Will Enforced Austerity Solve Anything?

[copydude]

OK, I know screw all about economics.

And I notice that Eastern European/Baltic economies attract little attention on this forum.

But, the whole Eurozone is currently being asked to take the same pain as our lovely 'peripheral' EU countries. Close schools and hospitals, Take a pay cut. Forget your pension, pay more taxes and so on.

The idea of austerity . . . as I understand it from the IMF . . . is that it will make EU countries - from Portugal to Hungary - more attractive to investors.

Well, maybe it's me, but I just don't get it. Because the people who actually live in those countries only find it less and less attractive to live there in the first place. Countries like Ireland and Latvia have a tradition of being shafted and emigrating en masse, It's happening right now. Demographic meltdown.

Meanwhile, another huge swathe of EU nationals (Italians notably) have a tradition of migrating into the black economy. Baltic countries are now said to have some 42% of the population not paying taxes, a figure only increasing since austerity regimes.

So, what is this current thinking that austerity is good for you? How is it good for even politicians, when everyone is on the breadline? And when everyone is on the breadline, which is not far from now, what do the powers that be do for an encore?

[shipbuilder]

OK, I know screw all about economics.

And I notice that Eastern European/Baltic economies attract little attention on this forum.

But, the whole Eurozone is currently being asked to take the same pain as our lovely 'peripheral' EU countries. Close schools and hospitals, Take a pay cut. Forget your pension, pay more taxes and so on.

The idea of austerity . . . as I understand it from the IMF . . . is that it will make EU countries - from Portugal to Hungary - more attractive to investors.

Well, maybe it's me, but I just don't get it. Because the people who actually live in those countries only find it less and less attractive to live there in the first place. Countries like Ireland and Latvia have a tradition of being shafted and emigrating en masse, It's happening right now. Demographic meltdown.

Meanwhile, another huge swathe of EU nationals (Italians notably) have a tradition of migrating into the black economy. Baltic countries are now said to have some 42% of the population not paying taxes, a figure only increasing since austerity regimes.

So, what is this current thinking that austerity is good for you? How is it good for even politicians, when everyone is on the breadline? And when everyone is on the breadline, which is not far from now, what do the powers that be do for an encore?

They'll keep on doing what they're doing because they have thousands, hundreds of thousands, millions of people supporting them.

[fluffy666]

OK, I know screw all about economics.

And I notice that Eastern European/Baltic economies attract little attention on this forum.

But, the whole Eurozone is currently being asked to take the same pain as our lovely 'peripheral' EU countries. Close schools and hospitals, Take a pay cut. Forget your pension, pay more taxes and so on.

The idea of austerity . . . as I understand it from the IMF . . . is that it will make EU countries - from Portugal to Hungary - more attractive to investors.

Well, maybe it's me, but I just don't get it. Because the people who actually live in those countries only find it less and less attractive to live there in the first place. Countries like Ireland and Latvia have a tradition of being shafted and emigrating en masse, It's happening right now. Demographic meltdown.

Meanwhile, another huge swathe of EU nationals (Italians notably) have a tradition of migrating into the black economy. Baltic countries are now said to have some 42% of the population not paying taxes, a figure only increasing since austerity regimes.

So, what is this current thinking that austerity is good for you? How is it good for even politicians, when everyone is on the breadline? And when everyone is on the breadline, which is not far from now, what do the powers that be do for an encore?

Eventually, the rich will pay their dues or die violently. For some reason they have got it into their heads that there is any other choice.

[longtomsilver]

Eventually, the rich will pay their dues or die violently. For some reason they have got it into their heads that there is any other choice.

+1

[shipbuilder]

Eventually, the rich will pay their dues or die violently. For some reason they have got it into their heads that there is any other choice.

The rich have never paid their dues and won't ever have to because they have people lining up for the chance to be like them.

[aa3]

Austerity has failed in every country it has been tried in. From Estonia, to Ireland, to Greece. It also kept the South East Asian countries in a perma recession after their 1998 crisis.

The fundamental issue is, the modern economy is so prodigious in its production what we face is a demand crisis. But economists are stuck in a different era and like a broken record always thinking it is a supply/inflation crisis.

We need far more consumption, far more money flowing into peoples hands. Already millions are sitting idle for lack of work. And many millions more are spending half their working day idle for lack of business. Introducing austerity into that is just idiotic. Its like a plant becoming sick from lack of water.. then the IMF coming in and saying the plant needs to cut back its water intake, so rationing the plant further.

But its nearly impossible for people to imagine that the 'excesses' we saw in the last decade, were actually far less than the modern production is capable of delivering. Just like in the great depression the first decade of it countries kept trying austerity, thinkng they had to repent for excess consumption during the 1920's. It wasn't until they finally, grudgingly admitted those policies were failures, and started unleashing the floodgates that things started rolling again.

Sadly we could have at least a decade of countries trying austerity, and going in and out of depression.

[Bloo Loo]

Austerity has failed in every country it has been tried in. From Estonia, to Ireland, to Greece. It also kept the South East Asian countries in a perma recession after their 1998 crisis.

The fundamental issue is, the modern economy is so prodigious in its production what we face is a demand crisis. But economists are stuck in a different era and like a broken record always thinking it is a supply/inflation crisis.

We need far more consumption, far more money flowing into peoples hands. Already millions are sitting idle for lack of work. And many millions more are spending half their working day idle for lack of business. Introducing austerity into that is just idiotic. Its like a plant becoming sick from lack of water.. then the IMF coming in and saying the plant needs to cut back its water intake, so rationing the plant further.

But its nearly impossible for people to imagine that the 'excesses' we saw in the last decade, were actually far less than the modern production is capable of delivering. Just like in the great depression the first decade of it countries kept trying austerity, thinkng they had to repent for excess consumption during the 1920's. It wasn't until they finally, grudgingly admitted those policies were failures, and started unleashing the floodgates that things started rolling again.

Sadly we could have at least a decade of countries trying austerity, and going in and out of depression.

no, the currency has failed in every country Austerity has been forced.

the currency is NOT the economy.

The economy is the trading of goods and services by the populace.

please everyone, dont confuse the economy with the monetary position of debt holders....thats just money yet to materialise...however, the potato in the pan is there, its real, its going to fill the stomach.

[aa3]

Austerity is merely another name for cutting back to try and balance the books.

If it fails, it must be something else at fault.

Its because what makes sense on an individual level, or a company level.. like getting expenses under control.. does not neccessarily make sense on a societal level. When we start adding things like the savings rate, concentration of wealth, velocity of money, fractional reserve monetary system.

Sometimes even the government has to do austerity even when the books look great, because of danger of overheating.

[aa3]

no, the currency has failed in every country Austerity has been forced.

the currency is NOT the economy.

The economy is the trading of goods and services by the populace.

please everyone, dont confuse the economy with the monetary position of debt holders....thats just money yet to materialise...however, the potato in the pan is there, its real, its going to fill the stomach.

Not many people understand the difference between the real.. the potato in the pan, and the abstract.. money and debt instruments.

An example I notice reading people like Denninger is this idea that we are pulling forward future demand to the present by borrowing against the future. On the abstract level it makes sense. Until you ask the question how am I pulling this potato in my pan from the future? And how does me eating this potato now, affect the society's ability to grow potatos 15 years from now?

[Bloo Loo]

Not many people understand the difference between the real.. the potato in the pan, and the abstract.. money and debt instruments.

An example I notice reading people like Denninger is this idea that we are pulling forward future demand to the present by borrowing against the future. On the abstract level it makes sense. Until you ask the question how am I pulling this potato in my pan from the future? And how does me eating this potato now, affect the society's ability to grow potatos 15 years from now?

I cant pull a potato from the future....I either have a seed in the ground, a harvest which is fruitfull, a sack of stored potatos, one in the pot/plate, or none at all.

promises I can create just by mouthing a few words.

I think the difference is obvious. the veil comes down when I am handed a piece of paper with the words £10 printed on it...It looks and feels real...IT is real, but the printing on it is a promise....and thats the problem...today, I can buy 5 bags of potatos with this promise...tommorrow, I might be able to buy 1 bag...or none at all.

In truth, we have way too many people living this lie, and too few growing potatos, making wealth....and thats where the Austerity lies...reducing the number of hands grabbing at MY sack of potatos....

[mdman]

Austerity won't work if the fraud isn't dealt with. Mystic Merv confirms banks are hiding £80bn of losses. And that it is a solvency crisis. Until all of this is exposed and resolved in bankruptcy court (with jail for the fraudsters), austerity won't solve a damn thing

[winkie]

Austerity won't work if the fraud isn't dealt with. Mystic Merv confirms banks are hiding £80bn of losses. And that it is a solvency crisis. Until all of this is exposed and resolved in bankruptcy court (with jail for the fraudsters), austerity won't solve a damn thing

.....and mother nature does not accept bribes from anyone.

[Olebrum]

Austerity never works and has proved to be disastrous for nations that have

taken that route.

Edited December 19, 2010 by Olebrum

[nohpc]

The thing that I don't understand about austerity is that they say "we'll just cut a few hundred million here and a few hundred million there" costing hundreds or thousands of people their jobs and a huge impact on public services but then they come up with 6 billion to help bail out ireland which is a huge multiple of the cuts they have just made.

It just seems like they don't know their **** from their elbow.

It seems to me this is all some kind of economic game where the outcome is already known by the top people.

[Johnny Storm]

There is no austerity, there are no cuts being made. Budgets for years into the future are still greater than the budget for previous years.

You are being fooled if you think otherwise.

We have been in a recession for years, maybe even decades. There has been no growth in our economy, just an increase in government spending and debt. That is not growth.

[Buccaneer]

There is no austerity, there are no cuts being made. Budgets for years into the future are still greater than the budget for previous years.

You are being fooled if you think otherwise.

We have been in a recession for years, maybe even decades. There has been no growth in our economy, just an increase in government spending and debt. That is not growth.

The UK is a mature economy in decline. The real national cake is getting smaller. The rich will take ever larger slices to maintain their position so the rest will have to make do with much less. Making up the difference through borrowing only disguises the real state of affairs and cannot be sustained indefinitely.

[R K]

The problem rather is the surplus countries attempt to hoard the potatoes (for the future). They need to consume them now or give them back.

I suspect soon enough they'll wish they had eaten them.

West ought to (and probably will) enforce this principle on the hoarders, and so it should!

[easy2012]

Austerity has failed in every country it has been tried in. From Estonia, to Ireland, to Greece. It also kept the South East Asian countries in a perma recession after their 1998 crisis.

Oh..really? Which South East Asian Country (ies) is/are that ? They are all growing nicely right now and with big property bubble (but that is for another day)...

Korea had their austerity and they are doing well after 97.

Britain did the austerity thing after Napolean War and recovered very strongly indeed after that as well.

Austerity works some of the time, and fiscal stimulus works some of the time. It is better not get into similar financial mess in this first place.

The issue in UK/Old europe is structural and needs restructuring and not just fiscal measures.

[aa3]

Two ways to re-balance.

Short term currency devaluation can help you grow and address the trade balance that way (it all comes back to that in the end btw). More sustainable measures take a very much longer time than this 'solution'.

Most are forced by reducing consumption - which is less than ideal.

But when you are dealing with countries that are culturally wedded to surpluses, it's pretty impossible to make them see it is their 'fault'.

Yes somehow the surplus countries don't see the yin and yang in an economy. Production and consumption.

Printing and spending is not a bad way to devalue the currency. There is also the strong possibility that the surplus countries will continue buying up your currency no matter how little sense it makes. As we've seen nations squeeling at the USA printing but nonetheless buying governmetn debt at below the rate of inflation to prop the currency up.

Personally I would also put in protectionism and managed trade. Like we trade 200,000 cars a year to Saudi Arabia in exchange for x number barrels of oil. For raw resources we actually have a ton to offer developing countries. Like engineering help to build infrastructure.

[aa3]

Oh..really? Which South East Asian Country (ies) is/are that ? They are all growing nicely right now and with big property bubble (but that is for another day)...

Korea had their austerity and they are doing well after 97.

Britain did the austerity thing after Napolean War and recovered very strongly indeed after that as well.

Austerity works some of the time, and fiscal stimulus works some of the time. It is better not get into similar financial mess in this first place.

The issue in UK/Old europe is structural and needs restructuring and not just fiscal measures.

Imo Indonesia, Thailand especially and possibly Malaysia took excessive pain under the austerity. They are back and growing now though.

I take your point that sometimes austerity does work, depending on the situation a country finds itself in.

[nohpc]

There is no austerity, there are no cuts being made. Budgets for years into the future are still greater than the budget for previous years.

You are being fooled if you think otherwise.

We have been in a recession for years, maybe even decades. There has been no growth in our economy, just an increase in government spending and debt. That is not growth.

Then why are front line services being cut? Why do we need cuts in services if there are no budget cuts? They must be cutting something!

[ralphmalph]

What is all this talk of austerity?

We are still borrowing 100bill a year to fund luxury's that we can not afford as a nation. We are still in denial and think we live in land of plenty with trees that fruit money.

They should have cut all the excess 80billion structural deficit overnight, that would have been austerity.

What we seem to have got is rich middle class parents having to pay uni fees and sixth formers losing 30 quid a week that gets spent on nikes and booze.

[ralphmalph]

Then why are front line services being cut? Why do we need cuts in services if there are no budget cuts? They must be cutting something!

What front line service is being cut. Name them.

[aa3]

What is all this talk of austerity?

We are still borrowing 100bill a year to fund luxury's that we can not afford as a nation. We are still in denial and think we live in land of plenty with trees that fruit money.

They should have cut all the excess 80billion structural deficit overnight, that would have been austerity.

What we seem to have got is rich middle class parents having to pay uni fees and sixth formers losing 30 quid a week that gets spent on nikes and booze.

Definately no austerity so far for the UK. Budget 2010 is £696 billion, versus Budget 2009 which was for £671 billion.

[dubsie]

While I know lots of daily mail readers on this forum will

argue for cuts the reality is that these cuts won't solve our problems.

Millions of people will lose their jobs in 2011 and many more will be working in the black Market. The result will be a deeper black hole in public.

Even if house prices fall which I doubt they will, people won't be in a position to invest......just look at Ireland. In Ireland the banks have lost confidence and mortgages are up to 10% above base rates.

The only solution for Britain is to power out of recession through public spending and it has to be paid for by taxing those that can afford to pay through income tax.