Austerity vs. Austerity

[g5000]

It has been argued by the Keynesians here that austerity at this time would be a mistake. For evidence, they point to the European nations exercising austerity and the correlating shrinkage in their economies.

This is a flawed argument.

The poorer southern countries of Europe overborrowed. During their subprime borrowing spree, they ran up huge debts. Once the size and scope of those debts could no longer be concealed or paid off, the lenders began to tighten up their lending. They did not want to lend those countries any more money.

If your economy has been fueled by borrowing, when the time comes that you can't borrow any more money, then it is inevitable your economy is going to shrink.

It isn't like Greece had a choice. To be austere or not to be austere. The well had run dry. They did not have a choice.

And now Greece has to impose austerity on the terms of their creditors instead of on their own terms.


Our creditors have not yet decided we have acquired too much debt. But sooner or later, they will. They are already concerned, but we are still the best of a bad lot to make loans to.

So right now, we differ from the subprime borrowers of Europe because we can set our own terms of austerity.

And we need to do this before it is too late and austerity is imposed on us by demands for higher interest rates from our creditors.

 

[g5000]

Watch Japan for what our future will be.

If creditors begin demaning even as little as 3 percent interest from Japan, every dollar of revenue the government takes in will have to go to just servicing the debt!

Then they will be in what is called a debt supercycle. And those never end well.

That's why the Japanese PM recently announced he's going to start inflating his way out of debt. And that is going to kill savers.

It has begun.

 

[waltky]

IMF's mistake not gonna help matters much...

Greek opposition: IMF mistake won't ease austerity
Jun 7,`13 -- An admission from the International Monetary Fund this week that it mishandled the early stages of Greece's massive bailout will not lead to any easing up of austerity measures, the crisis-hit country's opposition leader said in an interview late Friday.

Alexis Tsipras, leader of the left-wing Syriza party, told The Associated Press that bailout lenders and Greece's conservative government would not end the country's "ongoing drama." Tsprias made the remarks ahead of an inspection next week of progress in implementing the (EURO)240 billion ($318 billion) rescue deal by high level from the IMF, European Union and European central Bank, collectively known as the "Troika." "We don't expect a real (change). The troika admits making a mistake, and at the same time advocates the implementation of that mistake," Tsipras said, speaking on the sidelines of a meeting of European anti-austerity groups in Athens. In a report this week, the IMF admitted mishandling the start of the bailout program in 2010, for failing to tackle private debt restructuring early enough and overestimating the capacity of governments in Greece to swiftly push through public sector and market reforms neglected for decades.

Touching off a public spat with Brussels, the report also blamed the EU for the "notable mistakes." Greece's conservative Prime Minister Antonis Samaras, on a two-day visit to Finland, insisted that Greece remained committed to meeting its ambitious deficit reduction targets, and argued that past errors in the bailout program had been corrected. "This admission by the IMF ... provides a very significant reason for the Greek government to stop the program immediately," Tsipras countered Friday. "The Greek prime minister no longer just shares the responsibility but he carries the burden for leading the Greek people into this ongoing drama."

Cost-cutting reforms have battered Greece's economy, pushing up poverty to levels not seen in decades and unemployment to around 27 percent. Speaking later at the Athens meeting, Tsipras argued that Greece had served as a model for European politicians determined to dismantle the welfare state. "Greece was the guinea pig for this historic change. And it was tried out with full force: Cancelling the social pact, destroying social welfare and selling off the country's entire productive capacity. Now that experiment is ready for export to the rest of Europe."

Samaras' year-old conservative-led coalition has promised a return to growth and international bond markets next year, arguing that the harsh austerity measures agreed in exchange for the bailout loans are finally working. But official figures Friday showed that Greece's economy shrank by 5.6 percent in the first quarter of the year, slightly worse than an initially estimated last month. The Greek Statistical Authority reported the revised figure, following its May 15 estimate of a 5.3 percent contraction.

Source

 

[jwoodie]

We can't throw thousands of government employees out of "work," but we can impose a "hard" freeze on hiring and promotions. Better yet, we could pass a Constitutional Amendment which prohibits increases in per capita spending on government programs in any year that the federal budget is not balanced.