It might seem extraordinary, but in the midst of deficit-cutting mania it is a rating agency, Standard and Poor's, that is talking common sense about government debt.
By doing so they are challenging members of the international Austerity Party -- a political party that dominates economic debate across the world.
In this case the rating agency was commenting on the crisis in Greece and Portugal -- but the comment could just as well apply to the United States -- or any other economy trying to recover from a financial crisis induced by private bankers.
Standard and Poor's officials are quoted by the New York Times (28 April, 2010) as saying:
"The main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.
It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts."
This economic common sense makes a refreshing change from the suicidal howls of the lemming-like hordes leading the international Austerity Party. These dominate all economic debate on the airwaves, in newspaper columns, economic blogs and political outlets.
As they head for the cliffs, they can be heard baying for cuts in government spending -- regardless of economic common sense; regardless of the likely economic impact.
Their argument is simple: when a nation is at its weakest, when its debts are highest, when the economy is at greatest peril, then it is imperative to apply draconian policies for cutting the deficit.
These policies must include vicious cut-backs on efforts by the government to stimulate economic recovery, and generate the revenues that will repay debts.
In particular government must cut back on public investment in infrastructure that creates jobs, generates tax revenues (through the 'multiplier') and helps the economy recover, so that debts can be repaid.
In other words, when an economy -- any economy -- is heavily in debt and on its knees...
That is the moment, argues the Austerity Party, to cut off its legs.
Before forcing it to run the marathon.
Forgive the violence of my analogy, but sometimes words, as Keynes argued, have to be a little wild, to rouse people from their blindness to grave threats and risks.
Right now the European Union and IMF, with the forceful backing of the German chancellor and finance minister, are coercing the democratically elected Greek government into effectively disabling the Greek economy.
According to the Financial Times (2 May 2010) there is to be " a huge fiscal tightening equal to 16 per cent of gross domestic product -- an extra 11 per cent on top of the 5 per cent already announced."
"Greece's vicious recession is poised to continue and deepen... The fiscal targets require huge upfront cuts in public spending, including reductions in public sector pay, jobs and pensions."
The IMF's representative Poul Thomsen had the gall to argue that this disastrous economic strategy "is credible because it has a lot of support from the international community; it is credible because it is socially well balanced; it is credible because it is the [Greek] government's programme."
This is a dishonest and delusional statement.
It is dishonest because it is blatantly not the Greek government's program. It is the German government's condition for making bailout funds available.
It is delusional, because it is an economic strategy designed to fail.
While it may be credible with the members of the international Austerity Party, it is not economically viable.
Ask Standard and Poor's.
The voice of common sense, drowned out by the hysteria and flawed economics of the Austerity Party.
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Henry Blodget: Guess Who's Paying for the Greece Bailout? That's Right -- YOU
So now those who caused the deficits want to use programs that did not lead to the deficits to cure the deficits. Only a Republican could suggest these measures with a straight face. Only a group of people so infatuated with greed and theft could devise such ideas. If this weren't so serious and if the Republicans and their enablers on the other side weren't so powerful this would be laughable. The Republicans have been trying to destroy the basis of our middle class since its foundations were laid in the New Deal. We have twice seen the damage done by deregulation and their mantra of "free trade" has bled us dry. Now they are bent on destroying the social framework.
It is unfortunate that Obama lacks the courage to do what is necessary in stopping the useless wars, cutting back arcane and irrelevant defense spending and returning to a fair progressive tax system. Someone once more must go into the breach and there are very few takers.
The Greeks will have to drastically reduce all of their government expenses at all levels, and also re-industrialize to create a flow of National Wealth through exports to emulate the nations that have industrialized in the past couple of decades.
Is this the future of the US Bond Market? I tend to think so.
Why can't the US government just buy some more paper and print more US Bonds (faster and faster) to pay our expenses like Mexico prints pesos? Every time that we print dollars, the value and buying power of each printed dollar reduces proportionately. One US Dollar that would buy about 8 Mexican pesos in 1960 can now exchange for as much as 15,000 of the 1960 Mexican pesos today. This is equivalent to about 187,500% inflation over that period.
A $2.00 USA loaf of bread would then cost $3,750.00 if the USA implemented Mexican type economic monetary policies.
The USA has to create wealth if we want to distribute any to our elderly.
If any future US revolution to overthrow the US government occurs (maybe to change the economic situation), where will all of the food, fuel, water, sanitation, medicine, and other necessities to support the population come from after the revolution? These necessities will not exist after the revolutionary hostilities start.
Chaos and total lawlessness will prevail during and long after any US revolution. Only the very meanest and the most evil will survive in this climate. We will have then totally destroyed our civilization. We will live like people in Africa, and we will have to comply with the will of any and every armed person that we encounter. Will all of the city residents starve after a revolution? Most of the US urban population is not knowledgeable enough to live off of the land anymore. The city dwellers might foray into the country, kill the farmers, and steal the farmer's food to feed their own families. Food might become more valuable than freshly printed paper US dollars.
Much sound and fury leading to nothing.
Labels that can be attached to politicians and bloggers alike.
What can the average citizen actually do?
Tax increases and spending cuts can affect the interest rate a country has to pay. That doesn't mean they have to be front-loaded, but they do have to be real. Saying you're going to increase spending, cut taxes, and eliminate the deficit just won't work with bondholders the way it often does with voters.
If you're talking about a country that's going to default, it's certainly best to get it over with. Bondholders would rather have new debt they know can be paid and probably will be, than old debt that probably can't be paid. But if they definitely can pay the debt, even with some hardship, it's probably cheaper to do so.
The US definitely can pay our debt. Default risk isn't even in the picture. If there's a situation where the US defaults, gold won't do you any good either. Even the traditional diversification into ammo and canned goods is likely to be futile in that kind of scenario.
In the case of US debt, it's a matter of how much money people are looking to park someplace safe. If we go past that, we're both raising the rate and crowding out private investment. In the Great Recession there's been a lot of money looking for a safe place to park, and not a lot of investment going on that could be crowded out. But the recession is technically over, and the ship of state turns slowly.
First, both parties want us to believe that "when the OTHER party is in power, deficits are horrible and cannot be tolerated", and "when MY party is in power, deficits are okay, really."
Second, the last time America was really humming, the last time deficits were down and/or eliminated, was when Bill Clinton was in the White House and the Republicans controlled Congress. Moderation, cooperation, responsibility, accountability.
Go ahead liberals and conservatives, spin away. Point the finger at the other guy.
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Democrats know they will be blamed for the taxes, sooner or later, to pay for any spending they want to do. So they budget. Republicans know the same thing, with the opposite implications.
Speaking of medical treatment, remember when docs thought that bleeding their patients was such a good idea?
I don't really understand why it is that the rich are so opposed to the less rich improving their lot. Do they think wealth creation is a zero-sum game? If poor people prosper it must make the rich less wealthy? Or do they just like the contrast between their own comfort and the sufferings of the poor?
If everyone were rich, what would be the point? If you look at the world of the rich, the whole point in everything they do is to emphasize exclusivity. Think about the meaning of the word "exclusive"; I'm in with the in-crowd. You are NOT!
A major component of the psychological drive to get/be rich is the desire to show everybody else how much better you are than they.
With proper constraints, such behavior can be beneficial. Unrestrained...
Well, you see.