Article from the excellent political economy blogger Zoltan Zigedy http://zzs-blg.blogspot.ie/2014/09/the-chronic-crisis-with-worse-to-come.html Looking back on the ten years following the 1929 stock market crash, Marxist economist and Science and Society co-editor, Vladimir D. Kazakevich, wrote of the “chronic crisis” that persisted throughout the nineteen thirties in the US (“The War and American Finance,” Science and Society, Spring 1940). Kazakevich drew
There is a growing campaign in the US backed by US President Obama to restrict the increasing use of tax havens like Ireland by US TNC’s. The campaign is gathering traction as the administration seeks popular issues ahead of the next elections. This issue may also feature in the ongoing TTIP negotiations between the US
Costas Lapavitsas: Reversing privatisation and re-establishing public ownership over key areas of the economy would directly reduce the room for financialisation. It would also provide a broader basis for public investment and the systematic creation of employment. The structural problems within the UK and other mature economies were brought to the surface during and after
Article from the excellent political economy blogger Zoltan Zigedy
There is a growing campaign in the US backed by US President Obama to restrict the increasing use of tax havens like Ireland by US TNC’s. The campaign is gathering traction as the administration seeks popular issues ahead of the next elections. This issue may also feature in the ongoing TTIP negotiations between the US and EU.
Below is a recent article from the NYT that give a sense of the issue.
White House Weighs Actions to Deter Overseas Tax Flight
WASHINGTON — The Obama administration is weighing plans to circumvent Congress and act on its own to curtail tax benefits for United States companies that relocate overseas to lower their tax bills, seeking to stanch a recent wave of so-called corporate inversions, Treasury Secretary Jacob J. Lew said on Tuesday.
Treasury Department officials are rushing to assemble an array of options that would essentially wipe out the economic incentive for the deals, Mr. Lew said. No final decision has been made.
“The question is, Can we do enough that it will materially change the economics of inversions so that companies will make different decisions?” Mr. Lew said in an interview. “The things we are looking at look to me like they could very materially change the economics of inversions.”
The action comes in the face of a recent increase in United States companies reaching deals to reorganize overseas, creating an explosive political issue that Mr. Obama has called a lack of “economic patriotism.” Investment banks have been counseling companies to pursue such transactions because of the potential tax benefits. Two large United States pharmaceutical companies — the drug giant AbbVie, based in Illinois, and the generic manufacturer Mylan, based in Pennsylvania — agreed to such deals last month. The Walgreen Company, owner of the drugstore chain, considered using an inversion but was unable to follow through.
“Time is of the essence,” Mr. Lew said. “We are looking at a very long list of possible ways to address the issue.”
It would be the latest move by the Obama administration to use its authority to act where Congress will not. A provision in the president’s budget would have effectively banned inversions, and Democratic lawmakers have introduced legislation to halt or suspend them. Still, while some Republicans say they want to address the issue, there has been little bipartisan agreement on how to do so.
While Mr. Lew said legislation was the “best solution” to addressing the issue, the recent flood of inversions has persuaded Mr. Obama’s team that a quicker response may be necessary. A Bloomberg analysis estimated American companies are parking as much as $2 trillion in cash overseas.
“If Congress doesn’t act, we can’t wait for months or years to go by and just watch companies make decisions as if nothing will change,” Mr. Lew said. Josh Earnest, the White House press secretary, told reporters on Tuesday that Congress should “take action on this quickly,” sidestepping questions on whether the administration would act unilaterally if Congress did not.
Mr. Lew said his “goal is actually to change what’s happening out there.”
“Putting companies on notice is, I think, part of it,” he said.
Tuesday morning, a group of Democratic senators called on President Obama to act on his own authority. “The coming flood of corporate inversions justifies immediate executive action,” they said in a letter, spearheaded by Senator Richard J. Durbin of Illinois, the No. 2 Democrat, and signed by Elizabeth Warren of Massachusetts and Jack Reed of Rhode Island.
If Treasury pursued unilateral action, there could be at least some retroactive effect because new limits would be placed on the transactions of inverted companies. Inversions could still go through, but depending on when new rules were issued, the tax strategies that made the mergers seem lucrative might be severely limited.
Mr. Lew said last month that he did not think he had power to act alone to stop the practice, but administration officials say they believe they have many more options to limit the kinds of transactions inverted companies typically use.
“They want to do it,” Senator Charles E. Schumer, Democrat of New York, said in an interview last week. “The president really dislikes the inversions, and if they feel they have a strong legal ability to do it, they will.”
With the size and pace of deals accelerating, policy makers have intensified their efforts to find ways of countering the practice, spurred in part by the fact that Walgreen had discussed it as part of a buyout of the British chain Alliance Boots.
Walgreen’s consideration of an inversion “tipped the scales to show that this is a slippery slope of inversion deals continuing and increasing in size and number,” said Nell Geiser, the associate director of retail initiatives at Change to Win, the organized labor-backed consumer advocacy group. She said the company would have faced “extreme consumer backlash” if it had made the move overseas.
It’s also a politically opportune time for the president to focus on the issue, as he works to contrast his economic vision with that of Republicans in advance of the midterm congressional elections.
The president highlighted the issue in a recent speech in Los Angeles in which he questioned the patriotism of companies that inverted for tax purposes.
“I don’t care if it’s legal. It’s wrong,” the president said. “You shouldn’t get to call yourself an American company only when you want a handout from the American taxpayers.”
Just days after the president’s speech, Stephen E. Shay, a former Obama administration Treasury Department official who now teaches at Harvard Law School, suggested in an article in the trade journal Tax Notes that it was within Mr. Obama’s power to act alone.
“I’m really concerned that we are losing a significant portion of our corporate tax base that you’re not going to get back,” Mr. Shay said.
His article referred to a section of the tax code that allows the Treasury secretary to issue rules for determining whether a given financial instrument should be treated as debt or equity. The idea would be to limit the degree to which a foreign parent company could load up a United States subsidiary with debt, which can be deducted for tax purposes, and require that any excess be designated as equity, which is not eligible for deductions.
Mr. Shay also proposed other administrative moves to reduce the use of offshore earnings without paying United States tax.
“They have the authority to go after those two incentives to do the deals under existing law,” Mr. Shay said of Mr. Obama’s team.
A person involved in the deals told Mr. Shay that without those two prospective benefits, 75 percent of the inversions underway would not occur.
Costas Lapavitsas: Reversing privatisation and re-establishing public ownership over key areas of the economy would directly reduce the room for financialisation. It would also provide a broader basis for public investment and the systematic creation of employment.
The structural problems within the UK and other mature economies were brought to the surface during and after the crisis of 2007-9. This paper argues that these problems are inherent to contemporary mature capitalism and have to do, primarily, with financialisation. The exceptional rise of finance in terms of size and penetration across society, the economy and the policy process, is apparent to all. The rise of finance is a sign of a fundamental transformation of mature capitalism within commercial and industrial enterprises, but also banks and perhaps most strikingly, within households.
The period of financialisation, lasting from the 1970s to the present day, has also wrought profound changes to the social structure of contemporary capitalism. It has been a period of extraordinary income inequality, wiping out all of the gains that came in the period following the Second World War. This paper notes that the ability of the rich to extract enormous incomes has been associated with the financial system. Inequality is a characteristic feature of financialisation.
Financialisation has been marked by the ideology of neoliberalism, promoted by universities, think-tanks and a variety of other institutions. Neoliberal ideology ostensibly treats state intervention in the economy with extreme suspicion, but the reality has been very different. The financialisation of mature economies would have been inconceivable without the facilitating and enabling role of the state.
The full paper can be read at http://www.researchonmoneyandfinance.org/images/uncategorized/Lapavitsas_state_finance.pdf
This is a great article on how capitalists have taken advantage of the crisis they helped create to make more money at our expense while also prolonging and deepening stagnation in the system. But more important than money is the power that they are accumulating throughout this crisis which maintains their position of dominance at all levels of society.
The ultimate goal of modern capitalists – and perhaps of all capitalists since the very beginning of their system – is not utility, but power. They are driven not to maximize hedonic pleasure, but to ‘beat the average’. This aim is not a subjective preference. It is a rigid rule, dictated and enforced by the conflictual nature of the capitalist mode of power. Capitalism pits capitalists against other groups in society, as well as against each other
Read the full paper at http://www.paecon.net/PAEReview/issue66/BichlerNitzan66.pdf
The crisis of 2007/08 has generated many anomalies for conventional economic theory, not the least that it happened in the first place. Though mainstream economic thought has many channels, the common belief before this crisis was that either crises cannot occur (Edward C. Prescott, 1999), or that the odds of such events had either been reduced (Ben Bernanke, 2002) or eliminated (Robert E. Lucas, Jr., 2003) courtesy of the scientific understanding of the economy that mainstream theory had developed.
Read the full article at http://www.paecon.net/PAEReview/issue66/Keen66.pdf
By Ronan Burtenshaw
Taken from http://concreteradicality.wordpress.com/2014/07/31/argentinas-default-finance-decides-the-population-abides/
Today a vulture fund based in the Cayman Islands representing a tiny, super-wealthy élite has thrown an economy serving 43 million people into chaos.
In 2001, with the country in crisis, NML fund bought bonds from Argentina. Their strategy was to acquire defaulted sovereign debt issues at a very low price, only to later demand the totality of the payment via a judicial process. Their mark-up today would be 1,608%.
In the period since, between 2005 and 2010, over 92% of bondholders with this debt restructured. But the vulture funds held out. As Argentine Economy Minister Axel Kicillof said, “the vulture funds don’t negotiate: that’s what makes them vultures.”
The case went to the US Supreme Court, with Argentina arguing that a pari passu clause meant that they could not advantage certain bondholders over others. Unsurprisingly, because it is a den of financial interests, the US Supreme Court ruled in favour of NML and ordered Argentina to repay the full $1.3billion. This created a precedent that opened Argentina up to a further $15billion in debt repayments, which would have wiped out most of the state’s dollar reserves.
As the European Nordic and Green Left statement this week said, “The recent decision of the Supreme Court of the US not only creates difficulties – or perhaps makes it impossible – for Argentina to continue servicing its restructured debt, it also strikes at the stability of the international financial system in as much as it constitutes a precedent that can hinder other sovereign debt restructuring processes in the future. Because, if during a voluntary negotiation such as the one Argentina carried out, in which more than 92% of its creditors agreed to swap their defaulted debt (for new bonds with a considerable haircut), any creditor can demand and charge the total owed on that debt, what are the incentives to enter into a similar restructuring in the future?”
This forms part of an international régime, from the US to Europe and beyond, where the interests of private finance are placed above all others in the economic sphere. The refusal to create any sensible mechanisms for resolution or negotiation at an international level – let alone a collective action clause that might force holdout minorities to accept widely negotiated terms – is a symptom of the dictatorship of the markets over our societies. As was the case when Ireland was warned that “a bomb would go off in Dublin” if senior Anglo-Irish bondholders were not repaid. We are living in an era of gunboat democracy – where finance decides and the population abides.
There may soon be a challenge to this régime in Greece, where Syriza are favourites to win the next general election and promise to fight for a renegotiation of the EU-IMF memorandum and a restructuring of sovereign debt. There had been hope that the risk of contagion from a Greek unilateral default would force European Union policymakers into accepting a deal – but this Argentine situation is a bad omen. International financial interests, with the connivance of complicit states and transnational bodies, have threatened an entire region with a lost decade. They have done this for the sake of a principle, that the interests of private finance must come first. And for a sum of $1.3billion. Greece’s sovereign debt is around $480billion.
After the US Supreme Court’s decision Argentine President Cristina Kirchner made a speech discussing the state’s history with debts imposed by international finance and enforced by the west – it could be translated to most Latin American states. She said that debt had been “without a doubt the most powerful trap we had been in keeping us from growth, the development of Argentina, it created poverty, backwardness, homelessness, a lack of infrastructural development, investment in education, in science.” She detailed the cycles of debt crises which have plagued the country since the 1970s, finishing each with an explanation of how it led to the next and the words, “but that wasn’t the end”.
The states of peripheral Europe are now in a similar cycle. As Oscar Guardiola-Rivera remarked in 2011, Europe has colonised itself. These same processes of debt penury, austerity, financial crisis and forced under-development that Europe once imposed on Latin America and South-East Asia have, since 2008, returned closer to the core – to Greece, to Italy, to Spain, to Portugal, to Ireland.
There are examples in states like Ecuador of how to break free from this cycle, but it requires negotiation. By forcing a default international finance is now delivering a message to Latin America through Argentina: sovereignty will not be allowed. With the Greek situation lurking around the corner, the states of the European periphery should take note.
The most recent IDA Annual Report 2013 provides a number of valuable insights into the nature of FDI in Ireland. Where is it from, in what sectors is it, how much tax does these companies contribute, how much does the State subsidies each job, how much do the companies contribute to the national economy and much more. Some highlight stats below but the report is worth checking out.
The CSO’s latest figures show GDP is up 2.7% for the first quarter in 2014, compared to the last quarter of 2013, while GNP is up a mere 0.5%. GNP, the more accurate reflection of the Irish economy, shows the continued stagnation that reflects personal expenditure being down 0.1% and capital investment down a whopping 8.1% and Government expenditure down 2.1%.
But the bigger news is that the CSO from June on will include illegal black market activity, like drugs money, in GDP figures. This follows changes elsewhere in Europe as countries desperately seek to create the impression of a recovery and meet their EU imposed targets.
Is this really the recovery working people need? And do the State think they can con their way into meaningful growth? Of more importance, however, is that while GDO slowly picks up reflecting the profits of MNC’s and capital transfers in and out of the country, GNP remains poor.