Monday, October 1, 2012

Suicide by central bank

Most analysts continue to parrot the wrong prescription for economic woes, at home and abroad:

The fact that Spanish public pensions are not only off limits to the budget knife but also are being enhanced, is a reminder of one reason that European debt and deficit problems have proved so difficult to resolve.
Only Greece, under duress and at a point where the move may be coming too late to salvage the government’s finances, seems prepared to risk the consequences of severe pension cutting.
The real crisis is not debt - although it's a long-term problem. The real crisis is:
In Spain, pensions have become a lifeline. With unemployment at 25 percent, and even higher among young people, many Spaniards now rely on pension-drawing parents and grandparents to support them. Economists estimate that up to 1.7 million of Spain’s 16 million households have no salary earners.
Of course, as many economists would note, such a reduction in Greek public spending is likely only to compound an economic decline in which gross domestic product shrank 25 percent over the past five years.
These countries are in full-blown economic depression, yet their governments and their bankers continue to urge penury and worse on people who did not cause the debt crisis.

Europeans should be in the streets, should topple their governments. Americans should choose a better path, one that grows first, then reduces debt. Paul Krugman gets it, why not the rest of the New York Times?

(Note to American conservatrolls: You think Fannie and Freddie caused the mortgage loan debacles here in the U.S. Does their legal power over the market reach Europe? Of course not, you stupid twerps.)

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