How do low population states pay for prisons? And paved roads.
You are of course correct. It’s the ESM (and it’s predecessors) that the Germans et al are actually paying into, while the ECB is simply creating more money. Both are backstopping PIGS debt that had they been on their own would have long ago resulted in default/devaluation.
Austerity is self-defeating, the research just keeps coming up confirming that: http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-implications
Another good paper (very related but not as direct as the first link) : http://www.imf.org/external/pubs/cat/longres.aspx?sk=40146.0
You do understand that without the Euro it actually wouldn’t be possible for them to default. When you can print your own money, you can always pay debts denominated in that money. Currency devaluation can, of course, happen as a result of doing that, but that isn’t necessarily a financial apocalypse - especially if the reason you are in trouble in the first place is that everyone has decided it is too expensive to pay your workers and moved their business elsewhere. Borrowing costs might go up, too, but of course austerity is just artificially acting like your borrowing costs are higher, so I don’t see how that could be worse.
Of course it’s self-defeating. How TF are we supposed to cut our way to prosperity? What are the mechanics by which that would occur? But it’s repeated ad nauseam by certain talking heads, just as is the “fact” that “everyone knows”* that federal spending has “exploded” as a result of Obama’s policies, except it hasn’t: it’s maybe gone up about 2 percent since fiscal 2009 (which was a GWB budget). The deficit certainly increased, but that’s because the economy went into the toilet.
*what Krugman called “Hearsay Economics” in a recent post.
And here we are two days away from a self-inflicted wound which won’t do ANYONE a damn bit of good. Stupid stupid stupid.
Papageno, just because a government can print its own money doesn’t mean that it can just do that whenever it wants. Currencies can if fact collapse. The currencies of small countries are not like the us dollar, which benefit from being a cornerstone of the global economy.
Italy couldn’t just print its own money, because that money wouldn’t be worth anything. No one would want to be paid in it.
Don’t worry, I just saw Beohner saying the sequester was all Obama’s fault and he wanted it to happen.
So I’m sure we’ll work it out just fine.
Don’t use logic when you think about it, your head will explode.
Well, the definition of sovereign means that the Italian government, if it were still operating under the old currency regime (pre-Euro), could in fact deficit spend as necessary to counteract downturns in the business cycle. Would there be consequences? Sure. If they overdid it, inflation to a greater or lesser degree domestically. People who held Italian bonds or had a lot of money in lire might not be too happy, but I daresay that most Italians would rather risk some mild inflation than suffer under ever-greater austerity, fewer public services and social supports, high unemployment, and falling wages with no end in sight. Having a common European currency no doubt makes life much more convenient if you’re an international businessperson/investor or if you have the means to travel internationally on a regular basis, but the convenience of those people shouldn’t take priority over the well-being of the general population. Yes, currencies can collapse, but that usually takes an especially cataclysmic event. Hell, if the postwar lira didn’t collapse when there was 25% yearly inflation in the early 70’s, I don’t think it would be in special danger of doing so now. Of course, the transition back to sovereign fiat currencies is a total PITA.
The beauty of the free floating exchange rate system of sovereign fiat currencies is that it auto-adjusts for trade imbalances, domestic inflation, etc. in a way that the Euro cannot. The postwar lira was never considered to be a strong currency (mostly due to Italy’s f*cked up politics), but when it would drop enough against others, tourism and investment were boosted, as was demand for Italian exports.
Network Radio news is reporting that Boehner and Obama will next meet…a few hours after the sequester is to kick in. It looks like there will be no settlement before that time.
You should not act like that’s surprising. The basic dynamic is that any sequester replacement acceptable to the President and Senate Democrats (which will replace cuts with tax increases) is less preferable to the Republicans than the sequester. Likewise, any sequester replacement acceptable to the Republicans (which will involve replacing defense cuts with cuts to entitlements, cuts that they’ll want Democrats to propose and own) is less acceptable to Democrats than the sequester.
Political pressure in a month or two may upset that dynamic, but for now it’s a very stable equilibrium.
Wait, Obama is the fiscal conservative who wants across-the-board spending cuts? And Boehner is the sad voice of reason saying that doesn’t make sense for the country? What is this, I don’t even-- BAMF!
He warned you about trying to use logic…
Obama does want showy cuts right now, to scare some Republicans into caving. With gerrymandering districts it’s a lot easier to keep discipline. I really think this current self-inflicted crisis is going to end up much worse than 1994, because the gerrymandering is so much stronger now- 90% of the House will see no reason to compromise.
Boehner doesn’t want cuts unless Obama owns them.
Then again, the natural conclusion to gerrymandering will be a third party willing to compromise, but there’s so much inertia against that it’s not happening for decades.
Ah yes, that old lie. Greece had a tax collection problem and moderate spending. Italy’s issues are more complex, but heavy betting against them in markets by people like you is a major factor.
Austerity is unmitigated fiscal shrinkage, and does not lower spending. And it can screw you even if you have your own currency - look at the UK sometime.
Parageno - Yes, like a government set on Austerity and not willing to change course. Again, see the UK.
There’s a straightforward piece about treasury debt, written by Robert Solow, on the NY Times Op-Ed page today:
http://www.nytimes.com/2013/02/28/opinion/our-debt-ourselves.html
THE significance of America’s national debt is a serious question, but you would not know this from the current political rhetoric, which consists mostly of vague apocalyptic warnings. I want to present a calmer view, by emphasizing six facts about the debt that many Americans may not be aware of.
Those are the following. See the article for explanations of each.
- Roughly half of outstanding debt owed to the public, now $11.7 trillion, is owned by foreigners.
- The Treasury owes dollars, America’s own currency (unlike Greece or Italy, whose debt is denominated in euros).
- One way to effectively repudiate our debt is to encourage inflation.
- Treasury bonds owned by Americans are different from debt owed to foreigners.
- The real burden of domestically owned Treasury debt is that it soaks up savings that might go into useful private investment.
- But in bad times like now, Treasury bonds are not squeezing finance for investment out of the market.
It concludes:
In the long run we need a clear plan to reduce the ratio of publicly held debt to national income. But for now the best chance to reinvigorate the economy, spur business investment and encourage consumer spending is through public borrowing and spending. Instead, we’re heading into an ill-advised, across-the-board austerity program.
To be fair, Greece did cook their books. They even used the best banks in the business to do so, American ones. :)
Late answer: well, Montana has the logging companies pay for them. The roads, I mean, but possibly also the prisons…
I think we can now safely respond to the OP: yes, the sequester is going to happen. I should know by next week if I’ll be furloughed or laid off entirely from my job as a contractor for NASA. Which would suck, because I like my job, and I’m good at it.
Ugh. Good luck. I hope neither happens.
What Clay said.
SMH, as the kids say. It’s all so stupid and unnecessary.