There's a lot of factors that go into why currencies rise and fall. I haven't come across anything, yet, that says austerity alone will cause to ramp a currency the way the Canadian dollar did. <IMG SRC=http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=DEXCAUS&scale=Left&range=Max&cosd=1971-01-04&coed=2011-07-08&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Daily&fam=avg&fgst=lin&transformation=lin&vintage_date=2011-07-14&revision_date=2011-07-14> It appears the Canadian dollar depreciated throughout the 90's against the U.S. dollar and surged with the rise in the price of resources in this past decade. Krugman's link is to an IMF research paper. This isn't partisan fairy tales from Serious people.
Good morning all. So... is this going to be another day of arguing that only the spending side of the books matters to the balance sheet?
Canada got out of its debt mess in the 90's by slashing spending and raising taxes. You can only raise taxes so much, however, so the main part of the equation is certainly the spending. A commonly held belief is that government wastes 1/3 of every dollar it gets its hands on. I don't know if there are any studies to back this up or not, but I think we can all agree that the government at least produces SOME waste due to beauracracy etc. Austerity doesn't cause growth, it enables it. Canada used to spend an enormous percentage of tax revenues on interest payments alone in the 90's. Think of how much better that money could have been spent (or left in the hands of citizens) if we weren't drowning in debt. It's no different than having massive credit card debt. If someone has credit card debt, they either spend a good chunk of their income on interest payments, or enact their own "austerity program" to pay off the debt. In the long run, that person will be better off as they'll save boatloads of cash in interest payments they don't have to make. Compound the savings and compute opportunity costs and it becomes clear that debt is in general undesirable.
Of course the CAD depreciated vs. USD in 90's. That's when we were in massive debt. At the end of the 90's is when Canada started to see the light at the end of the tunnel. Once we brought our debt down to a manageable level, that's when you start to see the currency appreciation.
Of course not, but it is the main culprit. Think of a business that is losing money every month (USA). You can cut spending, raise revenues, or both. Raising revenues are not easy, as customers will only tolerate so much of a price hike before they stop buying. The first thing a money losing business does it cut costs. It is the easiest and most effective way to stop the bleeding. Why do you think this is any different for government?
The first thing a money losing business does is analyze the problem, not cut staff. Well, maybe retail can get away with cutting staff before thinking. Otherwise, if you have valid reasons to believe that, among other factors, your market share is not what it could be, you can spend more on marketing. It works wonders. Saying "Keynesianism can't work" is like saying that tapping your savings or even your credit card to get you through a "between jobs" period can't work. That's stupid, of course it can work, with certain conditions being understood.
Your first paragraph is irrelevant to the discussion. Your second paragraph seems to suggest that someone stated Keynesianism can't work. I don't recall saying that, or anyone else. The problem is that nobody applies proper Keynes theory in practice. Save during good times, spend during bad. Politicians don't save during the good times. You seem to be under the delusion that the USA employs Keynes principles. It doesn't, it only spends. Now THAT cannot work.
Looks like our government has their work cut out for them. It should all be execution from here. Unfortunately we have a deadlocked bipartisan system that can't make any progress. If 'Pro' is the opposite of 'Con' and the word 'Progress' is to move forward, then what is the meaning of the word 'Congress'?