Cool. The US economy has been growing for the last four quarters. What do you advocate cutting?
As I said the last time we discussed this, we could have made ourselves more attractive to lenders by stimulating the economy through job creation. We have plenty of cash reserve to do that - it’s in the pension fund. When it was proposed we tap into that fund to create jobs, the government said oh no, can’t touch that money - but now they’re using it to pay off the bondholders :mad:
The fact is we’re not getting a reasonable interest rate under the EU/IMF plan either. We can’t afford the 5.8% “variable” rate they’ve imposed. So claiming this was our only viable alternative doesn’t wash. It’s not a viable alternative in the long run (and I don’t think the “long run” will be very long at all).
That’s got worse, too.
What we’re going to get if we don’t get a coordinated organised round of debt writedowns is a total meltdown of the banking system. Let’s say they don’t write anything down anywhere and for the sake of argument Ireland goes bust first (according to ex-central banker and current Citibank* chief economist Willem Buiter Ireland, Spain and Portugal are already insolvent) That means massive losses for Ireland’s creditors, who are banks backed by other sovereigns (like Germany). Those losses tip other countries into insolvency and you get a domino effect, a massive global credit event with no country safe from the effects. And that’s what we’re heading towards. The only way to avoid this is a massive organised debt writedown programme. What we’ll probably get in the meantime is the ECB and other buying massive quantities of Irish/PIIGS etc. eurodebt so that their bond yields don’t go out of control. But this just kicks the can down the road. The debt remains even if backed by the ECB and the planned way of reducing the debt (wage deflation, making individual countries more competitive) just increase the debt load as the nominal debt remains the same.
The only way out of this is for either or both of the insolvent banks/governments’ creditors to take a haircut, with the ECB buying shedloads of bonds until they can get something worked out. Or maybe the euro nations form a debt union and deal with it that way but how the hell do you get that passed by each euro parliament? Germany’s politicians would be lynched by the public if they ever tried it.
*He’s from Citibank so he knows a thing or two about being insolvent.
Creditors would refuse to lend, or only at much higher interest rates, to nations they deem insecure investment objects. Which is exactly what we want. Banks should not make a fine profit from lending money to fiscally hopelessly irresponsible nations in the secure belief that other more frugal nations will bail them out if they get into trouble. The banks should price into their loans the true insecurity of lending to any individual, company or nation and take their losses from bad business decisions if their loans turn sour. Just like any other business. Nations unable to secure loans would then go bankrupt and/or be forced to live within their means. Which is also what we want. Other more financially prudent nations would still be able to secure loans if they want. Maybe even at a lower interest rates as the money has to go somewhere.
Whoever came up with the idea that incompetently run banks that make stupid business decisions gets to pour their losses on to the unsuspecting citizens? That’s not how capitalism works. Those banks need to go bankrupt so other more competently run banks can grow up and become profitable instead.
Did you not read the last part of what I said? “Preferably after growth begins to reach the working class.” This has not been happening for the last 10 years.
- “Preferably” means that you’re saying Keynesian Theory would nonetheless favor it even if it didn’t reach the working class. If that wasn’t what you meant, don’t say it.
- Keynes said cuts in countercyclical spending should be conditioned on growth in specific sectors of society? Cite, please.
Cause I’m, like, totally sure you’ve read Keynes and know.
I find myself in complete agreement with Rune. You’re from Denmark right? Any chance we can get you appointed as head of the ECB?