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What Ails Europe?: Republicans Have No Idea What They’re Talking About


Things are terrible here, as unemployment soars past 13 percent. Things are even worse in Greece, Ireland, and arguably in Spain, and Europe as a whole appears to be sliding back into recession.

Why has Europe become the sick man of the world economy? Everyone knows the answer. Unfortunately, most of what people know isn’t true — and false stories about European woes are warping our economic discourse.

Read an opinion piece about Europe — or, all too often, a supposedly factual news report — and you’ll probably encounter one of two stories, which I think of as the Republican narrative and the German narrative. Neither story fits the facts.

The Republican story — it’s one of the central themes of Mitt Romney’s campaign — is that Europe is in trouble because it has done too much to help the poor and unlucky, that we’re watching the death throes of the welfare state. This story is, by the way, a perennial right-wing favorite: back in 1991, when Sweden was suffering from a banking crisis brought on by deregulation (sound familiar?), the Cato Institute published a triumphant report on how this proved the failure of the whole welfare state model.

Did I mention that Sweden, which still has a very generous welfare state, is currently a star performer, with economic growth faster than that of any other wealthy nation?

But let’s do this systematically. Look at the 15 European nations currently using the euro (leaving Malta and Cyprus aside), and rank them by the percentage of G.D.P. they spent on social programs before the crisis. Do the troubled Gipsi nations (Greece, Ireland, Portugal, Spain, Italy) stand out for having unusually large welfare states? No, they don’t; only Italy was in the top five, and even so its welfare state was smaller than Germany’s.

So excessively large welfare states didn’t cause the troubles.

Next up, the German story, which is that it’s all about fiscal irresponsibility. This story seems to fit Greece, but nobody else. Italy ran deficits in the years before the crisis, but they were only slightly larger than Germany’s (Italy’s large debt is a legacy from irresponsible policies many years ago). Portugal’s deficits were significantly smaller, while Spain and Ireland actually ran surpluses.

Oh, and countries that aren’t on the euro seem able to run large deficits and carry large debts without facing any crises. Britain and the United States can borrow long-term at interest rates of around 2 percent; Japan, which is far more deeply in debt than any country in Europe, Greece included, pays only 1 percent.

In other words, the Hellenization of our economic discourse, in which we’re all just a year or two of deficits from becoming another Greece, is completely off base.

So what does ail Europe? The truth is that the story is mostly monetary. By introducing a single currency without the institutions needed to make that currency work, Europe effectively reinvented the defects of the gold standard — defects that played a major role in causing and perpetuating the Great Depression.

More specifically, the creation of the euro fostered a false sense of security among private investors, unleashing huge, unsustainable flows of capital into nations all around Europe’s periphery. As a consequence of these inflows, costs and prices rose, manufacturing became uncompetitive, and nations that had roughly balanced trade in 1999 began running large trade deficits instead. Then the music stopped.

If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don’t, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt.

Now, understanding the nature of Europe’s troubles offers only limited benefits to the Europeans themselves. The afflicted nations, in particular, have nothing but bad choices: either they suffer the pains of deflation or they take the drastic step of leaving the euro, which won’t be politically feasible until or unless all else fails (a point Greece seems to be approaching). Germany could help by reversing its own austerity policies and accepting higher inflation, but it won’t.

For the rest of us, however, getting Europe right makes a huge difference, because false stories about Europe are being used to push policies that would be cruel, destructive, or both. The next time you hear people invoking the European example to demand that we destroy our social safety net or slash spending in the face of a deeply depressed economy, here’s what you need to know: they have no idea what they’re talking about.


By: Paul Krugman, Op-Ed Columnist, The New York Times, February 26, 2012

February 27, 2012 Posted by | Global Economy | , , , , , , , , | Leave a comment

Why Mitch McConnell Should Avoid Discussing The Debt

Senate Minority Leader Mitch McConnell (R-Ky.) was asked about an extension of the payroll tax break yesterday, but instead of answering the question, the Republican changed the subject. The subject on McConnell’s mind was the debt.

“We have this problem at the risk of being repetitious, because we spend way too much. We now have a debt the size of our economy. We look a lot like Greece. We’re heading toward western Europe. If you want to see what happens, just look across the Atlantic. That’s the direction we’re headed in.

“Under this administration, we’ve run the national debt up 43 percent in just three years.”

McConnell first started equating the U.S. and Greece last summer, and the argument is not improving with age.

In every meaningful way, the comparison is just silly. The U.S. has extremely low interest rates and foreign investors are happy to loan us money; Greece has extremely high interest rates and no one is eager to loan the country money. The U.S. has its own currency; Greece has the euro. We have a manageable debt; Greece has a debt crisis. We’re a large country with an enormous economy; Greece is a small country with a small economy. We have one of the world’s most stable systems of government (at least for now); Greece’s government structure is suspect.

For a leading senator to tell a national television audience that the United States looks “a lot like Greece” is a clear reminder: McConnell is not to be taken seriously on these issues.

Incidentally, there’s also the matter of McConnell’s credibility on fiscal issues, or in his case, the lack thereof. The Republican leader voted for the Bush tax cuts, and added the costs to the national debt. He voted to finance the war in Afghanistan by adding the costs to the national debt. McConnell voted to put the costs of the war in Iraq onto the national debt. He supported a massive expansion of the government’s role in health care (Medicare Part D) and voted to pile all of its costs right onto the national debt. The GOP leader even backed the Wall Street bailout and added the bill to the national debt.

Perhaps Mitch McConnell should choose something else to complain about.


By: Steve Benen, The Maddow Blog, January 30, 2012

January 31, 2012 Posted by | Debt Crisis, Deficits | , , , , , , , | 3 Comments

Can You Handle The Truth?: What The Public Doesn’t Understand About The Debt Ceiling

When a CBS reporter asked President Obama why a  recent poll shows that 69% of Americans don’t want the debt ceiling lifted, he responded by stating that “professional politicians understand the  debt crisis better than the general public.” As I heard the words come from his lips, I knew there would be outrage  on the right, and the left and certainly the right again!

The problem is, the president was right; ahem,  correct.

When posed with the question, “If you have a credit  limit and have  maxed out your credit card, should you raise your credit limit  so you  can spend more?”   Americans  respond with a resounding “NO!” as would I  if that were the question.

But here is the real question:

As an American, did you know if we do not raise the  debt ceiling and  go into default, that thousands of Americans will lose their  jobs? And  a 9% unemployment rate will be something you’ll hope for? Or that   programs like Homeland Security will be cut which I’m sure will make any   terrorist organization smile.

How about home owners and small business owners  longing for the  days of 2008? And that double dip recession the Republicans  were trying  to scare you about? Well, it certainly would happen. Speaking of   money, our bonds will be worthless; and if you think that TARP and the  bailout  were bad, that’s just an appetizer for the domino effect not  raising the debt  ceiling would have on Wall Street, perhaps worldwide;  just look at what  happened with Greece.

I mentioned that the president was right when he  said Americans  don’t know as much about the debt ceiling crisis as a  professional  politician; and I do believe that.   When some of the nation was  outraged or offended by his remark, I could  hear Jack Nicholson saying,  “The truth, you can’t handle the truth!!”

We need only   look at our own television viewing habits to see  evidence to support the president’s rhetoric.  Let’s take a  little  quiz shall we?

  1. Were  the Bush tax credits meant to last forever?  Answer: No, just ask the authors of the  legislation.
  2. When  is the president planning on removing those temporary  credits? Answer: 2013 and  beyond, not a massive tax cut taking place in  August.
  3. How  many times did President George W. Bush raise the debt ceiling? Answer: 7 times.

And where was the Republican outrage then? Answer: they didn’t have a  Democrat in the White House up for re-election!

OK…now a few more…

  1. What  former governor’s daughter was on “Dancing With The Stars?” Answer: Sarah Palin.
  2. What  was the verdict in the Casey Anthony trial? Answer: Not guilty.
  3. Who  was voted off (pick one) American Idol, The Biggest Loser or  The Bachelorette?  Answer: I don’t know, I was too busy paying attention to  the debt crisis.

The point is, most Americans would’ve been able to  easily answer the  latter three questions. We were glued to our T.V. sets during the  Casey  Anthony trial; not to CSPAN and the ratings prove it.  So don’t be  offended, the president’s not  saying you’re dumb. He is simply saying  you don’t have the time to spend 40-60  hours a week to do a job you  elected him and Congress to do.  Oh, and by the way, the latest poll  shows 47%  of Americans (Rasmussen) don’t want the debt ceiling lifted;  see even the CBS reporter proved the president right with his question.   Love that!

By: Leslie Marshall, U. S. News and World Report, July 13, 2011

July 14, 2011 Posted by | Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Jobs, Middle East, Politics, President Obama, Republicans, Right Wing, Small Businesses, Unemployment | , , , , , | Leave a comment

Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling

Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.

House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.

Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.

Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.

Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.

Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.

“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”

The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.

“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.

Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.

By: Ben White, Politico, April 13, 2011

April 13, 2011 Posted by | Banks, Congress, Conservatives, Debt Ceiling, Democrats, Economy, Federal Budget, GOP, Independents, Lawmakers, Politics, Republicans, Swing Voters, Voters, Wall Street | , , , , , , , , , , , | Leave a comment

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