Thursday, February 23, 2012

Iceland's way



When the GFC hit Iceland, the authorities at first attempted to do the orthodox (but not necessarily  the right) thing.   They proposed a massive austerity program.  The president of Iceland refused to sign the laws into effect.  The people supported him.  The government fell, and Iceland defaulted on its debts.

And guess what?  Iceland's recovering.

One beneficial factor that Iceland had which Greece, Ireland etc don't, is that it had its own currency, the krona, which was allowed to devalue.  But it's such an open economy and so small that that won't have had any major impact.




Monday, February 20, 2012

Greek belt tightening






From The Economist

Greeks lose the faith





I think the markets now are convinced that Greece will default.  It's been obvious to me for a while that she would, and the draconian austerity forced on her by Germany virtually guarantees it, as I said in my last post.

Read this article.  Has the ordinary  Έλλην επι  τῃ  όδῳ  (man on the street) now realised that default might actually be less painful than a deep depression?  And when Portugal faces the same conundrum?   And Spain?  And Italy?  Does Germany realise just how deep -- and how long -- the European depression could be if the euro blows up?


Thursday, February 16, 2012

Greek Doom-Loop



Keynes said it long ago:  trying to balance the national budget in a recession is STUPID.  Raising taxes REDUCES overall demand.  Cutting spending REDUCES overall demand.  This causes tax revenue to FALL. So the budget deficit is as big afterwards as it was before, but the economy is now at a new lower level, with higher unemployment, lower output, lower demand.  And greater suffering.  STUPID!  STUPID!  STUPID!

The evidence that Keynesianism works is clear from the collapse in Greece -- which was forced by Germany and the banks to do the opposite of what Keynes recommended.  As a result of forced austerity, Greece is undergoing an economic collapse as bad as the great depression in the US in the 1930s.  The unemployment rate is 20.9% (and soaring); industrial production is down 11.3% year-on-year; GDP will fall for the fifth year in a row.


Note how Greek IP had started to recover in the middle of 2011 until new, even more draconian tightening was forced upon her.

This doom-loop is well articulated in this article, by David Blanchflower of The Guardian.  The question is: when Greece goes, will the markets then turn their attention to the remaining PIIGS (Portugal, Italy, Ireland, Greece, Spain)?  And if they do, will the Angela Merkel totentanz be forced on them too?  Why do ppl never learn?

How stupid our leaders are.

Redundancy



[From The Age; cartoon by John Spooner]