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Krugman Wishes He Were Wrong Amid EU Austerity Backlash

Of course you do...but paying the piper doesn't need to be a drastic process in the middle of decreased global demand for goods.

It will be, by necessity. We tend to ignore realities until we have to pay dearly for them.
 
Who is "our", what is the "folly"?

Who, is western democratic nations. Folly is social welfare.

If "our" is the US, you fail to see that all of the EU, Australia and even China had seen a run-up in real estate prices, it was truly a world wide bubble.

If by "folly" you mean the world wide bubble, then what is the solution, a more restrictive set of lending requirements, ala Canada?

Our problem is much deeper than a real estate bubble, by far.
 
Folly is thinking that ignoring the poor, the sick and the various actions taken by society as a whole to better all of our lives is the cause of the present economic crisis.
 
I get where it comes from, but I was under the impression that these sources are drying up. Or is that not correct?
Demand for US bonds is still up, the yields are lower (a good thing) on EU vote news. The yields are at 1.83%, still below the rate of inflation, meaning no service costs.
 
Several quick points:

1. This outcome reaffirms mainstream economic principles: In the short-run, increased government spending is stimulative; in the short-run cuts in government spending place a drag on the economy.

2. In the long-term, all nations, including the U.S., have a threshold of debt intolerance.

3. Addressing debt-related challenges is optimally carried out in a gradual fiscal consolidation program and ideally undertaken when the economy is growing. The U.S. is in this position. Germany is in this position. Germany is undertaking fiscal consolidation, though an aggressive one. The U.S. is not undertaking meaningful fiscal consolidation.

4. Waiting until a debt crisis is imminent or underway requires far more painful austerity. Then, a reasonable timeframe for a transition is no longer available. Austerity is far more drastic than the gradual fiscal consolidation program and the luxury of waiting until the economy is growing to launch such a program does not exist. Greece fell into this situation.

5. In democratic countries, austerity can prove unsustainable if it doesn't quickly achieve desired outcomes. Over time, the public can use the ballot box to choose governments that abandon the path of austerity. Today's elections in Greece increase prospects that a new less austerity-friendly Greek government could gain power. France will also likely see a new government that favors greater fiscal accommodation than the current one headed by President Sarkozy.

This post sounds rather neutral, is that your goal?
 
It's definitely bankrupting everybody, which is why everyone's affected in the recession. When they run out of legitimate funds they step in and just print more money to pay for it, which is TOTALLY an awesome idea. :roll:

How was WWII paid for? What was the GDP to national debt ratio at the end of the war?
 
Who is "our", what is the "folly"?

If "our" is the US, you fail to see that all of the EU, Australia and even China had seen a run-up in real estate prices, it was truly a world wide bubble.

If by "folly" you mean the world wide bubble, then what is the solution, a more restrictive set of lending requirements, ala Canada?

The housing crisis was simply the match that lit the powder keg that is the recession that we are in today.

The housing crisis was caused by two major things.
-1. The federal reserve kept interest rates too low for too long, giving a massive amount of practically free credit to the major banks.
-2. The banks created credit default swaps for the subprime mortgages and other sectors of their risk. They considered this the holy grail of banking, they could make as many loans as they want to whoever would take the money, then they could package the risk on those subprime loans into a bundle, and sell the bundle to other banks around the world.

You're absolutely right about it being a world wide bubble, everyone and their moms were trading credit default swaps, and very few people knew what they actually were.

Along came one day when a large number of the subprime lendees declared bankruptcy, sending shockwaves through the banking system. This first bank to go was Bear Sterns, which got a bailout and was sold to JP Morgan, the second was Lehman Bros, who didn't get a bailout, and bit the dust. One after another, the banks begin to collapse when their artificially created bubble popped, and we, the tax payers were left without a chair when the music stopped.

So in short, it was the Fed's AND the bank's fault, and it wasn't an isolated american incident. It was international, like you suggested, we all bear the blame.
 
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Who, is western democratic nations. Folly is social welfare.



Our problem is much deeper than a real estate bubble, by far.
Oh....the libertarian speaks......yawn.

Good to see you are REALLY contributing to the conversation, offering real solutions and not just some utopian/"end is nigh" babble.
 
Folly is thinking that ignoring the poor, the sick and the various actions taken by society as a whole to better all of our lives is the cause of the present economic crisis.

Assuming you have been seeing the rioting in Europe as a result of the austerity measures, I'm figuring you know where the cuts are being made. If those cuts into social welfare spending were not absolutely necessary, I highly doubt we would be seeing them.
Folly is believing that humans can live and exist outside the laws of nature. As hard as they may be to accept, they work.
 
Oh....the libertarian speaks......yawn.

Good to see you are REALLY contributing to the conversation, offering real solutions and not just some utopian/"end is nigh" babble.

I guess it's good that I REALLY don't put much stock in your personal opinion.
 
It will be, by necessity. We tend to ignore realities until we have to pay dearly for them.

I guess my argument would be that if Europe is a good indication and austerity leads to negative GDP growth are we really digging ourselfs out of debt or do we just end up digging ourselves deeper while experiencing the pain of austerity.
 
I guess my argument would be that if Europe is a good indication and austerity leads to negative GDP growth are we really digging ourselfs out of debt or do we just end up digging ourselves deeper while experiencing the pain of austerity.



It looks to me as if we will keep digging ourselves deeper, until we hit a brick wall. I suppose we will find out eventually.
 
How was WWII paid for? What was the GDP to national debt ratio at the end of the war?
Massive tax hikes and even more massive inflation.

From 1940 through 1950, the government created as much money as it needed for the war, and because of this we lost about 58% of the value of the dollar in that decade.

If something cost $100 in 1940, it then costed $172 in 1950.
If you had $1,000 in the bank in 1940, during that decade losing 58% of the value of your money, you would have the 1950 equivalent of $420.

Most people are completely ignorant when it comes to inflation, it says wonders for our education system.

Sources:
http://www.inflationdata.com/inflation/inflation_rate/historicalinflation.aspx
Inflation Calculator | Find US Dollar's Value from 1913-2012
 
The housing crisis was simply the match that lit the powder keg that is the recession that we are in today.

The housing crisis was caused by two major things.
-1. The federal reserve kept interest rates too low for too long, giving a massive amount of practically free credit to the major banks.
-2. The banks created credit default swaps for the subprime mortgages and other sectors of their risk. They considered this the holy grail of banking, they could make as many loans as they want to whoever would take the money, then they could package the risk on those subprime loans into a bundle, and sell the bundle to other banks around the world.

You're absolutely right about it being a world wide bubble, everyone and their moms were trading credit default swaps, and very few people knew what they actually were.

Along came one day when a large number of the subprime lendees declared bankruptcy, sending shockwaves through the banking system. This first bank to go was Bear Sterns, which got a bailout and was sold to JP Morgan, the second was Lehman Bros, who didn't get a bailout, and bit the dust. One after another, the banks begin to collapse when their artificially created bubble popped, and we, the tax payers were left without a chair when the music stopped.

So in short, it was the Fed's AND the bank's fault, and it wasn't an isolated american incident. It was international, like you suggested, we all bear the blame.
Actually, I don't think "we all" share the blame, especially as you point out, this was primarily driven by investment banking (really horrible bs investment banking) that was betting on the crash. The investment banks got the lower regs, were able to keep Greenspan from going with Born's warnings on derivatives and no one was doing much on controlling the huge sums of investment dollars entering the markets in the late 90's/early 2000's. It was too much cash chasing too few decent investments...the recipe for bubbles, and we now see them in dotcom ('99), oil ('06) housing (03-06).
 
I guess my argument would be that if Europe is a good indication and austerity leads to negative GDP growth are we really digging ourselfs out of debt or do we just end up digging ourselves deeper while experiencing the pain of austerity.
Europe is screwed for a lot of reasons, but I personally believe they are better off. They are taking their hit early, and it's horrific for them. We however are pushing it off and propping up our economy with fake money, prolonging the inevitable. I think we're going to crash harder than they did.
 
Massive tax hikes and even more massive inflation.

From 1940 through 1950, the government created as much money as it needed for the war, and because of this we lost about 58% of the value of the dollar in that decade.

If something cost $100 in 1940, it then costed $172 in 1950.
If you had $1,000 in the bank in 1940, during that decade losing 58% of the value of your money, you would have the 1950 equivalent of $420.

Most people are completely ignorant when it comes to inflation, it says wonders for our education system.

Sources:
http://www.inflationdata.com/inflation/inflation_rate/historicalinflation.aspx
Inflation Calculator | Find US Dollar's Value from 1913-2012

Wage growth out paced the rate of inflation....you're giving a much bleaker depiction of post-World War II than reality. Real wage growth increased all the way until the 1970's. The dollar may of been less but the average individual could still purchase more in 1950 than he could pre 1945.
 
Assuming you have been seeing the rioting in Europe as a result of the austerity measures, I'm figuring you know where the cuts are being made. If those cuts into social welfare spending were not absolutely necessary, I highly doubt we would be seeing them.
Folly is believing that humans can live and exist outside the laws of nature. As hard as they may be to accept, they work.
No, and if you had any conception of EU or US economies, you would understand that it was not social spending that caused the crash in the first place. Further, the worst thing to do in a low demand/tight credit economy is to pull back on govt spending.

Economies are constructs of humans, they are human nature.
 
Wage growth out paced the rate of inflation....you're giving a much bleaker depiction of post-World War II than reality. Real wage growth increased all the way until the 1970's. The dollar may of been less but the average individual could still purchase more in 1950 than he could pre 1945.

That very well may be true, but it doesn't change the fact that the government took well over half of the savings of every man, woman and child in america. I realize desperate situations require desperate measures (not saying I support it), I was simply explaining to Somerville some of the ways the war was paid for.
 
That very well may be true, but it doesn't change the fact that the government took well over half of the savings of every man, woman and child in america. I realize desperate situations require desperate measures (not saying I support it), I was simply explaining to Somerville some of the ways the war was paid for.

No I agree with you Rabid.....inflation and growth were how we paid of our WWII debt. I also agree that yes....there are ramifications. Inflating your way out of debt isn't rainbows and unicorns. I did want to point out though that inflation on it's own isn't the whole picture.
 
Europe is screwed for a lot of reasons, but I personally believe they are better off. They are taking their hit early, and it's horrific for them. We however are pushing it off and propping up our economy with fake money, prolonging the inevitable. I think we're going to crash harder than they did.

I think the US is still drastically different than the majority of the EU countries. We tax our population less, government spending makes up less as a % of the economy, we are still the global reserve currency. The only problem I see is stagnant or decreasing EU demand causing the US problems. I guess we'll have to wait and see.

I don't see the US in anyway shape or form comparable to most of the EU countries that are having issues.
 
That very well may be true, but it doesn't change the fact that the government took well over half of the savings of every man, woman and child in america. I realize desperate situations require desperate measures (not saying I support it), I was simply explaining to Somerville some of the ways the war was paid for.

"the government took well over half of the savings of every man, woman and child in america" Care to point me to some sites or books that would support this statement.

Despite the success of the American economy in the 1950s with a top marginal tax rate of 91%, "confiscatory" in the words of the Friedmanites and Norquist acolytes, the modern right somehow seems to think that returning to the tax rates we knew during the Clinton years would kill the present economy. Somehow despite the fact that the GDP/debt ratio hit 122% in 1947-48 and tax rates were much higher than today, the right continues to promote the idea that lower taxes will provide more stimulation to the economy.

That 122% number would seem to show the war wasn't "paid" for during the time it occurred.
 
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