Below is a wonderful chart of fiscal initiatives and their expected impact on GDP. The chart highlights –

a) the two largest fiscal consolidations are expected to occur in NZ and Australia.

   the planned consolidation in Australia is the biggest 1y fiscal consolidation on
   record for Australia – this is expected to be formally introduced in their May

b) number of initiatives are by the Eurozone countries (both core and peripheral) as they impose fiscal austerity to reduce debt burdens

c) significant negative impact on US GDP should tax cuts etc. that are currently in place are not extended at the end of the year.

Click here for larger version

26 Responses

  1. But, but, We must consolidate! I don’t want to be working for China in 20 years!!

    Seriously, how can we ever change the conversation when the mainstream view is so entrenched in the public with propaganda like this?

    1. @Newbie, I’d love to see an MMT analysis of that commercial.

      Hanging out on this site makes me think this: China is accumulating dollars which gives them a share of the future productive output of the United States, but that is a function of trade and not the government deficit per se. They could use those dollars in the future to buy American labor, so technically Americans would be “working for them”. However since the productive capacity of the nation as a whole could be increased by this redemption, this could be wonderful. If our balance of trade were to change dramatically then our fiscal stance would have to adapt, and I could see how politically we might be unable to do that, in which case inflation would result: but this is not a necessary consequence, and maybe the powers that be will listen to the MMT luminaries by then.

      1. @Paul Mineiro, “They could use those dollars in the future to buy American labor, so technically Americans would be “working for them”.”

        Yes but we will be getting paid presumably in dollars. So it’s no different than trade now, maybe the balance shifts? The video is implying we are working for them in the future to pay off today’s debts, because we would have defaulted??? I have a Russian woman come and clean my house a couple times a month. I still pay her. I’m gonna withhold payment next time and see what happens.

      2. @Newbie, China can use its US dollars, or any of its other foreign exchange, to buy anything from anyone in the world. Our spending equals their income which increases their demand which increases employment somewhere in the world. Caterpillar would be happy to supply their demand, as would any other American company or workers or those of any other country. We would not be “working for them” to pay off any debt, but to supply their demand, just as they are working right now to supply our demand. Neither you nor I owe anyone in China anything. I know you all know, but just need to express myself from time to time. Cheers.

      3. @Newbie,

        Jim, I was being completely facetious. I know we don’t owe anyone in China anything. I posted the video which was produced by Citizens Against Waste in Government, as a joke. In the video they appear to imply that in China 2030, the US has fallen because we taxed and spent ourselved in to such great debt that we now “work for the Chinese”. So I quipped that maybe I ought to try and get my Russian cleaning lady to work for free, you know to make up for their default. Hardy har. I guess I’ll keep my comedy to myself from now on.

      1. @chewitup,

        Che Wit’up, you really should open your own comedy show, for high brows. 🙂

        We had hillbilly humor. Then redneck humor. Why not scalability-billy, or simply scalabilly for short?
        Or, just call it optional humor?

    1. @Dave Begotka,

      “system D?” i wonder where that expression comes from, cuz in french there’s the same expression, “système D.”

      the “D” stands for “Débrouillard” (pron. day-broo-YAR). a “débrouillard” is somebody who gets by somehow, by any means necessary–a “survivor.”

      i’m not very good at translating, but maybe one way of translating “système D” would be something like “[to be in] survival mode.”

      1. @Yuu Kim,

        “i’m not very good at translating, but maybe one way of translating “système D” would be something like “[to be in] survival mode.””

        Too bad Survivor’s taken. 🙂

        On a serious note, this is just one more piece of evidence that the world is taxed too much for the govt it gets…

  2. This is like watching a tsunami approaching …. and hearing most people say “we need this.”

    Where’s this chart published? More people need to see historic correlations between reduced public investment and declining GDP.

    1. @Dan Lynch, I don’t know. Seems most of the world is into austerity these days. Gotta cut the debt is all most people think these days esp. the PTB class. They may have trapped themselves into a tax increase?

  3. Bill Mitchell has been reporting on a growing battle to prevent the Australian version of budget madness. Maybe they will come to their senses? Not much time though. And, this is a Labor government!!??

    1. @SteveK9,

      Tells you just how far the political pendulum has swung in western nations.

      Anyone see the story in recent NYT about Obama and Boehner’s near budget compromise? Similar dynamic, the reflexive austerity tendencies are frightening. Think it’s a Clinton-Rubin-Summers legacy in part (as badly as Larry – and recent co-author DeLong – might try to deny it).

      Then again, it’s what the electorate seemed to want at the time…and many still do. Might take more pain to unlearn it.

  4. Without any costless euro creation via fiscal spending from a single-source currency issuer, the entire euro bond scheme is a significant, unregulated tax on Europe’s economy. [Rather than just a minor charade & burden, like here. Overall, as Warren says, the financial industry everywhere is more trouble than it’s worth, but how much trouble depends on the currency zone.]

    Spanish minister says hike in bond rates due to EU growth doubts [ya think?]

    Without any fiscal spending by a euro treasury, how did they even get this far? Has the distribution of private savings across the euro zone changed dramatically? First stage would be depletion of lower class savings, as those with enough to buy public bonds suck a steady proportion of spent euros out of circulation & into a spiral of concentrated savings. Second stage – theoretically, with enough austerity – would be eventual net dwindling of savings from even the upper classes.

    It all seems senseless. The only way to arbitrarily limit the units used to denominate economic activity is to TRY to arbitrarily limit economic options among the population of users – and hope things don’t get ugly. Pushy finance usually leads to endogenous shove long before “balanced” fiat accounting beauty is achieved.

    You have to wonder what the EU growth rate would have been if bond rates had been zero, and they had agreed on some alternative feedback loop to manage inflation.

    Sovereign-bond-economics: Distributed loss of savings, concentrated debt-peonage.
    Euro-economics: Accelerated loss of savings, accelerated debt-peonage.
    So by that measure they can claim to be out in front of the rest of the world.

    Haven’t they gone through this before? Back in the “futile” age? 🙁 Before their last wave of emigration.

    Maybe it’s just a clever ploy to get bright European peasants to once again voluntarily conquer & colonize the world? 🙁

    1. I am actually surprised that US is not in austerity mode right now. They must be apprehensive to proceed with it before the election.
      Or maybe OWS made them reconsider, for now…

  5. Can someone help me locate the source for this chart? Can’t seem to find it anywhere on the website. Source indicates IMF but it’s not turning up there (based on Google searches). Many thanks.

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