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IMF Chief Economist apologizes for not recognizing how much damage austerity...

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glenn1

Lifer
Sep 6, 2000
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Debt as a % of GDP can be deceptive in its own way. When there's false prosperity & inflated GDP as during the Bush Years, it appears to be less than in the aftermath, when GDP plunged along with federal revenues, even as automatic stabilizers kicked in- UI, early dependence on SS, food stamps, EITC, Medicaid & so forth.
How exactly were the Bush years "false prosperity"? And how do you figure the GDP was "inflated"?
 

Darwin333

Lifer
Dec 11, 2006
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More like.....

- Keep spending going, keep devaluing our currency, keep discouraging savings, etc and it tanks no matter what and thus government spending will have to be cut regardless in the face of higher rates of inflation and in the midst of potential social and political unrest.

- Cut spending now, regain the value lost to our currency, and thus increase the consumers purchasing power and balance government's spending in the future and acknowledge a slower rate of growth for half a decade or so will be need today in order to fuel savings and future growth in our later years. This insures that future generations won't have to un-fuck themselves from the legacy of debt and narrowed economic opportunities their parents left as a inheritance.
You forgot the instant and very large hit to GDP that will happen the moment the budget is balanced, causing government revenue to significantly go down, causing more spending cuts, causing another hit to GDP, etc....

We are going to feel a LOT of pain getting out of this mess. The question we have to answer is how much and when. The longer we wait the more pain we must eventually take but there is absolutely ZERO political will to take any of the pain in their terms regardless of how bad it might be for the next guys term.
 

Darwin333

Lifer
Dec 11, 2006
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I'm glad that you also agree that the Eurozone has a broken monetary/fiscal policy model. I'm not sure what this has to do with the complete failure of spending cuts in depressed economies though.

How many more people will have to come out and tell you that conservative economics were a failure here before you will accept it? Seriously, I'm genuinely curious what it would take for you to accept that austerity here was a bad idea.
I am not sure how you can in one sentence say they have a broken monetary/fiscal system and then in another say that a monetary/fiscal "experiment" they tried is proof that it never works.

And honestly, I don't know why the bond market would lower their rates if only they had the ability to inflate their money and effectively pay the bonds back with less money (everything else being the same obviously).
 

Darwin333

Lifer
Dec 11, 2006
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Nice graphic showing how bipartisan this stuff really is.



The interesting thing here is how quickly the debt dropped after WW2 during the boom. This does not show interest rates but I'm sure someone not at work (like me) can elaborate better than I. I do not see the same type of boom happening anytime soon unless it is another government sponsored bubble.
Keep in mind that just because the debt/GDP dropped doesn't mean that debt in absolute dollars went down or even that deficits were lessened. In a lot of cases it is caused by a rise in GDP faster than the rise of debt.

This goes both ways as well, if you have zero deficit and enter a recession then your GDP/Debt will shoot up because your GDP has been reduced. If you actually rebound out of the recession that can cause a sharp swing in the other direction even if no knew debt was taken on.
 

sm625

Diamond Member
May 6, 2011
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The UK and US just print up a bunch of money and hand it to the rich. Prices rise for the poor and some people get real frickin pissed off because of this obvious injustice. This is an attack on the people, class warfare at its simplest. But most of the population remains obvlious because of the subtlety in which they engineer this massive looting and wealth transfer.

Contrast this with countries like Greece and Spain who are facing the exact same austerity, except that it is shared more equally and there is no illusions/delusions about how bad things are getting. These people at least have the chance to redress their grievances and change things for the better. Not so for the US and UK. Here in the US most people have no clue how bad it is, because it is being papered over by debt. Credit is being used as a weapon of warfare, by the rich, to completely and utterly wipe out the country in a cold calculated manner. The act is actually so violent as to be on par with the slaughter of children at sandy hook, and I think there is a strong connection between what the elite are doing and what random nutjobs are doing in schools, malls, and theaters. Reject that connection at your own peril, I dont care how dumb and ignorant you want to be. But you will not claim that you were never warned.

Riots and bombings and mass unrest kill hundreds, even thousands, which is bad enough. But what is happening with our system of money and credit is something that is going to outright kill millions.
 

fskimospy

Elite Member
Mar 10, 2006
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I am not sure how you can in one sentence say they have a broken monetary/fiscal system and then in another say that a monetary/fiscal "experiment" they tried is proof that it never works.

And honestly, I don't know why the bond market would lower their rates if only they had the ability to inflate their money and effectively pay the bonds back with less money (everything else being the same obviously).
Their interest rates are high due to their broken system.

Austerity is a failure because...well... Empirical evidence shows it to be a failure, including countries that control their own currency.

As for why controlling your currency matters, it makes default impossible. We aren't talking about fears of inflating your debt away not being reflected in interest rates, we are talking about how central banks can eliminate the possibility of temporary crisis leading to default. Spain vs. The UK is a great example of this.
 

momeNt

Diamond Member
Jan 26, 2011
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Their interest rates are high due to their broken system.

Austerity is a failure because...well... Empirical evidence shows it to be a failure, including countries that control their own currency.

As for why controlling your currency matters, it makes default impossible. We aren't talking about fears of inflating your debt away not being reflected in interest rates, we are talking about how central banks can eliminate the possibility of temporary crisis leading to default. Spain vs. The UK is a great example of this.
You know what also makes default impossible? Borrowing!

Also controlling currency does not make default impossible, there must always be sufficient demand for the currency otherwise the currency will hyperinflate. Albeit the USA has far too large of a consumer base for the demand to trade in US dollars to fall to a hyperinflation breakpoint, removing the dollar as a global standard for trade would push the USA much closer to that, but there is still a huge consumer base that requires foreign USD demand.
 

fskimospy

Elite Member
Mar 10, 2006
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You know what also makes default impossible? Borrowing!

Also controlling currency does not make default impossible, there must always be sufficient demand for the currency otherwise the currency will hyperinflate. Albeit the USA has far too large of a consumer base for the demand to trade in US dollars to fall to a hyperinflation breakpoint, removing the dollar as a global standard for trade would push the USA much closer to that, but there is still a huge consumer base that requires foreign USD demand.
No. Since our debt is owed in dollars absolutely no demand for dollars is necessary. Borrowing requites someone willing to lend, this requires nothing other than a desire by the government to act.
 

momeNt

Diamond Member
Jan 26, 2011
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No. Since our debt is owed in dollars absolutely no demand for dollars is necessary. Borrowing requites someone willing to lend, this requires nothing other than a desire by the government to act.
This is wrong. Money collapses when the confidence erodes, it is not a purely economic event, so default is possible. Confidence eroding is demand eroding, such as people unwilling to trade in dollars and eroding the tax base, and nations unwilling to use USD in foreign trade or trading goods for USD.

http://pragcap.com/hyperinflation-its-more-than-just-a-monetary-phenomenon
 

fskimospy

Elite Member
Mar 10, 2006
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What about Ireland? "Austerity" seems to be working there.
Irelands real GDP is still about 12% below its pre crash peak, unemployment there is about 15%, and they had a budget deficit equal to about 8% of GDP in 2012 compared to the US with about an 8.6% budget deficit, a real GDP above our pre crash peak and unemployment below 8%.

Yeah, that's quite a success story.
 

fskimospy

Elite Member
Mar 10, 2006
71,665
21,835
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Darwin333

Lifer
Dec 11, 2006
19,947
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Their interest rates are high due to their broken system.

Austerity is a failure because...well... Empirical evidence shows it to be a failure, including countries that control their own currency.

As for why controlling your currency matters, it makes default impossible. We aren't talking about fears of inflating your debt away not being reflected in interest rates, we are talking about how central banks can eliminate the possibility of temporary crisis leading to default. Spain vs. The UK is a great example of this.
While you are technically correct that having the ability to print money does actually eliminate the threat of default the bond market still decides your fate. If the bond market refuses to loan you enough money to roll your debt or jacks your rates up (as a lot of Europe is seeing) to high then you are forced into desperate measures which basically has the same result as what you are seeing in parts of Europe.

We are lucky right now because everyone else basically sucks worse and we are seen as a safe place to keep your money relatively safe. They are currently actually realizing a loss to loan us money which is great for us now. I seriously doubt they are willing to continue doing that for much longer though.
 

Darwin333

Lifer
Dec 11, 2006
19,947
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Irelands real GDP is still about 12% below its pre crash peak, unemployment there is about 15%, and they had a budget deficit equal to about 8% of GDP in 2012 compared to the US with about an 8.6% budget deficit, a real GDP above our pre crash peak and unemployment below 8%.

Yeah, that's quite a success story.
They are starting to see real growth and they didn't get assraped by the banksters hamstringing them for generations. A little pain now that goes away relatively soon is far greater than a fuckton more pain later down the line.
 

Darwin333

Lifer
Dec 11, 2006
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No. Since our debt is owed in dollars absolutely no demand for dollars is necessary. Borrowing requites someone willing to lend, this requires nothing other than a desire by the government to act.
Borrowing does require demand for dollars though since, as you correctly point out, our debt is owed in dollars. If there is absolutely no demand for dollars (absurdly extreme case) then likewise there will be no demand for our debt. You also pointed out that we can not default since we can print our own money, which is also correct. However, what do you suppose will happen if we are forced, due to lack of demand for dollars, to print every single dollar we spend above tax revenue AND put that money into actual circulation (versus what the Fed has largely been doing with QE)? You got a club in your bag for that?

Edit: Unless of course you are suggesting we should, if that situation arose, start borrowing money that is owed in a currency other than ours. If so that has historically been an absurdly foolish idea and one of the primary reasons the gold nuts are wrong.
 
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fskimospy

Elite Member
Mar 10, 2006
71,665
21,835
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While you are technically correct that having the ability to print money does actually eliminate the threat of default the bond market still decides your fate. If the bond market refuses to loan you enough money to roll your debt or jacks your rates up (as a lot of Europe is seeing) to high then you are forced into desperate measures which basically has the same result as what you are seeing in parts of Europe.

We are lucky right now because everyone else basically sucks worse and we are seen as a safe place to keep your money relatively safe. They are currently actually realizing a loss to loan us money which is great for us now. I seriously doubt they are willing to continue doing that for much longer though.
Every country that controls its own currency is seeing dramatically lower borrowing costs than others. As I mentioned before, the UK and Spain have been in (relatively) similar boats for fiscal matters, yet the UK's debt is cheap as hell and Spain is suffering from a debt crisis.

People have been predicting that the bond markets would soon cease to lend us money at these rates for going on about four years now. They have been wrong over and over and over again. At what point do people start to rethink what they know about bond markets?
 

fskimospy

Elite Member
Mar 10, 2006
71,665
21,835
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They are starting to see real growth and they didn't get assraped by the banksters hamstringing them for generations. A little pain now that goes away relatively soon is far greater than a fuckton more pain later down the line.
Their pain is about half a decade long and counting, their borrowing costs are still much higher than many other countries, it's debt/GDP ratio is 122%, they have ruinously high unemployment and they've had shit growth.

I cannot imagine by what measure their austerity policies have been anything but a horrifying, catastrophic failure. What's funny is that performance THIS BAD is being trumpeted as the success story. If that's success, how bad is failure!?
 

glenn1

Lifer
Sep 6, 2000
25,388
1,013
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Their pain is about half a decade long and counting, their borrowing costs are still much higher than many other countries, it's debt/GDP ratio is 122%, they have ruinously high unemployment and they've had shit growth.

I cannot imagine by what measure their austerity policies have been anything but a horrifying, catastrophic failure. What's funny is that performance THIS BAD is being trumpeted as the success story. If that's success, how bad is failure!?
I guess you prefer the "non-austerity" policies of Iceland. It's growing faster than Ireland now; all it required was a 50% devaluation and 18% inflation rates to bring it down to a far lower base from which to grow. It's non-austerity worked so well its bond rates are now double that of austere Ireland (which just sold €2.5 billion of 2017 bonds at 3.32%
 

Jhhnn

No Lifer
Nov 11, 1999
61,802
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How exactly were the Bush years "false prosperity"? And how do you figure the GDP was "inflated"?
Don't be obtuse. The collapse into the greatest financial meltdown in 80 years is proof enough. The Bush economy was built on unsustainable tax cuts, military/security spending deficits & uncontrolled speculation in housing.

Healthy economies don't crash like that- they can't.
 

Jhhnn

No Lifer
Nov 11, 1999
61,802
13,945
136
Every country that controls its own currency is seeing dramatically lower borrowing costs than others. As I mentioned before, the UK and Spain have been in (relatively) similar boats for fiscal matters, yet the UK's debt is cheap as hell and Spain is suffering from a debt crisis.

People have been predicting that the bond markets would soon cease to lend us money at these rates for going on about four years now. They have been wrong over and over and over again. At what point do people start to rethink what they know about bond markets?
Krugman's mythical bond vigilantes, right?

They don't exist. Bond yields are a function of supply & demand. In a flight to liquidity, which is really what's been happening, investors just want a safe place to park their money, which drives yields down. US Treasuries are the safest investment in the world, followed closely by Japan & England.
 

Jhhnn

No Lifer
Nov 11, 1999
61,802
13,945
136
Borrowing does require demand for dollars though since, as you correctly point out, our debt is owed in dollars. If there is absolutely no demand for dollars (absurdly extreme case) then likewise there will be no demand for our debt. You also pointed out that we can not default since we can print our own money, which is also correct. However, what do you suppose will happen if we are forced, due to lack of demand for dollars, to print every single dollar we spend above tax revenue AND put that money into actual circulation (versus what the Fed has largely been doing with QE)? You got a club in your bag for that?

Edit: Unless of course you are suggesting we should, if that situation arose, start borrowing money that is owed in a currency other than ours. If so that has historically been an absurdly foolish idea and one of the primary reasons the gold nuts are wrong.
Suppose that that Bigfoot will emerge from the forests of the Great Northwest & give a press conference...
 
Nov 30, 2006
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Irelands real GDP is still about 12% below its pre crash peak, unemployment there is about 15%, and they had a budget deficit equal to about 8% of GDP in 2012 compared to the US with about an 8.6% budget deficit, a real GDP above our pre crash peak and unemployment below 8%.

Yeah, that's quite a success story.
I'm glad you agree that it's quite a success story.

Ireland&#8217;s economy grew in 2012 and growth is expected to double in 2013. They expect to meet their public deficit target (< 3%) by 2015. They've recapitalized their banks at below expected costs. Two years ago Ireland was locked out of international bond markets...they've since issued almost 7B euros of treasury bills and bonds in 2012 and yields are falling at each auction. Ireland was also the first EU/IMF program country in the eurozone to return to the sovereign bond markets. Ireland's austerity plan is clearly working.

Estonia and Latvia have similar success stories as well.
 

Tom

Lifer
Oct 9, 1999
13,294
1
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I'm glad you agree that it's quite a success story.

Ireland’s economy grew in 2012 and growth is expected to double in 2013. They expect to meet their public deficit target (< 3%) by 2015. They've recapitalized their banks at below expected costs. Two years ago Ireland was locked out of international bond markets...they've since issued almost 7B euros of treasury bills and bonds in 2012 and yields are falling at each auction. Ireland was also the first EU/IMF program country in the eurozone to return to the sovereign bond markets. Ireland's austerity plan is clearly working.

Estonia and Latvia have similar success stories as well.
Ireland's austerity program includes lots of tax increases.

Its taken a Herculean effort on the part of Pres. Obama to finally get Republicans to accept some tax increases.

His next task will be getting Congress to accept some cuts to our military industrial complex.
 

fskimospy

Elite Member
Mar 10, 2006
71,665
21,835
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I'm glad you agree that it's quite a success story.

Ireland’s economy grew in 2012 and growth is expected to double in 2013. They expect to meet their public deficit target (< 3%) by 2015. They've recapitalized their banks at below expected costs. Two years ago Ireland was locked out of international bond markets...they've since issued almost 7B euros of treasury bills and bonds in 2012 and yields are falling at each auction. Ireland was also the first EU/IMF program country in the eurozone to return to the sovereign bond markets. Ireland's austerity plan is clearly working.

Estonia and Latvia have similar success stories as well.
No, they are horrifying examples of fiscal foolishness that has led to years of pointless suffering.

If you think such dismal performance is an example of the success of your preferred policies you have set the bar so low that is is laughable. This holds true for all of your examples.

It baffles me that people are so wedded to ideology that not only do they not reconsider it when failure stares them in the face, they try to convince themselves that failure was actually success.
 

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