Paul Krugman: The Nation's most dangerous Economist.

Lol, I like it. You're the bull.

Good morning.

 

Lol!

 

"Update: Veronique de Rugy replies to say she never denied that Europe was engaged in austerity. Her point was that European-style austerity has involved spending cuts and large tax hikes. Fair enough. On that we’re in agreement, and apologies if I misread her. (Whether austerity might have worked better if it had been more heavily tilted toward spending cuts, as she suggests, is a separate and more complicated question.)"

"Yes, there is austerity"
http://www.economist.com/blogs/freeexchange/2012/05/euro-crisis-0

"Yes, there’s been austerity in Europe"
http://www.washingtonpost.com/blogs...ity-in-europe/2012/05/08/gIQAQ1NsAU_blog.html

 

So why do you think, El Matador, that Europe - which leans left of the United States, was so quick to embrace austerity?

 

Me: Dunno. Might have to put on my Sir Googalot hat for that one.

Crowd: Ole!

: )

 

Let me help you out. They were quick to embrace austerity because they finally realized that no one was willing to lend to them anymore. When yields of sovereign debt broke certain levels, there was no way countries like Greece, Ireland, Spain (which is happening now) and Italy could/can continue to finance their deficits.

Investors say "ok, I'll lend to you, but because of the risk, I demand a whole lot more yield than you are comfortable paying." The country then says "Uncle! I can't pay that". Once locked out of the debt markets, they turned to the ECB and to the richer nations of the EMU, like Germany, Austria and Finland.

But these guys don't want to give away money and accept all the risk, so they demand concessions to force the country to get it's fiscal house in order. So countries like Greece come up with an austere budget (usually made in fantasy land) and try to force it down the people's throat. But it doesn't work. Why? Because you cannot solve a debt problem with more debt.

There are only two solutions, just like there will be only two solutions when the bond vigilantes come knocking at Uncle Sam's door: Devalue and print, or severe austerity.

THATS IT.

It's not like there's a comfortable third option to austerity, Ricter. The sooner you get with the program and stop drinking the kool aid the sooner you will realize what a mess we are in.

 

Most of this is true, but it begs the question. Germany, France, the UK, were the austerity "imposers". So the question remains, why were they so quick to impose austerity, particularly when history provides examples that it doesn't work (during a recession)? I say, amnesia.

 

Because it wasn't them, of course. No one wants to have to be austere when it's themselves. They know that the way to be elected is NOT by cutting entitlements. But at the same time, they'll be damned if they're going to lend money when they know there's no way in hell it will be repaid, unless the country getting the funds makes an effort to cut their spending.

One day soon it will be France. And watch what happens when no one will lend to France.

 

This is the model Krugman would have us follow? It's worse than the crony capitalism we practice here.

PARIS — Ireland on Friday appeared headed toward adoption of the European Union’s fiscal compact, but stocks fell and the dollar rose by midday in Europe after data showed unemployment in the euro zone rising to a record.

The jobless rate in the 17-nation euro zone reached 11 percent in March and April, the highest since the start of the data in 1995, Eurostat, the European statistical agency said in Luxembourg. The previous record had been 10.9 percent in February, Eurostat said, after it revised March’s figure upward from the 10.9 percent initially estimated.

“We have an economy that’s freezing up, it’s clearly not creating jobs,” Peter Dixon, global equities economist at Commerzbank in London, said. “But right now policy makers’ main concern is to ensure that the peripheral countries’ governments and banks can stay afloat. Given that, the real economic data is taking a back seat.”

But before long, he said, unemployment “is going to be a major problem for those countries,” as it rises to the top of the political agenda and further complicates the financial problems.

For the overall European Union, made up of 27 nations, the jobless rate was 10.3 percent in April, up from 10.2 percent in March. Spain’s jobless rate, of 24.3 percent, was again the highest in the European Union

 

End result: Revolution. Paris Commune of 1871 Redux, which is of course what the fanatics crave for.