I wonder what, if anything, it would take to reverse all this self inflicted global destruction.
Clearly evidence and theory isn’t enough.
Too often change comes from some form of ‘blood in the streets’
Draghi Says No Alternative to Austerity as Economies Shrink
By John Fraher and Jeff Black
October 9 (Bloomberg) — European Central Bank President Mario Draghi said there is no alternative to austerity as Italian and Spanish officials balk at asking for bailouts that may impose more budget cuts.
“It’s without doubt that the process of fiscal consolidation has depressed output in parts of the euro area,”
Draghi told lawmakers in testimony to the European Parliament in Brussels today. “But what’s the alternative? We need to do that, we need to do that in the best possible way, as effective and as short as possible, complying with basic grounds of social justice.”
European officials are pushing debt-strapped nations across southern European for more cuts despite the risk that they will worsen recessions gripping the region. Draghi last month said that the ECB is prepared to take the unprecedented step of buying unlimited quantities of Spanish and Italian bonds if they sign up to certain conditions.
At the same time, Italian Prime Minister Mario Monti said in an interview last month that uncertainty about what those terms will look like is making him and his Spanish counterpart reluctant to apply for help.
International Monetary Fund Chief Economist Olivier Blanchard today suggested bond yields in Spain and Italy may resume rising if the countries don’t meet investor expectations and seek aid.
Cameron Says U.K. Needs to Implement Plan A Plus on Economy
October 9 (Bloomberg) — Prime Minister David Cameron said the U.K. government needs to implement an economic policy that he called “Plan A Plus,” without abandoning its deficit-reduction strategy.
Cameron was speaking after the International Monetary Fund cut its U.K. economic outlook and said the government may need to ease its fiscal squeeze if Bank of England stimulus fails to help the economy gather momentum. The Washington-based lender said today it sees the economy shrinking 0.4 percent this year before expanding 1.1 percent in 2013. It previously projected growth of 0.2 percent and 1.4 percent in those years.
“What we need is Plan A Plus” Cameron told Sky News television today from his Conservative Party’s annual conference in Birmingham, central England. He said that means pursuing deficit reduction alongside adopting fiscal measures to help businesses as well as easing planning rules to spur enterprise.
His opponents in the Labour Party have called on Cameron to reduce the speed and depth at which he is imposing government spending cuts, saying the government should alter its course to a “Plan B.”
The IMF is “not advising us to change course,” Cameron told BBC Radio 5. “What they says is we should stick to our plans unless things get dramatically worse.”
He said that while “there are signs that the economy is rebalancing,” including an increase in private-sector employment, “we need to do more and we need to do it faster.”
Healing Process
The prime minister said the IMF’s move meant it was falling into line with other forecasters, underlining the need for the government to ensure that its plans to spur growth are “firing on all cylinders.
Speaking to BBC Radio 4’s “Today” program, Cameron said the government is doing everything it can to encourage growth and a “slow and difficult healing process” is now under way.
He said there will be a new crackdown on tax evasion and “aggressive avoidance,” when asked to give details of his promise to take further action to increase taxes on the rich.
Chancellor of the Exchequer George Osborne told the party conference yesterday the U.K. economy is “taking longer” to heal than hoped. Still, he pledged to “finish the job” of reducing the deficit and signaled that deep cuts to welfare will be needed after the next general election in 2015.
Cameron Says IMF Forecast for U.K. Coming Into Line With Others
October 9 (Bloomberg) —Prime Minister David Cameron said the International Monetary Fund’s decision to cut its economic outlook for Britain meant the IMF was falling into line with other forecasters.
Cameron told BBC television from his Conservative Party’s annual conference in Birmingham, central England, that the goverment needs to ensure that its plans to spur growth are “firing on all cylinders,” rejecting calls for more borrowing to fund extra spending. He pointed to an increase in private- sector employment as a sign that the government’s policies are working.
“I wonder what, if anything, it would take to reverse all this self inflicted global destruction.
Clearly evidence and theory isn’t enough.
Too often change comes from some form of ‘blood in the streets’”
To me, this period is strikingly similar to the protracted economic decline of the 1930s. If history is any guide, it might take global conflict on a very bloody scale “to reverse all this self inflicted global destruction”. Let’s hope not.
Ed – I have to imagine that unemployment of 25-30% will only be tolerated for so long in Spain and Greece. They both just need to take the temporary pain and leave the Euro already.
Depressions are endemic to capitalism due to the persistence of the financial cycle of leveraging and deleveraging as described by Fisher and Minsky. The world is in a period of global deleveraging that has got some way to run given the approach of fiscal austerity. The full extent has not been reached in either breadth or depth.
due to failure to make the right fiscal response, actually
Warren,
Can you explain how deficits differ in their effects in the US vs Euroland, and how CB operations differ in their effects? For instance, you say that in the US, buying of bonds by the Fed (QE) has no impact, only the size of the deficit matters. But in Europe,they have deficits, and you say what they need is the CB to buy the debt.
And what would be the effect of the Fed buying MBS, or State and local bonds? Would that help in the US like ECB bond-buying helps in Europe?
the euro nations, like US states, are revenue constrained but at the same time the entities they rely on for counter cyclical deficits.
It’s like if the US states had to run the multi trillion deficits rather than the federal gov. they’d need help from the fed in that case too.
@WARREN MOSLER,
So, if the Fed were to buy State bonds, that would enable the states to run larger deficits (or to run deficits at all, in some cases) and help out their local economies?
At least as long as the Fed would guarantee to roll them over in perpetuity? And return the interest to them? Is that all part of the ECB’s deal with the sovereigns?
Otherwise, how would the Fed be different from any other bond vigilante? The ECB must be willing to forego principal repayment, if they would enable the Euro nations to continue with deficits that would be unsustainable otherwise.