View Full Version : Austerity is a disaster in Europe
Eric Stoner
05-18-2012, 08:51 AM
Sweden was running much bigger surpluses 2006 - 2009 as a percentage of GDP, and ran a deficit in 2010.
http://www.tradingeconomics.com/sweden/government-budget
Sweden's economic growth rate is 3.9%. Only Poland and the 3 Baltic countries have higher rates of growth.
Their debt as a % of GDP is 38.4%. Germany's is 81.2 % ; France is at 85.8 and we don't even want to bother looking at the PIIGS.
Their inflation rate is 1.4% , the lowest in the E.U.
Their unemployment rate is 7.3%. The "official" Government issued rate is 5.4% which most analysts set aside due to some idiosyncratic ways of counting who is "employed".
I know. I know. I am shocked, SHOCKED ! that the Swedish government cooks the numbers on unemployment. I wonder if they got the idea from our DOL ? lol.
rickdugan
06-05-2012, 09:15 AM
Eagle, I didn't respond to your last post regarding China because I didn't see the point. Anyone who is willing to excuse the second largest economic powerhouse in the world for keeping a vast chunk of its population living in banana republic conditions is simply willing to excuse, explain away or believe anything.
If this were anywhere remotely close to the case in virtually any other industrialized country in the world, people with your ideological beliefs would be howling. Instead, you throw up stats about living conditions in the U.S. that are over 70 years old. Many of the employed in China have a worse standard of living than the unemployed do in almost any other industrialized nation, including those who are being subjected to so-called "austerity." How is that, in any way, remotely a success for an economy?
And speaking of the PIIGS, here we go now with Spain and Italy.
Eric Stoner
09-21-2012, 11:25 AM
I told you so ! I told you so ! - From the front page of today's "Business Day" in the N.Y. Times - Discussing Great Britain and the fat pensions paid to retired doctors , "But overall government spending, as a portion of the economy, continues to rise. It is projected to approach 700 billion pounds this year, or about 45 % of GDP compared with 38 % a decade ago. " Point being that retirees in Britain are not experiencing "austerity". More importantly it shows that Britain has NOT cut spending in either real or relative terms.
eagle2
09-21-2012, 12:53 PM
Sorry Eric, but what you told us isn't so. Government spending in the UK is down. A few years ago, government spending was more than 45 percent of gdp. In 2009 - 10, it was close to 48 percent.
http://www.guardian.co.uk/news/datablog/2010/apr/25/uk-public-spending-1963
mikef
09-21-2012, 02:04 PM
Austerity is a disaster.... But it's comming one way or another.
Melonie
09-21-2012, 10:44 PM
from
(snip)"Another night of Flash PMI data from the Eurozone, and as expected it isn’t getting any better over there. This from Chris Williamson, Chief Economist at Markit Economics.
The Eurozone downturn gathered further momentum in September, suggesting that the region suffered the worst quarter for three years. The flash PMI is consistent with GDP contracting by 0.6% in the third quarter and sending the region back into a technical recession.
”We had hoped that the news regarding the ECB’s intervention to alleviate the debt crisis would have lifted business confidence, but instead sentiment appears to have taken a turn for the worse, with businesses the most gloomy since early-2009 due to ongoing headwinds from slower global growth. This gloom is clearly reflected in headcounts falling at the fastest rate since January 2010 as companies seek to adjust to weaker demand.
“At the same time, input costs have risen markedly, linked largely to higher oil prices. Weak demand has meant companies have been unable to pass these costs on to customers, meaning output prices fell again in September. The combination of higher costs and lower selling prices will inevitably hit profit margins.
“Some good news came from an easing in the rate of contraction in Germany, though the rate of decline accelerated markedly in France and a deepening downturn was also evident in the periphery. It remains too early to say, however, whether Germany will continue to buck the trend, especially as it continued to see a strong rate of loss of new orders in both manufacturing and services.”
So Germany and France have swapped positions from August, but the summary statement about Germany doesn’t give me much optimism that this is going to be a sustained reversal.
Germany managed to shake off the summertime blues in September, with renewed services growth helping to stabilise private sector output as a whole. Manufacturing also made a contribution to the slightly less gloomy picture, albeit simply by achieving a slower contraction of production compared to August.
However, the halt to the private sector downturn seems to have a fragile veneer, given the reliance on pipeline projects over new business to stabilise output. A lack of incoming new work, combined with a sharp drop in year-ahead expectations for activity, meant that service providers cut back on staffing levels at the most marked pace since May 2009.
That sounds to me like the lead up towards Christmas will probably disappoint as the orders for new work, although better than in August, still appear weak.
I talked about France early last week and warned again that the nation’s current economic structure means that it is unlikely to fare well under a regime of higher taxation. I doubt whether the newly proposed tax increases where to blame for the renewed downturn, but I do expect France to become yet another counterpoint to Ricardian equivalence over the next few months, if it isn’t already. You can see from the charts below that the downtrend is solid and the contraction is accelerating, and can I again remind you that France is the 5th largest economy in the world."(snip)
The theory of Ricardian Equivalence basically asserts that increased borrowing by governments and increased taxation by governments are essentially equivalent to each other on the basis of negative economic impact on the country's economy. Present day criticism of Ricardian Equivalence revolves around the fact that, in today's world, government borrowings will never actually be repaid in full. Whether this happens via debauching the currency with which the borrowings are eventually repaid, by outright default, or by other means ( such as the debtor country invading the creditor country ), in every case the lender / creditor winds up being the loser while the borrower winds up being the winner in the short term.
However, in the longer term ( i.e. the situation that most of Europe now finds itself in ), creditors begin to deny additional credit / loan money to debtor countries thus creating a 'cash crunch'. This in turn forces debtor governments to return to an equilibrium where current gov't spending levels must equal current gov't tax revenues. In the case of France, the gov't has chosen to enact a 75% maximum income tax rate in an attempt to minimize necessary gov't spending cuts ... which has prompted many prominent high earning French to take the ex-pat route ( with associated negative effect on future French tax revenues ). In the case of Greece, where the gov't has failed to implement 'austerity' i.e. failed to balance gov't spending levels versus tax revenues plus lenders have balked at providing additional loaned cash, that rebalancing is now being forced upon them via the gov't running out of spendable cash !!!
(snip)"The municipality of Acharnes in northern Athens has decided to suspend all of its operations after running out of money. The municipal council met on Thursday night and voted to stop providing anything other than basic services because of its inability to pay employees’ wages and regular expenses. In Nintendo Donkey Kong Game and Watch parlance: Game over.
“Acharnes Municipality will remain closed indefinitely, until the financial problem can be resolved,” the local authority said in a statement.
The municipality will operate with just skeleton staff, which trash will only be collected from outside schools.
Mayor Sotiris Douros is due to meet Interior Ministry officials on Friday to discuss the municipality's problems.
He wants the government to reduce from 11.5 percent to 5.5 percent the interest rate on a loan to the municipality. Douros argues that the monthly loan repayments of 500,000 euro is too high."(snip) from
Thus as MikeF pointed out above, with creditors / lenders now reaching the end of their collective ropes in regard to providing additional loaned cash which would allow European governments to continue their profilgate spending, said gov'ts will now be forced to limit their spending 'the old fashioned way' ... i.e. by simply running out of cash to fund additional gov't spending !!! Unfortunately, for countries that have the ability to 'print' currency like the UK and USA, the gov't will never run out of cash.
Eric Stoner
09-24-2012, 09:11 AM
Sorry Eric, but what you told us isn't so. Government spending in the UK is down. A few years ago, government spending was more than 45 percent of gdp. In 2009 - 10, it was close to 48 percent.
http://www.guardian.co.uk/news/datablog/2010/apr/25/uk-public-spending-1963
Ten years ago it was 38 %. Now it is 45 % of GDP. Where can I sign up for that kind of "austerity" ?
Austerity is billed by Krugie et. al. as draconian budget cuts. He of course ignores the tax increases ( what else is new ? ) and the sluggish growth that results. And , as it turns out, government spending as a % of GDP and in REAL terms has gone UP in Britain and elsewhere.
If you don't like the numbers please take it up with the Times and the sources they relied on.
eagle2
09-26-2012, 09:02 PM
Ten years ago it was 38 %. Now it is 45 % of GDP. Where can I sign up for that kind of "austerity" ?
The issue isn't what government spending is now, compared to 10 years ago. The issue is that the British government has been cutting spending and laying off public workers during an economic downturn. As a result, these policies have made the downturn worse and brought Britain into recession.
Austerity is billed by Krugie et. al. as draconian budget cuts. He of course ignores the tax increases ( what else is new ? ) and the sluggish growth that results. And , as it turns out, government spending as a % of GDP and in REAL terms has gone UP in Britain and elsewhere.
The British government recently cut taxes.
http://www.nair-co.com/UKBudget2012.aspx
If you don't like the numbers please take it up with the Times and the sources they relied on.
I'm not disputing the numbers. I'm pointing out that over the past few years, the British government has reduced government spending.
Melonie
09-26-2012, 11:02 PM
The issue isn't what government spending is now, compared to 10 years ago. The issue is that the British government has been cutting spending and laying off public workers during an economic downturn. As a result, these policies have made the downturn worse and brought Britain into recession.
There are numerous other interpretations to explain Britain's recession. And an assertion that the UK's cuts in gov't worker payrolls helped mitigate a recession that would have been worse had they not done so is arguably just as valid.
The British government recently cut taxes
A strategic move to attract new uber-rich French ex-pats who are starting to flee France's newly imposed 70% top income tax rate. Wanna bet that the UK's actual tax revenues increase as a result of this tax cut ?
mikef
09-27-2012, 07:28 AM
While austerity is a disaster..... The old way of piling up debt to improve economic output is not working anymore..... Gonna be a long cold decade.
31813
Dirty Ernie
09-27-2012, 08:11 AM
What we need is a good old-fashioned American bubble.
mikef
09-27-2012, 09:59 AM
What we need is a good old-fashioned American bubble.
Oh they're trying.... The trouble is they are trying to reflate the old ones.
Melonie
09-27-2012, 10:43 AM
^^^ and they're very effectively inflating 'bubbles' in the US economy !!! But the problem is that these new 'bubbles' are in energy prices, in food prices, in insurance rates, in health care costs etc. ... all of which exert additional 'drag' on the US economy in general. They've also inflated gold and silver prices significantly ! See the 'Which Assets Perform Best During Quantitative Easing ???' thread.
Unfortunately, so far at least, efforts to inflate real estate price levels have failed in most areas despite record low interest rates. Efforts to inflate US stock market valuations are also starting to fail, given that smart investors had already 'baked in' QE3 effects into US stock market price levels before the QE3 program actually started - with markets now back to where they were, or lower, than on the day QE3 was officially announced by the FED.
As MikeF's graph clearly shows, the US economy is now well past the point where additional gov't borrowing ( = money printing ) and spending produces a net positive stimulative effect - and is entering into ( uncharted ) territory where additional borrowing ( = money printing ) produces outright negative consequences.
Obviously gov't borrowing ( = money printing ) and gov't spending policies going forward are closely tied to the future events of November 6th !!! In the meantime, the 'Bread and Circuses' continue ...
mikef
09-27-2012, 11:53 AM
It's not so much that is producing negative growth..... It just doesn't boost GDP as it used to.... It's a terrible corner we have painted ourselves into.... Imagine having to roll the huge amounts of accumulated debt over at higher rates.... As bad as we think things are..... They can and will get a lot worse..... And the price rises in food & energy hurts those who can least afford it.
Melonie
09-27-2012, 02:09 PM
^^^ the negative consequences I was referring to weren't limited to negative economic growth. I was thinking more along the lines of loss of US dollar 'purchasing power' that accompanies a drop in America's credit rating - which increases US dollar denominated prices for everything imported and 'robs' value from every Americans' savings and retirement accounts. I was thinking more along the lines of forced increases in future interest rates, which will both hit US consumers and businesses directly, but which will also divert an increasing percentage of total future US federal and state tax revenues toward debt service costs, etc.
Eric Stoner
09-28-2012, 07:45 AM
^^^ the negative consequences I was referring to weren't limited to negative economic growth. I was thinking more along the lines of loss of US dollar 'purchasing power' that accompanies a drop in America's credit rating - which increases US dollar denominated prices for everything imported and 'robs' value from every Americans' savings and retirement accounts. I was thinking more along the lines of forced increases in future interest rates, which will both hit US consumers and businesses directly, but which will also divert an increasing percentage of total future US federal and state tax revenues toward debt service costs, etc.
We have seen exactly how that works : All you have to do is look at Greece and Spain. Or California , Illinois and dozens of other states and cities. We will be left with two lousy choices to deal with our debt : painful austerity ( draconian budget cuts ) or Weimar - Brazilian - Israeli - Argentinian type inflation.
mikef
09-28-2012, 08:58 AM
Over the last 30-40 years growth has been spured on by easy credit..... Now this debt cannot be paid back.... It's as simple as that.... The idea that all economies can grow at all times is incorrect.... You know for centuries before there was no real economic growth.... The economic growth of the last few decades were just the result of govt. & the private sector being able to consume what is could not pay for via access to easy credit..... The 70's never really ended..... They just got papered over with debt...... Now the debt deflation is happening.... There is no way to avoid it.
Call it austerity.... Call it real life..... It's all the same.
Eric Stoner
09-28-2012, 11:15 AM
The National Debt will NEVER be paid back. Nor need it be. Not in full. What we MUST retain is the ability to roll it over , to exchange new for old debt and to afford the interest that we must pay. So long was we can still do those things now and in the future, our economy will not collapse and we will not experience hyperinflation.
mikef
09-28-2012, 12:10 PM
While the debt does not have to be paid back in it's entirety..... "Con"fidence is what makes the fiat currency/debt based credit system work..... And you can't have confidence without the con.
eagle2
10-01-2012, 10:27 PM
There are numerous other interpretations to explain Britain's recession. And an assertion that the UK's cuts in gov't worker payrolls helped mitigate a recession that would have been worse had they not done so is arguably just as valid.
No it isn't. There is no proof or basis for your statement. If that's the case, why aren't countries that didn't implement austerity measures in recession?
Eric Stoner
10-02-2012, 09:31 AM
No it isn't. There is no proof or basis for your statement. If that's the case, why aren't countries that didn't implement austerity measures in recession?
Who are you talking about ? Greece ? Spain ? Italy ?
You love to point to China and billions they invested in infrastructure. Their economy is slowing.
I will agree with you to this extent , austerity alone has not worked. Just cutting the increases in projected spending without doing anything to promote growth has resulted in recession. As we've pointed out , most European austerity has involved large tax increases.