My statistics show that almost half of SG readers are gone in the past three weeks. I don’t know if it’s just me, or other bloggers. Anyone have an idea?
NEW YORK – This year’s annual meeting of the International Monetary Fund made clear that Europe and the international community remain rudderless when it comes to economic policy. Financial leaders, from finance ministers to leaders of private financial institutions, reiterated the current mantra: the crisis countries have to get their houses in order, reduce their deficits, bring down their national debts, undertake structural reforms, and promote growth. Confidence, it was repeatedly said, needs to be restored.
It is a little precious to hear such pontifications from those who, at the helm of central banks, finance ministries, and private banks, steered the global financial system to the brink of ruin – and created the ongoing mess. Worse, seldom is it explained how to square the circle. How can confidence be restored as the crisis economies plunge into recession? How can growth be revived when austerity will almost surely mean a further decrease in aggregate demand, sending output and employment even lower?
This we should know by now: markets on their own are not stable. Not only do they repeatedly generate destabilizing asset bubbles, but, when demand weakens, forces that exacerbate the downturn come into play. Unemployment, and fear that it will spread, drives down wages, incomes, and consumption – and thus total demand. Decreased rates of household formation – young Americans, for example, are increasingly moving back in with their parents – depress housing prices, leading to still more foreclosures. States with balanced-budget frameworks are forced to cut spending as tax revenues fall – an automatic destabilizer that Europe seems mindlessly bent on adopting.
There are alternative strategies. Some countries, like Germany, have room for fiscal maneuver. Using it for investment would enhance long-term growth, with positive spillovers to the rest of Europe. A long-recognized principle is that balanced expansion of taxes and spending stimulates the economy; if the program is well designed (taxes at the top, combined with spending on education), the increase in GDP and employment can be significant.
Europe as a whole is not in bad fiscal shape; its debt-to-GDP ratio compares favorably with that of the United States. If each US state were totally responsible for its own budget, including paying all unemployment benefits, America, too, would be in fiscal crisis. The lesson is obvious: the whole is more than the sum of its parts. If Europe – particularly the European Central Bank – were to borrow, and re-lend the proceeds, the costs of servicing Europe’s debt would fall, creating room for the kinds of expenditure that would promote growth and employment.
There are already institutions within Europe, such as the European Investment Bank, that could help finance needed investments in the cash-starved economies. The EIB should expand its lending. There need to be increased funds available to support small and medium-size enterprises – the main source of job creation in all economies – which is especially important, given that credit contraction by banks hits these enterprises especially hard.
Europe’s single-minded focus on austerity is a result of a misdiagnosis of its problems. Greece overspent, but Spain and Ireland had fiscal surpluses and low debt-to-GDP ratios before the crisis. Giving lectures about fiscal prudence is beside the point. Taking the lectures seriously – even adopting tight budget frameworks – can be counterproductive. Regardless of whether Europe’s problems are temporary or fundamental – the eurozone, for example, is far from an “optimal” currency area, and tax competition in a free-trade and free-migration area can erode a viable state – austerity will make matters worse.
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Our banking system has essentially become a government backed system of criminal fraud.
Europe is at a crossroads now, and you can rest assured that the Powers That Be will be trying to influence the new leadership in whatever friendly way they can to change their minds about austerity – and in some not-so-friendly ways as well. The reality is, governments usually do what the IMF and the World Bank “persuade” them to do. The persuading has probably already begun:
Socialist Francois Hollande defeated conservative incumbent Nicolas Sarkozy today to become France’s next president, heralding a change in how Europe tackles its debt crisis and how France flexes its military and diplomatic muscle around the world.
Exuberant, diverse crowds filled the Place de la Bastille, the iconic plaza of the French Revolution, to fete Hollande’s victory, waving French, European and labor union flags and climbing its central column. Leftists are overjoyed to have one of their own in power for the first time since Socialist Francois Mitterrand was president from 1981 to 1995.
“Austerity can no longer be inevitable!” Hollande declared in his victory speech Sunday night after a surprising campaign that saw him transform from an unremarkable, mild figure to an increasingly statesmanlike one.
Sarkozy is the latest victim of a wave of voter anger at government spending cuts around Europe that have tossed out governments and leaders over the past couple of years.
[…] Hollande inherits an economy that’s a driver of the European Union but is deep in debt. He wants more government stimulus, and more government spending in general, despite concerns in the markets that France needs to urgently trim its huge debt.
While some market players have worried about a Hollande presidency, Jeffrey Bergstrand, professor of finance at the University of Notre Dame, said it’s a good thing that Hollande will push for more spending throughout Europe to stimulate the economy.
Europe is “going into a really serious and poor situation,” Bergstrand said. Hollande “is going to become the speaker for those countries that want to do something about economic growth.”
Meanwhile, the situation in Greece after yesterday’s election is much more volatile as long as they remain chained to the euro. The country is dependent on loans from the European Union and the IMF just to survive, and they will release those funds only if Greece continues to beggar her own people:
In a surprise result, Greece’s Coalition of the Radical Left, or Syriza, which seeks to annul the austerity program, saw its share of the vote more than triple, to 16.2% of the vote and 50 seats—making it the second-largest party in parliament, the ministry projections showed.
Greece’s Coalition of the Radical Left, or Syriza, saw its share of the vote more than triple to 15.5%-18.5%-making it the second-largest party in parliament, exit polls showed. Alkman Granitsas reports from Athens.
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I have every faith that the PA politicians will fix this case so it comes out to their liking.
It really is peculiar, how fixated these right-wing types are on illegal immigrants:
Neo-Nazi and border vigilante JT Ready, who authorities said carried out a mass murder-suicide near Phoenix this week, was the target of a federal domestic terrorism investigation at the time of the incident, the head of the FBI’s Phoenix office revealed late Friday.
James Turgal, the special agent in charge of the FBI in Phoenix, told an Arizona television station the probe had been active less than five years and that investigators were looking into whether Ready was involved in a series of shootings of immigrants in the desert there.
“It’s a criminal domestic terrorism investigation,” Turgal told reporter Brahm Resnik of television station KPNX, “and we define that as individuals or oganizations who are engaging or conspiring to engage in criminal activity in order to affect either social or political change.”