Opinion on Bloomberg.com: Conservative Austerity Idea Is Failing

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    Jan 29, 2011 1:34 AM GMT
    http://www.bloomberg.com/news/2011-01-28/conservative-austerity-idea-is-failing-commentary-by-david-blanchflower.htmlThere is little historical precedent in the real world, though lots of fantasizing in the made-up world of economic theorists, to suggest that fiscal austerity works. The best example of austerity’s failure is the double-dip that occurred in the late 1930s in the U.S., when spending was reduced too soon in a nascent recovery. In contrast, the U.K. didn’t have a double-dip because it was engaging in classic Keynesian spending as it began re- arming.

    Claims are often made that there are examples where fiscal austerity has worked. But it turns out that this is generally due to the monetary stimulus that accompanied it, as in the U.K. under Margaret Thatcher in the 1980s. The most frequently cited example is Canada, but it was able to cut interest rates while at the same time benefiting from the Clinton boom of the 1990s.
    ...
    The U.K. may be a purer case of the harm austerity at the wrong time can inflict. Britain now looks as if it is headed back into recession on fear about the damage that will be done by massive spending cuts and tax increases, which haven’t even gone into effect yet. Government ministers with their talk of austerity have already smashed confidence.
    ...
    Earlier this week, the Office of National Statistics reported that fourth-quarter gross domestic product slumped 0.5 percent while forecasters had expected a gain of 0.5 percent. The ONS suggested that bad weather -- as if the U.K. had any other kind in the winter -- had contributed to the decline and without it growth would have been zero.

    Even so, this was consistent with a sharp slowing of the economy following growth of 1.1 percent in the second quarter and 0.7 percent in the third, which at the time led Osborne to pronounce that the government’s policies were working.
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    Jan 29, 2011 2:09 AM GMT
    Thanks for posting this !!! It should be obvious that this dip in the economy is the time to be pumping money into developments/improvements in roads, bridges, rail and airport transportation, updating auto makers to the latest fuel efficiencies, improving all local, state and federal buildings for fuel efficiency in heating and cooling, Nationwide state and federal park improvements, Flood prevention projects among other such projects. and of all the times in history, this is it for keeping up the safety nets for the low income and for those unfortunate enough to have lost their jobs, its certainly not the time to pull back. These are the things that get money flowing in the economy. Pull back and what happens? Less money flows out in the economy, things tighten more and more and the recession gets worse.


    If the government can print money (which is one of its constitutional duties) for bailing out the banking system which they f'd up themselves, then they can print money to assist the good of main street for the sake of the public. Why should doing so be any more inflationary than it was for the banks ?? After all whether you realize it or not most mortgages didn't have actual money to back the loans the date of creation, loans are made, a draft for funds to start a building project is taken to the bank by the builder, the bank cashes it, gets materials and walla the money is there for the project, and this happens over and over again, thus basicly making money and injecting it into the economy, the Fed prints money to fill the need for cash flow and that's how its done. It can work just as well for local, state and federal projects for the good of our nations citizenry. I know, I put it in laymans terms, but that is how it works.


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    Jan 29, 2011 2:16 AM GMT
    http://www.guardian.co.uk/business/2010/sep/23/ireland-austerity-budgets-commentSo how are things going across the Irish Sea? Well, figures out today showed that the economy has bombed after briefly flickering into life in the first three months of 2010. There are rumours swirling around Dublin about the viability of Anglo Irish Bank. And the bond markets that were once impressed by the bravery of prime minister Brian Cowen's government have now turned on Ireland with a vengeance.

    One measure of market confidence is the difference, or spread, between the yield on Irish government bonds and German bunds. Today that widened to a record level.

    The reason for this is simple: the budget cuts have impaired the economy's ability to grow. The Irish government wants to slash the country's budget deficit from 12% to less than 3% by 2014, which would be eye-wateringly tough even if the economy were growing robustly. But when the economy is shrinking, it means the government is in effect running to stand still, hence the calls for even greater austerity to mollify the markets. That would, of course, simply weaken growth prospects still further.

    Ireland, in other words, is perilously close to locking itself into permanent depression and deflation, from which the only way out may be a default that would further damage consumer and business confidence. There is indeed a lesson for the UK from Ireland: how not to do it.


    Is there a crisis of faith in the US market? If not, WTF are we doing?
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    Jan 29, 2011 4:14 AM GMT
    No. There isn't.

    What's happening in the western nations right now is straight out of Naomi Klein's "The Shock Doctrine." The bankers (with help from politicians) create an enormous financial crisis and then use it to steal the citizenry's money. The only difference is that we still have something resembling elections so it's hard for them to do it all at once. It's all the Chicago School, of scaring people and then fleecing them. If the government doesn't do something soon, the US could look like Egypt in a couple of years.