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Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

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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.

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