Journal: US Government Missing (or Obscuring) the Fundamentals


My good friend Marshall Auerback analyzes the currency/debt crisis in in EU, and explains why this creates a situation fundamentally different from that facing nations with sovereign currencies. like Britain, Japan, and United States. It is a distinction that needs to be kept in mind, if the US is have a constructive fiscal policy.

Marshall also concludes that the crisis in the Euro will not be fixed by the recently approved bailout to Greece, because there is a fundamental flaw at the heart of the EU design. His analysis leads to the following conclusion: By establishing a common currency, the individual countries have sacrificed independent monetary policy to a supranational monetary authority. This obviously sacrificed monetary autonomy, but it also paralyzed each country’s ability to run counter-cyclical fiscal policies. The only way out of the trap would be (1) to set up a supranational fiscal agency (in effect, with each member giving up de jure fiscal autonomy and placing each country’s counter cyclical policy powers under the supreme power of a supranational fiscal agency — in effect reducing each nation’s economic sovereignty to a level similar to that held by a state in the United States, or (2) or by getting out of the euro and going back to some arrangement like that of the EU prior to the adoption of the Euro — an arrangement which, readers should remember, led to enormous progress.

Auerback does not examine the political implications of Option 1 (hopefully he devote his prodigious analytical talents to this question in future), but it seems to me that, given the history of nationalism and cultural differences in Europe, Option 1 might lead to political situation somewhat similar to, if not as extreme as, that of Yugoslavia, before it disintegrated in the 1980s. The relatively rich republics of Yugoslavia (Slovenia and Croatia) resented policies that transferred of wealth to the relatively poorer republics, like Serbia, Macedonia, Montenegro, or the autonomous region of Kosovo. Once Tito’s organizing genius disappeared, the linkages stitching the country together became frayed and eventually snapped as old grievances manifested themselves in newer forms. The same type of evolution could happen to the Europe Union if it underwent a supranational fiscal union, where the rich countries feel they are being unfairly burdened — the beginnings of which are already in evidence.

The great achievement of the EU has been to reduce the probability of violent nationalist conflict among some of its members to a vanishingly small probability while improving the economic lot of its members. Most of this reduction in the propensity toward violence and economic growth took place before the adoption of the Euro. It may be that giving up the Euro is the wiser alternative in the long run, unless someone can synthesize some kind of third option.



Repeat After Me: the USA Does Not Have a ‘Greece Problem’


Friday, 05/14/2010 – 11:13 am by


NewDeal 2.0 Auerback

Journal: Critique of Government Banking Policies

03 Economy, Civil Society, Commerce, Commercial Intelligence, Ethics, Government
Chuck Spinney

President Obama has a rapidly vanishing opportunity to achieve historical greatness as a trust buster by breaking up the banks.  Trust busting is an almost risk free path to lasting respect — Teddy Roosevelt’s honored place in American history is more a result of his trust busting than his gross imperialism.

In the attached article, my good friend Marshall Auerback explains why Obama’s faux populism attacks the symptom rather than the disease now infecting our financial system.

My guess is that Obama’s “reform” policies — i.e., change we can believe in — will not even be smart politics in the long run, because at the end of the day, suckering the Tea Baggers (not to mention the so-called progressives) with phony populist appeals, while supporting cosmetic banking reforms, will alienate just about everyone except the oligarchical elites benefitting from his protectionist policies.  In this sense, Mr. Obama is rapidly becoming just another Bill Clinton, a highly intelligent, self-made man of the people who squandered his opportunity for greatness on the altar of short-sighted service to the rich and powerful.

Chuck Spinney

Full Story Online

Attack the Disease, Not the Symptoms

Marshall Auerback Jan 13,2010

Obama still doesn’t get it on how to rein in Wall Street.

Conceptual confusion remains at the heart of President Obama’s economic policy.

Who’s Who in Public Intelligence: Marshall Auerback

Alpha A-D, Public Intelligence
Martin Auerback
Martin Auerback

Marshall Auerback has 27 years of experience in the investment management business, serving as a global portfolio strategist for RAB Capital Plc, a UK-based fund management group with $2 billion under management, since 2003. He is also co-manager of the RAB Gold Fund. He serves as an economic consultant to PIMCO, the world’s largest bond fund management group, and as a fellow of the Economists for Peace and Security.  He is one of the Brainstrusters associated with New Deal 2.0 as sponsored by the Franklin and Eleanor Roosevelt Institute.

Franklin and Eleanor Roosevelt Institute
Franklin and Eleanor Roosevelt Institute

Recent Headlines:

America’s biggest economic problem? We’re all broke. Literally.

Friday, 08/7/2009 – 1:05 pm by Marshall Auerback | 1 Comment

Why Goldman still owes us

Monday, 07/27/2009 – 11:59 am by Marshall Auerback | Post a Comment

Big Banks to American Public: “Screw You”

Tuesday, 07/21/2009 – 2:59 pm by Marshall Auerback | Post a Comment