The European economy on the brink again.. hits U.S markets.

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...Friedrich August Hayek CH (German pronunciation: [ˈfʁiːdʁɪç ˈaʊ̯ɡʊst ˈhaɪ̯ɛk]) (8 May 1899 – 23 March 1992), born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought. In 1974, Hayek shared the Nobel Memorial Prize in Economic Sciences (with his political rival, Gunnar Myrdal) for his "pioneering work in the theory of money and economic fluctuations and... penetrating analysis of the interdependence of economic, social and institutional phenomena". He considered the efficient allocation of capital to be the most important factor leading to sustainable and optimal GDP growth, and warned of harms from monetary authority manipulation of interest rates. Interest rates should be set naturally by equilibrium between consumption of goods or capital stock.[1]

Hayek is considered to be a major economist and political philosopher of the twentieth century.[2][3] Along with his mentor Ludwig von Mises, he was an important contributor to the Austrian school of economic thought. Hayek's account of how changing prices communicate information which enable individuals to coordinate their plans is widely regarded as an important achievement in economics.[4] He also contributed to the fields of systems thinking, jurisprudence, neuroscience and the history of ideas...

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...Brussels is concerned about the pace of tightening in Spain, Italy, Holland and Belgium. The policy debate is a recognition that synchronised cuts in much of Europe risks creating a self-feeding crisis. The region is already in a double-dip recession, playing havoc with debt dynamics.

Mr Buti floated the new ideas in a policy paper over the weekend at the VoxEU website, but this has yet to percolate beyond academic circles. He said the EU framework calls for "an 'in-depth analysis' of the reasons behind a country's failure to meet the budgetary targets". It allows for "the possibility of extending deadlines".

Commission officials are relative "doves" within the EU policy establishment, proposing a pro-growth Marshall Plan to lift the Club Med off the reefs. The austerity drive has come chiefly from Berlin and Frankfurt.

One official said the new plans can be reconciled with the EU's Fiscal Compact and the so-called "Six Pack" regulations covering deficits, debts and macro-imbalances. "It is not about changing the framework but about using our tools more sensibly," he said...

[brenthutch 444]

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Speaking of unencumbered by the truth.....

"the Obama administration has succeeded in stabilizing its financial sector"

Actually it was the Bush administration that bailed out the financial sector. Obama gave us the trillion dollar stimulus that kept unemployment below 8%

Both Republicans and Democrats cooperated at a time when Capitalism were on the fringe in 2008.
Bush-Paulson TARP 1
and Obama-Geithner Summers TARP 2.

The Obama stimulus package is 780B$ and considered much less when you substract any inter-state transfers (States that did the cuts). About 350-400B$ were actual stimulus and even then, a lot of it were in dubious tax cuts.

It is economic insanity to think that approx 350-400B$ can plug a 2.5 Trillion $ hole created by the Financial Crisis.

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Nobody said that austerity was going to be easy. It is always easier to spend money you don’t have and get other people to pay for it. It hurts when the credit cards are cut up.

I suggest you to go look at the U.K.
Cameron's motto is: "Austerity is a tough and brave choice". No, its just economic stupidity. The U.K keeps missing its target and they are wondering why the market have little to no confidence in the U.K.

Associating credit cards to Government debt is simply Orwellian. Debt can be bad, but not all debt is.


Cheers! Shc

"Lord give me chastity and continence, but not yet."
Saint Augustine

[lawrocket 3]

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This is already happening BECAUSE of austerity. When Italy reached 7% 10-years bond, it had no lenders. Same thing with Ireland. And the recent Spanish bond sells went badly.

So your scenario has still been happening when they were cutting their budgets.

They aren't cutting the budgets. They are limiting the growth of spending. They aren't balancing budgets. They are trimming deficits.

And because they are raising taxes while they are at it, there is less liquidity and cash circulating. This leads to inflation, job losses, and further economic harm.

My point is that they should have never been in this mess to begin with. They paved a road off of a cliff. Using the cash of the future to pay for the goods and services now.

What does one do when heading towards the chasm? I know what Greece is doing - the Greek People are content to take everyone with them. It looks like Italy may similarly do that.

Spain is a perfect crucible for this. Yeah - unemployment is at 23%? Maybe 24%. And who is unemployed? More than half of the people under 25 are unemployed. Why? Because the future was leveraged in favor of the past.

The establishment was favored. The only way out of it is for the youth to be making money and they are unemployed. The youth of Spain, Greece, Italy, Ireland are similarly hamstrung. The future arrived.

What about the US? We're going there, too. We can see what other countries have done and what they are faced with. Start with Portugal and head east and see that the problems are also in France and Belgium. Germany has been doing comparatively well but sagged in the last quarter.

Historically, can you point to problems that austerity has caused? Ir is austerity in government a relatively recent thing? If recent, don't we have a hard time assessing the long term effects of austerity?

My wife is hotter than your wife.

[wlsc 0]

War is the longterm effect of austerity.

[ShcShc11 0]

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And because they are raising taxes while they are at it, there is less liquidity and cash circulating. This leads to inflation, job losses, and further economic harm.

Absolutely. Both spending cuts and raising taxes are harmful in a zero-bound economy.

The money essentially need to circulate and with the European Central Bank keen on:
A) Limiting spending
B) Raising taxes
C) Keeping inflation at 2%

these policies effectively stop money from circulating thus hurting the overall economy and bringing a healthy bank (e.g: France's Societe Generale) to its knees.

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Spain is a perfect crucible for this. Yeah - unemployment is at 23%? Maybe 24%. And who is unemployed? More than half of the people under 25 are unemployed. Why? Because the future was leveraged in favor of the past.

Untrue. Please show me how Spain "leveraged" its future in favor of the past. Spain has been financially and structurally sound since 1992. In fact, they were more responsible than Germany themselves (much more responsible). See picture below.

This whole "PIIGS" got lazy and spent too much is bullshit (minus Greece who in fact did spend too much).

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What about the US? We're going there, too. We can see what other countries have done and what they are faced with.

The U.S isin't heading like the EU because:
A) It controls its own currencies
B) The Government and the Feds are taking some actions in making money circulate. (e.g: Stimulus and money printing). The 2009 stimulus were inadequate to plug what was essentially a 2.5 Trillion $ hole left by the 2008 Great Recession.

The U.S should get into balancing its budget once its economy is at full-employment.

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Historically, can you point to problems that austerity has caused? Ir is austerity in government a relatively recent thing? If recent, don't we have a hard time assessing the long term effects of austerity?

Austerity isin't recent at all.
1930 Great Depression involved austerity to balance the budget- Germany infamously went into deflation and you know who got into power.

1970 saw the success of austerity economics because the economy was in a stagflation (not zero-bound recession)

A recent example of austerity failure involves Japan in the 1990s.
http://www.princeton.edu/~pkrugman/bernanke_paralysis.pdf
This is Ben Bernanke's famous article which even economists such as Milton Friedman agreed to (the father of supply-side economics).

Summary of the paper: Japanese economy went into a deep recession after its banks semi-collapsed in a bubble. Japan went into austerity and eventually realized that its policies were self-defeating.

Read:
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble



A much longer-read if you are interested in looking at it in-depth (written by the IMF):
http://www.imf.org/external/pubs/ft/wp/2000/wp0007.pdf

The Japanese story is fairly similar to the 2008 U.S Great Recession.

The EU is in worse shape because they can't even control their currency.


Cheers! Shc

[lawrocket 3]

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Please show me how Spain "leveraged" its future in favor of the past. Spain has been financially and structurally sound since 1992. In fact, they were more responsible than Germany themselves (much more responsible). See picture below.

Much of it was labor. Recall that Spain was a dictatorship up until the 1970s. Spain has very "generous" labor laws that made laying off employees pretty difficult. The law in Spain was that if an employee was to be laid off, that employee received up to 45 days of pay for each year worked. An employee working for 10 years, if laid off, could get 450 days of pay.

Franco could require such things. But in the absence of a command economy Spain's economy is far less flexible. There are entrenched workers who know and understand that termination of their employment would require a huge hit to the employer. This means that employers aren't hiring. The young are the recent entrants into a labor market where they are at a massive disadvantage.

In a growing economy this isn't a problem. In a shrinking economy it is HUGE! Is it any wonder Spain's unemployment is so high? Taking on a new liability that cannot be shaken easily is difficult. And those who ARE new hirees are also in the unenviable position of being on shaky ground BECAUSE these laws make the price of keeping an employee steeper are time goes on. Low skilled employees are the most easily recycled and there is no job security EXCEPT for those who are already entrenched. It artificially maintains the power structure, and the flight of young Spaniards will have long term consequences, as well.

Spain's unemployment numbers are a reflection of its policies.

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The U.S isin't heading like the EU because:
A) It controls its own currencies
B) The Government and the Feds are taking some actions in making money circulate. (e.g: Stimulus and money printing). The 2009 stimulus were inadequate to plug what was essentially a 2.5 Trillion $ hole left by the 2008 Great Recession.

The U.S should get into balancing its budget once its economy is at full-employment.

The US never has done it before. Even the "balanced budgets" of the GOP Congress and Democrat President were lies - they were close but the national debt went up because of off-the-books borrowing.

On top of that, the laws regarding Social Security and Medicare MUST be changed. Medicare is UNDERfunded by in excess of 100 trillion dollars by 2100. Social Security is underfunded. The system worked fine when there were few retirees compared to the public at large. But the future has caught up with it, and the system is pay-as-you-go, meaning that it is funded solely by present moneymakers. It is this mandatory spending that must be curtailed immediately.

Circulating money cannot make up something that will need an an additional 20%-30% of GDP for the next 80 years just to break even. That IS spending too much.

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1930 Great Depression involved austerity to balance the budget- Germany infamously went into deflation and you know who got into power.

Austerity is one word for it. Wealth redistribution is another way of looking at it. The Treaty of Versailles resulted in great redistribution of wealth from Germany to other countries. 1920's Germany saw hyperinflation. (And, in an oft repeated bit of propoganda, the German government blamed bankers and speculators for the problems.)

I can point to government requirements and wealth redistribution as definite causative factors.

I won't comment on the Japan recession. I have in the past but I was ill informed. I'll take a look at what you put up there.

My wife is hotter than your wife.

[kallend 2,027]

Looks like austerity in the UK has plunged it into recession again.

www.bloomberg.com/news/2012-04-25/u-k-returns-to-recession-in-first-quarter-on-building-slump.html

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The only sure way to survive a canopy collision is not to have one.

[lawrocket 3]

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Looks like austerity in the UK has plunged it into recession again.

Jyst like austerity plunged the world into recession in 2008.

My wife is hotter than your wife.

[kallend 2,027]

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Looks like austerity in the UK has plunged it into recession again.

Jyst like austerity plunged the world into recession in 2008.

No, that was sheer greed by the financial services sector.

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The only sure way to survive a canopy collision is not to have one.

[brenthutch 444]

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Looks like austerity in the UK has plunged it into recession again.

Jyst like austerity plunged the world into recession in 2008.

No, that was sheer greed by the financial services sector.

Then we must outlaw greed.

[wlsc 0]

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Looks like austerity in the UK has plunged it into recession again.

Jyst like austerity plunged the world into recession in 2008.

No, that was sheer greed by the financial services sector.

Then we must outlaw greed.

Or heavily Tax it.

[Marinus 0]

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No, I do not think EU will go into a political union. Germany is adamant to stay away from it. Sakorzy from France is against it too.

Anyone with a basic understanding of European history knows that it isn't possible to form a stable nation from Germany and France, let alone from all the member states. Well, not in the near future anyway. If the USE were to be formed in the near future, the thing would last 2 days before it collapsed, no, exploded. Unless you impose it on the Europeans with brute violence there's no way that the United state of Europe will happen in the next decades. So the USE is not a realistic option to save the Euro, And I doubt the only other possible outcome is collapse.

I'll be the first to admit that I'm not a wizz in the fields of politics and economics, but I tend to mistrust simple solutions like the ones you offer. Politics and economics on a continental scale are far to chaotic and complex for that. Coupled with the fact that you come up with the United States of Europe, an idea that's cute but completely unrealistic, I'm not taking you to seriously if you don't mind.

Your profile says you're Canadian. As I understand it there's tension between the French Canadians and the English Canadians. You really think a nation with dozens of languages and cultures would be viable?

[ShcShc11 0]

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Looks like austerity in the UK has plunged it into recession again.

Jyst like austerity plunged the world into recession in 2008.

lol...
The 2008 Great Recession was rather special.
No real economists predicted the 2008 crisis to be as bad as it became.

Imagine if you were making 150k/year and having a relatively comfortable life. Then, you incur a rare cancer that will cost you 100k/year for an experimental drug (not covered by insurance).

Sure you can blame it on your bad diet and late-night sleep deprivations, but its not really something you could have predicted. Its the same thing with the banks in 2008. You can blame it on greed, but the economists never really had any conceptual models that this was possible.
Hindsight is 20/20, etc...

Cheers! :)
Shc

[ShcShc11 0]

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Anyone with a basic understanding of European history

A) I think I know my history quite well thank you :)
B) This USE isin't about political feasibility, but an option from an economic point of view.

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I'll be the first to admit that I'm not a wizz in the fields of politics and economics, but I tend to mistrust simple solutions like the ones you offer. Politics and economics on a continental scale are far to chaotic and complex for that. Coupled with the fact that you come up with the United States of Europe, an idea that's cute but completely unrealistic, I'm not taking you to seriously if you don't mind.

Its by no means simple and I never claimed anything of the likes. Its one of the possible solution to permanently solve the Euro as a viable currency. All EU countries under the Euro would essentially need to create a Euro-bond or create a ECB (European Central Bank) with unlimited fund to transfer. Both solutions which would inevitably need political union.

What I'm writing on dropzone is essentially a summary. It breaks down in 3 options:

-Break the Euro (in the same way U.S/Europe broke away from the gold standard).

-Political union (inter-transfer money just like how the U.S transfers Federal money to troubled states)

-Complex schemes to mimic the options above. An example would be NSDAP (Nazi)'s economic policies in the 1930s. The NSDAP did not want to devalue their currency for political reasons, but they desperately needed it to because their export companies could not otherwise compete. They formed a complex scheme where all imports company had to subsidize the export company. It was bureaucratic and inefficient, but it did the job while they were in power. [See Adam Tooze's Wage of Destruction]


right now, Europe is taking a kick-the-can down the road solution.

So again, this isin't about political feasibility, its not about whether Europe (countries of a dozen language) can make it work. We're talking about a solution that can make the currency work from a purely economic point of view.


This is why the Euro is a complex situation. A real permanent solution requires an extreme action.


Cheers! Shc

[brenthutch 444]

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Reagan/Bush's Voodoo Economics led to the greatest recession since the 1930s.

You keep telling yourself whatever myth gets you through the day, perfesser. The rest of us will look at 30 years of expansion and laugh at you.

Kallend - are you referring to 1994? Or 2008? Seems uncharitable to attribute this last one to Reagan and Bush I - in between their departure and the 2008 crash we saw a giant boom, a balanced budget, a recession, and another boom. Blame Bush II if you like, but the other 2 can't be held accountable for it.

Mnealtx - what 30 year expansion are you referring to? I could see mid 80s-2000 as a good 15 year period.

2007 (December) - the consequence of Bush II's version of Voodoo Economics.

www.bloomberg.com/apps/news?
pid=newsarchive&sid=aNivTjr852TI

What about Obamanomics? The recession officially ended in June 09, before any of Obamas policies were in place. A trillion dollar spening spree latter and what do we have to show for it? A higher unemployment rate (8.2%) than when he took office (7.6%) and millions fewer jobs. All of this three years into his Reign. http://newsbusters.org/blogs/warner-todd-huston/2008/11/10/obama-spokesman-says-obama-ready-rule-day-1

[kelpdiver 2]

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What about Obamanomics? The recession officially ended in June 09, before any of Obamas policies were in place. A trillion dollar spening spree latter and what do we have to show for it? A higher unemployment rate (8.2%) than when he took office (7.6%) and millions fewer jobs. All of this three years into his Reign. http://newsbusters.org/blogs/warner-todd-huston/2008/11/10/obama-spokesman-says-obama-ready-rule-day-1

unemployment tends to be a trailing indicator.

[mnealtx 0]

For 3 years?

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[kelpdiver 2]

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For 3 years?

no....but I don't think you'll find many saying we're in a booming economy right now either.

It was more a reference to his June 2009 data point.

[brenthutch 444]

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For 3 years?

no....but I don't think you'll find many saying we're in a booming economy right now either.

It was more a reference to his June 2009 data point.

We have an extra TRILLION dollar drag on the economy, with nothing to show for it. "Turns out those shovel ready projects weren’t as shovel ready as we expected heh, heh, heh." No wonder the economy is stagnating. It is hard to plan for the future when Obama has already mortgaged it.

[wlsc 0]

...I will also add this in defense of Keynesianism ...

The Austerians love to point at the 1930s as "proof" that Keynes was wrong. Look at the huge "New Deal," they say. Look at all those expensive public works projects. Look at all the spending the government did to try to get us out of the Great Depression, and it never really worked. What got us out of the Depression, the Austerians smugly observe, was World War 2.

But what was World War 2 if not an absolutely gigantic Keynesian stimulus?

The Federal deficit in World War 2 was massive—much bigger than any time during the Great Depression. And we built up a huge Federal debt load. And ... we set the stage for two decades of amazing prosperity, in which we worked off those debts...

[kallend 2,027]

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For 3 years?

no....but I don't think you'll find many saying we're in a booming economy right now either.

It was more a reference to his June 2009 data point.

We have an extra TRILLION dollar drag on the economy, with nothing to show for it. "Turns out those shovel ready projects weren’t as shovel ready as we expected heh, heh, heh." No wonder the economy is stagnating. It is hard to plan for the future when Obama has already mortgaged it.

The HOUSE approves budgets. Interesting, don't you think, that federal spending is higher under the GOP controlled House than it was when Pelosi was speaker?

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The only sure way to survive a canopy collision is not to have one.

[mnealtx 0]

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For 3 years?

no....but I don't think you'll find many saying we're in a booming economy right now either.

It was more a reference to his June 2009 data point.

We have an extra TRILLION dollar drag on the economy, with nothing to show for it. "Turns out those shovel ready projects weren’t as shovel ready as we expected heh, heh, heh." No wonder the economy is stagnating. It is hard to plan for the future when Obama has already mortgaged it.

The HOUSE approves budgets. Interesting, don't you think, that federal spending is higher under the GOP controlled House than it was when Pelosi was speaker?

The DEM controlled SENATE hasn't approved a budget in over 1000 days and is working under 'continuing resolutions'.

Nice try.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[kelpdiver 2]

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We have an extra TRILLION dollar drag on the economy, with nothing to show for it. "Turns out those shovel ready projects weren’t as shovel ready as we expected heh, heh, heh." No wonder the economy is stagnating. It is hard to plan for the future when Obama has already mortgaged it.

Shovel ready was a bad joke. Too much of that money was instead spent on continuing expenses. That does serve some value, but not nearly so much as investment in infrastructure.

But your claim that it did nothing can't be proven or disproven. They can again say it would have been worse otherwise. And they're right. But how right? And is the benefit greater than the burden down the road?

[wlsc 0]

...It is "not for Germany to decide for the rest of Europe", said Francois Hollande, the frontrunner to replace Nicolas Sarkozy as French president.

If elected, Mr Hollande says that he will not pass the fiscal austerity pact agreed by the leaders of 25 European nations, unless it contains measures to spur on growth.

His stance puts him on a collision course with Angela Merkel, the German Chancellor. She hit back at the French Socialist candidate's plans, warning the deal is "not open to new negotiations".

"The fiscal pact is negotiated, it was signed by 25 government leaders and has already been ratified by Portugal and Greece," she told a German newspaper.

"Parliaments across Europe are on the verge of passing it. Ireland is having a referendum at the end of May."

While her relationship with Mr Sarkozy has not been smooth, his replacement by Mr Hollande threatens to blow apart the partnership that has seen their two nations push through tough reforms across the region...