The government is undertaking a massive impoverishment programme, part of which is to cut housing benefits. In a recent speech1, Cameron argued: “If you are a single parent living outside London, if you have four children and you're renting a house on housing benefit, then you can claim almost £25,000 a year. That is more than the average take home pay of a farm worker and a nursery nurse put together.” He added: “For literally millions, the passage to independence is several years living in their childhood bedroom as they save up to move out; while for many others, it's a trip to the council where they can get housing benefit at 18 or 19 – even if they're not actively seeking work.”2
We released the fourth issue of kittens – the English speaking journal of Gruppen gegen Kapital und Nation. It is available here as a PDFand around London.
In 2009 Satoshi Nakamoto invented a new electronic or virtual currency called Bitcoin, the design goal of which is to provide an equivalent of cash on the Internet.1 Rather than using banks or credit cards to buy stuff online, a Bitcoin user will install a piece of software, the Bitcoin client, on her computer and send Bitcoin directly to other users under a pseudonym.2 One simply enters into the software the pseudonym of t
Already during his lifetime public opinion in the West had been in agreement about the deceased Libyan dictator: “insane” was the most frequent description of him. However, putting aside fashion faux-pas and focussing instead on his political career, the former ruler shows up in a rather different light. So who was Muammar Gaddafi?
Since late 2009, Greece has been facing a debt crisis. It has not been able to find enough investors willing to lend it money to service old debt under the previous conditions that is. Therefore, in order to get money at all, Greece has been forced to offer higher interest rates to its creditors. The financial markets did not greet this news with joy and queue to collect higher returns, but rather as a result they became even more cautious about Greek debt. For if Greece already had problems, then how would it be able to repay even higher obligations in the future. This raised interest rates on Greek debt even further which Greece would have had to offer on new loans if the Euro Community and the IMF had not intervened in early 2010.
The figure below shows interest rates that various countries of the Eurozone had to pay in the past. What is striking about it is that with the introduction of the Euro, interest rates began to align (Greece joined the Euro in 2001) and then with the financial crisis in 2007 interest rates diverge again.
Credit replaces money – credit cannot be replaced by money
In almost all economically successful states the accumulated debt has reached a level where it is unthinkable for it to be repaid through taxes this would be, and has been for several decades now, impossible.
This situation has come about on the back of the financial industry’s certainty that debt and interest would be serviced on time; which is to say, through credit they themselves will have granted at a future date. This propitious circle must be continuous if the symbiosis of state and financial capital is to be carried out successfully. A bank that has invested in state securities, and which is now waiting for its money, should immediately reinvest in new state securities so that it can then be paid with this (here: its own) newly invested money. In this fashion banks are able to hold on to a permanent stock of, say, British state bonds despite the maturation of given bonds after a few years. If a bank wants to reduce its holdings of state securities, then it demands payment without granting any new credit to the state. For this to work, other banks must be willing to increase their engagement in these securities.
Who are the lenders and what makes state bonds so interesting for them?
The main lenders come from the financial industry. Banks, insurance companies and mutual funds buy the bonds of their own state or other states. The second major creditor group consists of other states or their central banks. The German state, Japan and China, for instance, have considerable holdings of U.S. Treasury bonds. Thirdly, states attempt to harness their own population to finance sovereign debt. With bonds tailored towards this clientle states encourage the people to grant the state credit for interest in return.
In our text “Financial Crisis 2008ff.” we tried to explain how a financial crisis such as that of summer 2008 results from the normal course of business and not from mistakes or mismanagement. Towards the end of the text we briefly touched on how states attempted to rescue the financial markets and that as a result sovereign debt itself becomes subject to the practical critique of these markets.2 In the last two years these policies seem to have been successful, insofar as the financial markets have, again, started to make a profit; however, as a result of the measures taken many states have now become lodged in a debt crisis of their own, which, again, is affecting the financial industry.
In our later text “Public debt makes the state go round” we then tried to explain how modern credit money and sovereign debt are related. However, there too, questions such as how states contract debt and why, who their creditors are and why, what the relation is between the GDP (gross domestic product) and sovereign debt and what the particularities of the Eurozone are, were only very briefly touched upon or not discussed at all. In this text we attempt to fill this gap. First, we want to explain the standard and common practice of sovereign debt in general, as well as providing a critique of the most prevalent explanations for the current crisis. And secondly, we would like to consider the particularities of the crisis in the Eurozone.
Too much sovereign debt as reason for the crisis?
One way to explain the Greek problems is to remark that Greece simply took on too much debt. In fact, sometimes newspaper articles claim that Greece has the largest amount of debt in the EU. This is de facto wrong.3
