More Evidence That the Deficit Hysteria is Misguided and Destructive

[girl gone mad]

More Evidence That the Deficit Hysteria is Misguided and Destructive
http://www.nakedcapitalism.com/2010/12/more-evidence-that-the-deficit-hysteria-is-misguided-and-destructive.html

The drumbeat of press in favor of visibly failed austerity programs is simply astonishing. We have compelling evidence that they backfire in countries with heavy debt load, with Ireland and Latvia the poster children. By contrast, Iceland, with the mind-numbing debt to GDP ratio of 900% (some have put it at even higher levels at its peak), stiffed many of its foreign creditors (who should have taken notice that things were a wee bit out of balance, although glowing reports from the likes of Fredrick Mishkin may have blinded them to that fact). It also depreciated its currency and its voters turned down an IMF rescue which would have required Iceland to repay the foreign creditors of bust Icelandic private banks, to the tune of €12,000 per citizen.

Loans are also risk capital, but modern bondholders have rewritten the rules: “Heads I take a risk premium, tails I get taxpayers to eat my losses.”

As John Mauldin points out, forcing creditors to take their lumps is the right course of action. Iceland is already showing GDP growth, while Ireland, which is following the austerity playbook to perfection, is imploding.

But as Joseph Stlglitz points out, the advocates of austerity have a lot in common with medieval bloodletters. When it’s pointed out that their programs made matters worse, their response is that they simply weren’t implemented aggressively enough.

http://www.nakedcapitalism.com/2010/12/more-evidence-that-the-deficit-hysteria-is-misguided-and-destructive.html">more...

[hedgehog]

1. When the wolf is at the door, you don't worry about a couple ants in the kitchen....

or something like that, any ways!

The last thing the world economy needs right now is for all the governments to start aggressively fighting deficits and debt by slashing spending. Get the economy rolling again, then maybe take a look at this issue. And start by looking at the top, where the money is!

[AdHocSolver]

2. The REAL reason for the push for austerity programs.

When governments borrow large sums of money, they borrow it from those who possess large sums of money, namely the banks, the large corporations, and the wealthy.

If governments cannot pay back the debt created, it is the banks, the large corporations, and the wealthy who lose.

So the banks, through their puppet organizations like the IMF, the Fed, etc. push governments to cut spending on infrastructure, education, health care, public sector jobs, unemployment insurance, and instead use the funds dedicated to those purposes to repay the banks, the large corporations, and the wealthy for the loans they gave the people to run the government while at the same time giving the tax cuts to the wealthy.

It is the same scam that the banks pulled thirty years or so ago when they sent out "free" credit cards to every household in the phone book. People spent money like crazy with no thought of how they were going to pay it off, and then the banks started jacking up the interest rates to usurious levels.

Then the corporations set up credit bureaus to black list "deadbeats" who got in over their heads. A follow up tactic was to make it more difficult for those people to declare bankruptcy.

Does anyone see a pattern here?