The light at the end of the tunnel
by Francesco Cappello
PSN and tds with negative rate versus mes and RF
Choosing between the possibilities offered, on the one hand by the PSN national salvation plan , which is now flanked by negative interest rate government bonds (1), and on the other by MES and Recuvery Fund RF ( Next Generation EU ), should not be difficult. Far from it.
Statonote ( one of six PSN proposals )
If you had the opportunity to print the coin you need to make your dreams / projects come true without incurring any side effect, you would certainly prefer to get the money you need rather than borrow it, indeed, you would have no doubts about it for the simple reason that in this second case you know well that the money received on loan sooner or later you should repay it, moreover increased by interest.
Well, to be in the situation described above is nothing less than the State to which we are a part. The State can enter into the economic circuit, for all the spending needs of the country, state currency, legal within the borders of the national territory, or state notes as Antonino Galloni, president of the National Committee of Notes (CNS), prefers to call them, to distinguish them from banknotes. which have different origins. The first is non-debt money to which we are not new to having already experienced its use since 1966 (Aldo Moro government with the advice of F. Caffè). The quantity of state notes or state bills to be put into circulation is related to the needs of the state, that is to say that necessary to mobilize those unexpressed productive factors starting with the workforce no longer able to generate wealth because it is wasted in the immobilization of the state of unemployment, underemployment. unemployment etc.
Using debt money (the euro is debt money) in an always frustrated attempt to mobilize all those wasted energy and resources existing in the country that would be able to generate real wealth by finally facing that enormous amount of work that remains unfinished, an index of increasing degradation corresponds to tightening the knot of debt with which we let ourselves be hijacked. Yet there are many, too many, who insist that the right choice for the country is to continue to grow the public debt by further borrowing, a choice that if it made sense when we had our national currency, and the debt securities we proposed them only to resident subjects (not foreign as today), it is, on the contrary, at least masochistic, if not suicidal, in the current condition!
Quantitative easing at no cost to finance states
A way out able to save, at least in appearance, the pure debt economy has been proposed by Von der Lyen, Lagarde and Draghi, who, aware of the overwhelming instability that threatens that paradigm, have suggested to face the current contingency of the economic crisis, catalyzed now by the health crisis, that the ECB buys the bonds issued by public administrations and then sends them back to the national central banks to absorb them by taking them away from the market. In this way, only the interest and not the principal would be paid. Today, nation states, such as Italy, Spain, Portugal, France, can finance themselves by issuing bonds that are in fact bought by the ECB and held by their respective national central banks. The interest, even if it were positive, the state would formally pay it to its central bank which in turn would pass it on to the tax authorities. Basically a round match. The government structure of our country, however, seems oriented towards masochistic if not suicidal choices.
MESsi badly started
Conte finally begins to tell some truth about the Mes (2). " The money from the MES is loans, it cannot finance additional expenses … since I will have to repay it, it increases the public debt so if we were to take the money from the ESM, I will have to intervene with taxes and spending cuts to keep the deficit under control ". Immediately after these declarations, however, the protests of Italia viva and the Democratic Party arose.
Recovery fund
If the ESM, in fact, continues to threaten the Conte government, and above all the country, the entire government structure (excluding, at most, a minority component of the 5s, that of the virtuous 110%) insists in unison on the goodness of the Recovery Fund while Spain and Portugal reject it and France is very uncertain . This refusal is easily understood given the possibility of financing oneself on the market by placing securities, increasingly at negative rates (1); moreover, the RF conveys conditionality and unsustainable timing of donations if we consider the dramatic situation in which the country is falling at increasing speed. We call them conditionalities but they involve the systematic exhaustion of Parliament and in general of Italian politics, which with the RF agrees to delegate the country's political and economic choices to the EU. In fact, Brussels could veto any economic maneuver that intended to use those funds but was not to its liking. In fact a sort of permanent commissioner of our country.
Some might be attracted to the part of the RF that is described as a grant / grant, thinking that it is a grant. However, they derive from a refinancing of the European budget (BE) of which we have always been net contributors. If we consider the new fees necessary to refinance the BE and the amount already paid, we understand that they are trying to make the RF package attractive to us by adorning it with a poisoned meatball of about 20 billion net grants that would be made available in a variable time from five at ten years old.
SURE (3) and RF are "subsidized" loans which, fortunately, will have to be ratified by the 27 member countries which would have to accept (very unlikely) the necessary 'Eurotaxes' as a guarantee to allow the European Commission to find the sums of the various funds with the issue of common securities. Obviously, there is no facility that can outweigh the advantage of being able to independently place our bonds at a negative rate, without any conditionality, immediately obtaining the availability of the resources thus obtained (1).
The real function of those subsidized loans, if you think badly, will then be to sidetrack us once again by making us waste precious time in the wrong direction just when it would be vital to intervene promptly to help the country. Gentiloni, appears aware of the impossibility of obtaining those loans and in full coherence with the stability pact, albeit suspended, and the austerity policies, he proposed to tax the first house … The European commissioner for the economy, as a great strategist he is, rather it seems to want to facilitate the way towards the catostrofe.
MES, SURE, RF limit our audotermination and our autonomy, prevent us from taking concrete action to revive the fortunes of the country, seriously worsen our public finances.
So let's repeat the usual question: why insist with such tools? Should the RF's resources materialize, we should hope that the plans to use those loans are to their liking. It is for this reason that we enlist task forces – which rather than the interests of the country aim to satisfy those of large multinationals – with the task of establishing any spending programs ( 30 billion foreseen in the military sector alone ) in order to ensure that they can be suitable to extra-territorial governance directives that bypass Parliament … conditionalities that resemble blackmail if not real commissioners of the country, of national politics, in compliance with the two external constraints that undermine our autonomy of choice: belonging to the EU and to the Born; they force us to align our economic and social policies respectively to the reasons of German ordoliberalism and our foreign policy in the Mediterranean and in the world to US directives. (see mine There is no sovereignty without neutrality )
Do it quickly and well: know and face the state of affairs in our country
It is clear to everyone that in order to partially or fully close the activities of those who are further indebted to continue hoping, not to declare themselves defeated, bankrupt, we must think about supporting them by integrating the lost non-repayable bills, as they have done, they are doing , other countries? Is it clear to everyone that both employees and self-employed workers must be supported? Is it clear to everyone that in such a serious and unprecedented contingency the engine of recovery can only be public investments? Apparently not. Does anyone think that general bankruptcies and mass layoffs are healthy?
It rains in the wet
The economic condition in the precovid era was already tragic. Let's not forget (see my redundancies and scrapping. What to do? ). Almost 5 million in extreme poverty , about 9 million in relative poverty , 14 million inactive people who have given up looking for work or are dedicated to training, 2 million unemployed; 12% of those who work are on the poverty line due to too low wages, 4.3 million part-time workers of which 2 out of 3 not by choice but because they are forced. Meanwhile, industrial production has almost halved . The tourism sector and its related industries reduced to the limit. The companies at risk of default with the coronavirus are 65% of Italian SMEs ; More than 8 million workers on layoffs while, as we know, the term of the ban on dismissal imposed by the government will end, unless extended, at the end of the year. According to the CGIL, one million more unemployed than the two million we already have. According to data from the INPS precarious observatory, in the first seven months of 2020 there was a drop in recruitment of 38 % compared to the same period of 2019. In the meantime, the first measures begin in the sign of the resumption of structural reforms in the wake of our now sad tradition: quota 100 is being dismantled (the Fornero law has never been repealed) and the first attacks on the so-called citizenship income begin. Looking ahead, a resurgence of primary surplus policies is now foreseeable for almost thirty years.
Conversely, the great possibilities for endogenous financing, inscribed in the six proposals of the PSN national salvation plan, say loud and clear that we do not need loans! By adopting these strategies could afford to finance virtuously public spending with resources that do not borrow it further: State currency, fiscal compensation certificates, reactivation of public banks (the banking system is now private and increasingly controlled by foreign groups), accounts public savings and strategies such as sire or financial barter 4.0 etc. ( see interviews on PSN ) also because we know well that when the private sector is in crisis, investments in the public and support for private economic activities is a must if the real economy is to recover.
The crisis was already structural
70% of the productive activities have a continuously decreasing profitability also due to a super-taxation that thins the profit margins of the companies. Fewer and fewer companies can count on definitely positive profitability (30%).
The works of land care and personal care are also negatively profitable as well as those of protection, maintenance and research around our great historical and artistic heritage.
Until now, the system based on the pure debt economy had held up because the revenues of the companies had made it possible to repay the investments made as well as the interest to the banks and taxes to the state. This system of things based on the use of debt money alone has become intrinsically unstable and therefore no longer sustainable since the profitability of most productive activities is close to or has even fallen below zero. Therefore, the use of non-debt money is urgent to restore stability to the system by involving in the creation of wealth all those who have been excluded by remunerating them with non-debt money. It is not the money in debt that is missing. There is no use of non-debt financing instruments , the only ones capable of enhancing all that unused workforce, capable of facing the production of public goods albeit with negative profitability.
The light at the end of the tunnel
For the light at the end of the tunnel not to be that of the train, we need to activate investments towards public spending as a response to internal needs (see my Purpose of the economy is the response to internal needs) .
The implementation of the financing strategies proposed by the national salvation plan will allow us to redirect that workforce that will be in excess as artificial intelligence is applied to those sectors of production, including intellectual ones, towards the production of care works of the the territory, of people, training at all levels, research, the reintegration of public employees that the blocking of turnover had prevented, allowing an adequate lowering of the duration of the working day and the reduction of the retirement age, while raising adequately the average wages of workers and pensioners (4).
(1)
For some time now, government bonds, including ours, have been considered a relatively safe investment, like a safe haven asset. Those who buy them agree to give more than they will receive on sale. This is the effect of negative rates on some categories of Italian government bonds. In practice, those who buy them know that they pay to receive shelter for their capital (from 100 you get 99…). In practice, the more securities we place, the better it is from the point of view of public accounts, especially if we employ those resources virtuously. Please note that the demand for our securities is always less than the supply we make of them.
(2)
We have helped to finance the ESM with 14.5 billion but we will have to reach 125. The ESM is a financing instrument intended as a last resort, when a country is no longer able to finance itself on the financial markets. The ESM funding will give them to us if requested by lending them to us at positive rates and with conditionality of spending in the form of structural adjustment plans (tear and blood cuts in public spending). What are the consequences of further borrowing our country using ESM loans, and other financial instruments conceived by the Eurogroup, we will painfully understand when it becomes clear that adherence to them will cause a loss of confidence on the part of those who buy the our government bonds on the financial markets, which have become more risky as subordinated and therefore more onerous from the point of view of the interest to be paid to future holders of tds. In practice, we would risk ruining the current positive situation that allows us to place tds at a negative rate (we return less than what is loaned to us)
Our efforts as debtors foresee, in fact, that we will be obliged to honor, before any other debt, those contracted with the MES and other financing instruments such as SUR (from 30 to 40 billion) which has already been requested for unemployment and cig. These new creditors will necessarily be privileged over the usual financial markets. In addition, the use of these loans will be an explicit declaration of our country's difficulties that the financial markets will not lose the opportunity to exploit. The European Stability Mechanism MES and the Outright Monetary Transactions OMT are weapons of mass destruction of the wealth and sovereignty of the countries victims of the economic war . They were designed for those countries that, following a downgrading decreed by the rating agencies, were unable to continue placing their securities on the financial markets, leading the country into bankruptcy (default). The MES , the money is borrowed from the states and since it will not be enough, the rest will come from international loans – hatched by international speculation. In this case, in fact, "aid" is foreseen consisting in the application of the memorandum of the ESM acted by the Troika or by the ECB alone in the case of the OMT with adjoining commissioner and technical government according to the criteria dictated by the ECB, the European Commission and the Monetary Fund International. If we let this scenario take place, falling into the trap that they have been preparing for some time, we would have to expect everything: from forced withdrawals from current (balance sheet) accounts, to the halving of public wages and pensions, the blocking of current accounts, the dematerialization of the currency, the wild sale of public goods, the drastic reduction of expenditure aimed at public services, etc. etc. .. The place of contention is therefore, today, on the nature of the most appropriate tools to address the health crisis and the economic shock that is emerging, aiming at a recovery in all sectors of the economy that were already in an evident and overt state of suffering .
(3) SURE Support to mitigate Unemployment Risks in an Emergency these are loans that should be released to finance the redundancy fund for an amount of 27.4 billion.
(4) the average wage per employee in Italy from 2013 to 2018 is lower than the European average (27,283 euros) of 7,650 euros.
Spending on research and development is 1.4% of GDP compared to a European average of around 2.5%.
An Italian worker works on average 1700 hours per year – 1500 hours in France – 1.400 hours in Germany.
https://www.francescocappello.com
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The article The light at the end of the tunnel comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-luce-in-fondo-al-tunnel/ on Fri, 23 Oct 2020 16:00:01 +0000.