The Market Wants More Stimulus

obama115.jpg
 
Again, greece was fine before 2008.


economist: A marathon, not a sprint

Economist: Greece has a long history of fiscal trouble. It has spent half of the past two centuries in default, note Carmen Reinhart and Kenneth Rogoff in “This Time Is Different”, a history of financial crises. When it became the 12th country to join the euro in 2001, its public debt was more than 100% of GDP. Many thought its chronic budgetary mismanagement might harm the currency.
 
So government revenue never drops right?


PAUL KRUGMAN: Yes. Yes, I think -- in fact, if anything, I think that's too optimistic.

The point is that, even with a restructuring of the debt, Greece needs to do some enormous austerity. No one really knows how this works


Greek government went on a credit binge of epic proportions, as demonstrated in the graph below:
(c) Rannpháirtí anaithnid
 
Again, greece was fine before 2008.


economist: A marathon, not a sprint

Economist: Greece has a long history of fiscal trouble. It has spent half of the past two centuries in default, note Carmen Reinhart and Kenneth Rogoff in “This Time Is Different”, a history of financial crises. When it became the 12th country to join the euro in 2001, its public debt was more than 100% of GDP. Many thought its chronic budgetary mismanagement might harm the currency.

And again, notice that i have said greece did have abnormally high debt before the crisis. But it was not defaulting in the immediate future. Events beyond its control took a situation that was admittedly bad (although not for the reasons you claim) and pushed it past the brink much sooner, if it would have gone at all.

"Fine" maybe have been the wrong word to use. But you should understand the distinction between a culmination of a prolonged event and an externality pushing a country over the edge in the short term.

And just because you can say "economics is a marathon not a sprint", doesnt mean the short term just goes away.

Stop ignoring everything else i say, editing the quote to make you look good, and then responding to the smallest/only things you can. Its pathetic.
 
So government revenue never drops right?


PAUL KRUGMAN: Yes. Yes, I think -- in fact, if anything, I think that's too optimistic.

The point is that, even with a restructuring of the debt, Greece needs to do some enormous austerity. No one really knows how this works


Greek government went on a credit binge of epic proportions, as demonstrated in the graph below:
(c) Rannpháirtí anaithnid

Why are you citing paul krugman? 1. he disagrees with everything you think. 2. everything ive said has been consistent with what hes said. 3. Greece does need austerity.

The greek government went on a credit binge because its revenue unexpectedly dropped!

Not that you managed to actually post thegraph anyway. Have trouble?
 
Stop ignoring everything else i say,

I say Greece has long been recognized as a liberal socialist irresponsible welfare state.

What do you say?

You just did it again.

And again, greece was a welfare state? Source please? Data please?

Debt does not equal welfare state. High spending equals welfare state, more or less. Not the case with greece.

Greece IS a welfare state since 80's elections that brought socialists in power. They had debt problems before that too, but that's when their welfare state expanded. According to Wikipedia, about 40% of their economic output comes from public sector. Socialist brought universal health care (sound familiar?) that put all private health out of business. Social security was organized mostly by trade union insurance funds, good luck with that too.

Up until they joined euro zone, they could print as much money they needed to cover all those government programs, and since someone else is running printing presses today, there is no free money anymore. Oops, classic example of how socialism works.
 
Ame®icano;4513658 said:
I say Greece has long been recognized as a liberal socialist irresponsible welfare state.

What do you say?

You just did it again.

And again, greece was a welfare state? Source please? Data please?

Debt does not equal welfare state. High spending equals welfare state, more or less. Not the case with greece.

Greece IS a welfare state since 80's elections that brought socialists in power. They had debt problems before that too, but that's when their welfare state expanded. According to Wikipedia, about 40% of their economic output comes from public sector. Socialist brought universal health care (sound familiar?) that put all private health out of business. Social security was organized mostly by trade union insurance funds, good luck with that too.

Up until they joined euro zone, they could print as much money they needed to cover all those government programs, and since someone else is running printing presses today, there is no free money anymore. Oops, classic example of how socialism works.

Your just totally ignoring the massive drop in revenue in 2008...
 
Your just totally ignoring the massive drop in revenue in 2008...


PAUL KRUGMAN: Yes. Yes, I think -- in fact, if anything, I think that's too optimistic.

The point is that, even with a restructuring of the debt, Greece needs to do some enormous austerity. No one really knows how this works


Greeks know the party is over. According to a poll released on Feb. 14, nearly two-thirds of people support the government's proposed austerity measures to cut the soaring deficit. Many even believe they don't go far enough.


Cbirch, instead of pretending by wasting your time on trival little points why not try to say one substantive thing in defense of liberalism?
 
Your just totally ignoring the massive drop in revenue in 2008...


PAUL KRUGMAN: Yes. Yes, I think -- in fact, if anything, I think that's too optimistic.

The point is that, even with a restructuring of the debt, Greece needs to do some enormous austerity. No one really knows how this works


Greeks know the party is over. According to a poll released on Feb. 14, nearly two-thirds of people support the government's proposed austerity measures to cut the soaring deficit. Many even believe they don't go far enough.


Cbirch, instead of pretending by wasting your time on trival little points why not try to say one substantive thing in defense of liberalism?

Dude how many times have i agreed that they have to cut spending? Its really the only way to lower the debt significantly. This is probably about the third time youve used that krugman quote and ive had the exact same explanation....
 
Yea i would just like to state that the Wall Street Journal just published an article bashing your exact argument and supporting mine.

Myth and Reality About the Euro Crisis - WSJ.com

WSJ is saying it. If thats the case it doesnt make sense to be some liberally biased viewpoint, does it?

WSJ article requires subscription. I'd love to read it so I can explain it to you. See what you can do. Thanks
 
Yea i would just like to state that the Wall Street Journal just published an article bashing your exact argument and supporting mine.

Myth and Reality About the Euro Crisis - WSJ.com

WSJ is saying it. If thats the case it doesnt make sense to be some liberally biased viewpoint, does it?

WSJ article requires subscription. I'd love to read it so I can explain it to you. See what you can do. Thanks

1. Its not my fault that you dont have a WSJ subscription, or that your not smart enough to get around a simple paywall.
2. The first few paragraphs that it lets you read set the stage pretty well.

Heres a few excepts.

"
As Europe scrambles to find a solution to a debt crisis that's threatening the world economy, it's crucial to understand what actually happened in countries like Spain. Otherwise, policymakers will end up prescribing the wrong medicine, with disastrous results.
"The whole euro-zone strategy is predicated on the assumption that fiscal ill-discipline caused this crisis," said Simon Tilford, chief economist for the Center for European Reform. "That is a radically incomplete analysis."
"

If you believe that Spain's problem was that its government spent and borrowed too much, then the solution is simple: more austerity. But Spain's problem wasn't public debt—it was private debt.
For much of the past decade, the European Central Bank set interest rates at the appropriate level for countries like Germany. That rate was far too low for countries, like Spain, on the euro-zone's edge.

So for years, Spain actually had negative real interest rates, because its inflation rate was higher than the ECB-set interest rate. That gave Spanish households and businesses a huge incentive to borrow. They did, with gusto, and ploughed the money mostly into housing, inflating a giant property bubble.
When the financing dried up after Lehman collapsed, Spanish banks and households were saddled with a glut of overpriced housing. As Spaniards labor to pay off that debt with ever-shrinking assets, the economy has ground to a halt, and unemployment has soared to 23%."
"

Seeking to get back into the good graces of investors, the newly elected Spanish government has vowed to impose punishing new austerity measures. That could prove counterproductive. With households and businesses still paying down their debt, further cuts in government spending could tip the economy back into recession. And that, in turn, will make Spain less able to service its debts.
"Fiscal austerity of this order against a backdrop of recession is only going to make things worse, says Mr. Tilford. By prescribing only austerity, euro-zone leaders "have already dramatically exacerbated the problems in Portugal, Greece and Ireland. Now they risk making similar mistakes in Spain and Italy."
So even though it's wrong, the idea that Spain took on too much public debt that it cannot now pay threatens to become a self-fulfilling prophesy."
"
If government spending wasn't the problem in Spain, then what was? The country's experience points to a different, more troubling culprit: the euro itself."

"
It is that the truth is more complex than either of those caricatures. If Europeans accept the prevailing morality play that sets some member nations against others, they'll all end up the losers."

Need i quote more?

 
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Yea i would just like to state that the Wall Street Journal just published an article bashing your exact argument and supporting mine.

Myth and Reality About the Euro Crisis - WSJ.com

WSJ is saying it. If thats the case it doesnt make sense to be some liberally biased viewpoint, does it?

WSJ article requires subscription. I'd love to read it so I can explain it to you. See what you can do. Thanks

1. Its not my fault that you dont have a WSJ subscription, or that your not smart enough to get around a simple paywall.
2. The first few paragraphs that it lets you read set the stage pretty well.

Heres a few excepts.

"
As Europe scrambles to find a solution to a debt crisis that's threatening the world economy, it's crucial to understand what actually happened in countries like Spain. Otherwise, policymakers will end up prescribing the wrong medicine, with disastrous results.
"The whole euro-zone strategy is predicated on the assumption that fiscal ill-discipline caused this crisis," said Simon Tilford, chief economist for the Center for European Reform. "That is a radically incomplete analysis."
"

If you believe that Spain's problem was that its government spent and borrowed too much, then the solution is simple: more austerity. But Spain's problem wasn't public debt—it was private debt.
For much of the past decade, the European Central Bank set interest rates at the appropriate level for countries like Germany. That rate was far too low for countries, like Spain, on the euro-zone's edge.

So for years, Spain actually had negative real interest rates, because its inflation rate was higher than the ECB-set interest rate. That gave Spanish households and businesses a huge incentive to borrow. They did, with gusto, and ploughed the money mostly into housing, inflating a giant property bubble.
When the financing dried up after Lehman collapsed, Spanish banks and households were saddled with a glut of overpriced housing. As Spaniards labor to pay off that debt with ever-shrinking assets, the economy has ground to a halt, and unemployment has soared to 23%."
"

Seeking to get back into the good graces of investors, the newly elected Spanish government has vowed to impose punishing new austerity measures. That could prove counterproductive. With households and businesses still paying down their debt, further cuts in government spending could tip the economy back into recession. And that, in turn, will make Spain less able to service its debts.
"Fiscal austerity of this order against a backdrop of recession is only going to make things worse, says Mr. Tilford. By prescribing only austerity, euro-zone leaders "have already dramatically exacerbated the problems in Portugal, Greece and Ireland. Now they risk making similar mistakes in Spain and Italy."
So even though it's wrong, the idea that Spain took on too much public debt that it cannot now pay threatens to become a self-fulfilling prophesy."
"
If government spending wasn't the problem in Spain, then what was? The country's experience points to a different, more troubling culprit: the euro itself."

"
It is that the truth is more complex than either of those caricatures. If Europeans accept the prevailing morality play that sets some member nations against others, they'll all end up the losers."

Need i quote more?


A tiny part of the article means nothing. Sorry. In any case, Spain had a huge housing bubble and now needs to pay its bills just like the USA does. Its really that simple.


But why did the economy overheat? Aha! Well just look at the chart below, and notice how the period when Spain was being subjected to negative interest rates coincides almost exactly with the sudden surge in the CA deficit. This is another tell-tale sign, another smoking gun. The monetary policy applied in Spain between 2002 and 2006 was thoroughly inappropriate.



House ownership in Spain is above 80%. The desire to own one's own home was encouraged by governments in the 60s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Even more, the oldest apartments are controlled by non-inflation-adjusted rent-controls [5] and eviction is slow, therefore discouraging renting.



VI. What Went Wrong?

There were many contributing factors to the Spanish financial crisis. The failure of the Stability and Growth Pact highlights the lack of regulatory authority within the Eurozone. Despite the Pact’s reform, there is still little supervision. Although the Eurozone members use the same currency, and the Pact sets guidelines, there is no oversight of fiscal policies. Eurozone nations are left to self-regulate, even though the Eurozone economies are integrated.

An easy target to blame is the Eurozone itself. The introduction of the euro meant that Eurozone countries had the same monetary policy but completely different fiscal policies. Because there was no uniformity between member states’ fiscal policies—meaning that members were able to maintain their own spending and taxing policies—member states have found themselves in the vastly different economic positions, and the inability to devalue the currency has hindered recovery. Although the euro was seen as the next logical step in integrating Europe, it has become a major hindrance in the Spanish (and European) crisis. Critics warned against some of these eventualities, but by the time danger was apparent, it was too late.

Another factor causing the Spanish financial crisis was the lack of regulation of Spanish lending institutions and the real estate market. As previously mentioned, cajas made too many loans to individuals and corporations (especially to those less likely to be able to repay the loans in a crisis). Many of these individuals and corporations invested those loan proceeds in the real estate market. Because the cajas had not released their information to the government, the extent of their real estate exposure was unknown. The instability of Spanish banks has led to low investor confidence in the Spanish market. Many investors have pulled out of the Spanish banking market or have refused to invest in the ailing cajas, hindering the Spanish recovery.



So basically Spain's problem isn't simply a construction boom that went wrong. Spain's current economic malaise has deep structural roots that go back over a number of years - probably the best part of a decade. Basically Spain's economy overheated way beyond capacity for at least six years, and the smoking gun for this is what happened to the current account deficit (see chart below), as imports were steadily sucked in to meet the voracious demand, that was, of course, fuelled by the large rise in construction activity and the wealth-effect of steadily rising property prices.
 
WSJ article requires subscription. I'd love to read it so I can explain it to you. See what you can do. Thanks

1. Its not my fault that you dont have a WSJ subscription, or that your not smart enough to get around a simple paywall.
2. The first few paragraphs that it lets you read set the stage pretty well.

Heres a few excepts.

"
As Europe scrambles to find a solution to a debt crisis that's threatening the world economy, it's crucial to understand what actually happened in countries like Spain. Otherwise, policymakers will end up prescribing the wrong medicine, with disastrous results.
"The whole euro-zone strategy is predicated on the assumption that fiscal ill-discipline caused this crisis," said Simon Tilford, chief economist for the Center for European Reform. "That is a radically incomplete analysis."
"

If you believe that Spain's problem was that its government spent and borrowed too much, then the solution is simple: more austerity. But Spain's problem wasn't public debt—it was private debt.
For much of the past decade, the European Central Bank set interest rates at the appropriate level for countries like Germany. That rate was far too low for countries, like Spain, on the euro-zone's edge.

So for years, Spain actually had negative real interest rates, because its inflation rate was higher than the ECB-set interest rate. That gave Spanish households and businesses a huge incentive to borrow. They did, with gusto, and ploughed the money mostly into housing, inflating a giant property bubble.
When the financing dried up after Lehman collapsed, Spanish banks and households were saddled with a glut of overpriced housing. As Spaniards labor to pay off that debt with ever-shrinking assets, the economy has ground to a halt, and unemployment has soared to 23%."
"

Seeking to get back into the good graces of investors, the newly elected Spanish government has vowed to impose punishing new austerity measures. That could prove counterproductive. With households and businesses still paying down their debt, further cuts in government spending could tip the economy back into recession. And that, in turn, will make Spain less able to service its debts.
"Fiscal austerity of this order against a backdrop of recession is only going to make things worse, says Mr. Tilford. By prescribing only austerity, euro-zone leaders "have already dramatically exacerbated the problems in Portugal, Greece and Ireland. Now they risk making similar mistakes in Spain and Italy."
So even though it's wrong, the idea that Spain took on too much public debt that it cannot now pay threatens to become a self-fulfilling prophesy."
"
If government spending wasn't the problem in Spain, then what was? The country's experience points to a different, more troubling culprit: the euro itself."

"
It is that the truth is more complex than either of those caricatures. If Europeans accept the prevailing morality play that sets some member nations against others, they'll all end up the losers."

Need i quote more?


A tiny part of the article means nothing. Sorry. In any case, Spain had a huge housing bubble and now needs to pay its bills just like the USA does. Its really that simple.


But why did the economy overheat? Aha! Well just look at the chart below, and notice how the period when Spain was being subjected to negative interest rates coincides almost exactly with the sudden surge in the CA deficit. This is another tell-tale sign, another smoking gun. The monetary policy applied in Spain between 2002 and 2006 was thoroughly inappropriate.



House ownership in Spain is above 80%. The desire to own one's own home was encouraged by governments in the 60s and 70s, and has thus become part of the Spanish psyche. In addition, tax regulation encourages ownership: 15% of mortgage payments are deductible from personal income taxes. Even more, the oldest apartments are controlled by non-inflation-adjusted rent-controls [5] and eviction is slow, therefore discouraging renting.



VI. What Went Wrong?

There were many contributing factors to the Spanish financial crisis. The failure of the Stability and Growth Pact highlights the lack of regulatory authority within the Eurozone. Despite the Pact’s reform, there is still little supervision. Although the Eurozone members use the same currency, and the Pact sets guidelines, there is no oversight of fiscal policies. Eurozone nations are left to self-regulate, even though the Eurozone economies are integrated.

An easy target to blame is the Eurozone itself. The introduction of the euro meant that Eurozone countries had the same monetary policy but completely different fiscal policies. Because there was no uniformity between member states’ fiscal policies—meaning that members were able to maintain their own spending and taxing policies—member states have found themselves in the vastly different economic positions, and the inability to devalue the currency has hindered recovery. Although the euro was seen as the next logical step in integrating Europe, it has become a major hindrance in the Spanish (and European) crisis. Critics warned against some of these eventualities, but by the time danger was apparent, it was too late.

Another factor causing the Spanish financial crisis was the lack of regulation of Spanish lending institutions and the real estate market. As previously mentioned, cajas made too many loans to individuals and corporations (especially to those less likely to be able to repay the loans in a crisis). Many of these individuals and corporations invested those loan proceeds in the real estate market. Because the cajas had not released their information to the government, the extent of their real estate exposure was unknown. The instability of Spanish banks has led to low investor confidence in the Spanish market. Many investors have pulled out of the Spanish banking market or have refused to invest in the ailing cajas, hindering the Spanish recovery.



So basically Spain's problem isn't simply a construction boom that went wrong. Spain's current economic malaise has deep structural roots that go back over a number of years - probably the best part of a decade. Basically Spain's economy overheated way beyond capacity for at least six years, and the smoking gun for this is what happened to the current account deficit (see chart below), as imports were steadily sucked in to meet the voracious demand, that was, of course, fuelled by the large rise in construction activity and the wealth-effect of steadily rising property prices.

Blaming the stability and growth pact makes absolutely no sense in the case of spain. It has a lower debt to GDP ratio than germany and ran surpluses before the crisis. It was a model of fiscal discipline. Greece was certainly a violator of the pact, but its just one country of several in crisis right now. The common thread linking them together is the drop in interest rates as the euro was created and the trade deficit, not the government deficit.

Basically Spain's economy overheated way beyond capacity for at least six years, and the smoking gun for this is what happened to the current account deficit
WOW THANK FOR TELLING ME WHAT IVE BEEN REPEATING THE ENTIRE TIME. Its not public spending, its private spending! And you can see this in the current account.
121711krugman2-blog480.jpg

GIPS goes into a deficit with the creation of the euro. Before the crisis Greece, Italy, Portugal, and Spain had a combined trade surplus. That surplus goes away with fixed exchange rates, and then cascades quickly into deficit with the creation of the euro.

Spain's current economic malaise has deep structural roots that go back over a number of years - probably the best part of a decade.
The structural problem is the euro! They go back for about a decade because thats how long the euro has existed!!

SinnFig2.gif
110711krugman1-blog480.jpeg


Interest rates converged with the creation of the euro, and this corresponds to the above divergence in the current accounts. Uniform interest rates made capital flow from the core to the periphery and created the trade imbalance, which now needs to be resolved.

Again, the composition of the euro is the structural problem. You cant have a monetary union without fiscal transfers or else you get these imbalances. The same economists who are saying it now warned about it in the 90's.
 
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