Obama asks for authority to cut items on spending

Baseline Scenario/Simon Johnson, The road to economic serfdom

Grasping Reality/Brad DeLong — explains Larry Summers to WaPo’s Dana Milbank

The Financial Times and New York Times are reporting large selloffs today in Asian and European markets, and they’re expecting the tidal wave to hit the US markets this morning. Pre-market futures are in negative double digits, so it looks nasty.

Markets are apparently spooked by continuing belligerence from North Korea towards the South — which is probably solvable — and declining confidence the Europeans have sorted out how to prevent a lending freeze up while the IMF and Euro-based governments are telling their citizens they have to accept wage and benefit cuts and other drastic austerity measures.

We’re watching a huge mess unfold that seems likely to affect us too. This is hardly my area, but the "smart people" out there are telling us the countries on the Euro have an inherently unworkable system: they share a common currency, but don’t share a common fiscal/budget system or sufficiently integrated central governing system. We do.

Unlike the US, Greece and Portugal and Spain can’t print their own dollars/Euros, so their Ben Bernankeopoulus can’t easily drop Euros out of a helicopter to stimulate their economies. Their economies are in the tank for reasons familiar to the US — e.g., huge housing bubbles that burst (Spain), out-of-control financial dealings by the largest banks, and lack of competitiveness (Greece). The resulting great recessions are driving huge budget deficits as each government receives less tax revenues but must pay out more for safety net services. It’s like California, but without a federal stimulus plan.

So their budget deficits relative to their respective GDP’s are scaring their own Pete Petersons; they’re the bankers/bond holders who would lose a bundle if any government defaulted on its debt. Just like here, there’s a plague of these people worried that weaker governments might default on their own debts, and that would be bad for bond holders and other lenders, including all the banks. Sound familiar?

Save the Euro! Save Europe! Only what they really mean is Save the banks! Save the bond holders!

Two weeks ago they agreed to have IMF and the European Central Bank (ECB) do what Hank Paulsen, Bernanke and Geithner did in 2008 and into 2009: create a massive fund of hundreds of billions of Euros to buy sovereign debts and backstop bank assets, and try to convince the "bond vigilantes" betting against them that they’re not going to let the system crash.

And who will pay for this save-the-creditors strategy and the governments behind them? Well, the folks rioting in Greece seem to think they are about to get the shaft but no better future. So instead of creating stimulus packages to pump their economies back into growth, or forcing the creditors to take a haircut (that’s called "restructuring"), Europe’s financial elites have decided to impose severe austerity on national budgets and ordinary people. Because, you know, their wages and benefits are too high to be competitive, and they don’t work hard enough or long enough. And all those safety net programs that serve to allocate wealth more equitably and avoid poverty for millions? Too extravagant. Down with socialism!

Take a close look at this, because that’s exactly how the folks on the President’s cat food commission think and how the Peter Peterson staffers that support it want you to think. If you’re just plain folks, your life is too good, and if we try to sustain you in the declining middle class to which you’ve become accustomed, then the boys in the financial sector can’t possibly make as much by looting the nation’s wealth and your retirement. Down with Social Security!

So let go of those unions and decent wages; forget about retiring early, and stop complaining about your lack of affordable health care and the fact the richest are still getting richer and have seized an even bigger piece of the pie.

It would be irresponsible to ask the privileged to sacrifice, and we can’t possibly stay safe unless we’re bombing a dozen countries at once. It’s time we looked out for those bond holders.

More/related:
Financial Times: Summers calls for new mini-stimulus

NYT: Obama asks for authority to cut items on spending
Baseline Scenario/Simon Johnson, The road to economic serfdom
Grasping Reality/Brad DeLong — explains Larry Summers to WaPo’s Dana Milbank
Naked Capitalism/Edward Harrison, CajaSur nationalization shows weakness of Spain’s banks

Scarecrow

Scarecrow

John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley