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The paper could add to an economic debate that has emerged on both sides of the Atlantic over the appropriate response to Europe’s debt crisis. While many European policy makers have advocated austerity as a way of cutting high debt levels, some economists in the United States and Europe have criticized that approach, arguing it hampers growth and leads to even higher debt ratios.
The issue isn't that it leads to higher debt ratios, but rather how much pain you inflict in the process.
And based on everything I've read about the effects in countries where austerity is being practiced, it inflicts a lot of pain on the general public.
Looking at this holistically, aggregate prosperity in any economy is dependent on aggregate production of products and services. The financial BS is a sideline. Beneficial if it enhances production, and useless (or worse) if it doesn't.
Austerity reduces production and aggregate prosperity. Sure, you'll be able to pay your debt and balance your books, but you are taking it right out of the public's hide. You are reducing the size of the economic pie plus giving a bigger chunk to banks and creditors. Hey no worries, eventually after enough has been extracted the economy will be able to claw its way back.
So if you are part of the small segment that benefits, then it's a hell of a trick if you can pull it off. Wait, weren't these the same ones who caused this global crisis in the first place? It truly amazes me that these guys keep getting away with it. It lets you know where the global power lies anyway, when government policies keep favoring a tiny minority at the expense of everyone else.
Actually if you look at the economies of Ireland, Germany, Poland, etc. and the improving fiscal situation of Italy you would see that austerity has worked everywhere.
You are reducing the size of the economic pie plus giving a bigger chunk to banks and creditors.
Yes, it becomes a question of who's in charge here -- the leaders elected by the people, or the financiers appointed by themselves. The latter are often of course the very bunglers who manufactured all the problems to begin with.
Yes, it becomes a question of who's in charge here -- the leaders elected by the people, or the financiers appointed by themselves. The latter are often of course the very bunglers who manufactured all the problems to begin with.
The people who manufactured the problem are the ones who spent money that wasn't theirs or there. They borrowed it. They promised to pay it back to the people who lent it to them. They weren't bunglers when they loaned the elected politicians the money. They were buddies, best of friends, dudes. Now that they want their money back they're tricksters and money grubbers.
When the borrowed money is spent, GNP may be inflated (or it may not if the borrowing is spent on imports). When it is repaid, it contracts the economy because it is not consumed or invested. It just goes from one side of the balance sheet to the other, never touching an income statement. That is the nature of borrowing and repaying.
If the politicians are leaders of the US, UK and Japan they can pull off the borrowing/not repaying routine a long time via quantitative easing. The central bank buys government securities with freshly minted money and the debt is effectively repaid. In the EU it's not so easy. The ECB has bought up billions in sovereign bonds but is constrained to prop up bad credit risks.
In the EU the only options for a debt delinquent are to borrow more or spend less or default. If borrowers won't pony up more, there's really no option. Defaulting is the same as spending less accomplished by other means.
The people who manufactured the problem are the ones who spent money that wasn't theirs or there. They borrowed it. They promised to pay it back to the people who lent it to them. They weren't bunglers when they loaned the elected politicians the money. They were buddies, best of friends, dudes. Now that they want their money back they're tricksters and money grubbers.
No, they were tricksters and money grubbers from the get go. In their insatiable greed and absolute lack of moral restraint or standards, they devised and pushed off onto everyone debt instruments that they knew full well were likely to fail. They caused myriad municipal bankruptcies, multiple sovereign debt crises, and of course, the worldwide Great Recession. Then they had the gall to appoint themslevs as referees of who could receive financial assistance as a means of escaping the mess that the referees themselves had done so much to create for the world. People should really pay a little more attention to things these days.
(By the way, GNP went out of fashion in the early 1990s. It's all about GDP today.)
They were buddies, best of friends, dudes. Now that they want their money back they're tricksters and money grubbers.
The people we elected to mind the playing field are not protecting our interests. Rather they are catering to the $$$.
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When the borrowed money is spent, GNP may be inflated (or it may not if the borrowing is spent on imports). When it is repaid, it contracts the economy because it is not consumed or invested. It just goes from one side of the balance sheet to the other, never touching an income statement. That is the nature of borrowing and repaying.
Very true. I would add that it also depends a lot on what the borrowing is for. Borrowing to expand production and advance technology pays dividends in the future. Borrowing to service a trade deficit leads to disaster. Every country that is in serious trouble did too much of the later.
our macro data are all worse than 3 or 5 years ago, debt, deficit, unemployment, tax revenues, internal demand etc
American conservatives don't want to hear any facts that are contrary to their belief in austerity. It is a matter of faith for them that austerity works. And if for some reason it isn't working, the only solution is more austerity.
It's like a religion for them.
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