Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

EuroSpeak for "Starve the Beast" The Meaning of “Austerity Measures”

Politics / Eurozone Debt Crisis Apr 29, 2012 - 05:32 AM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleThe eurozone is slipping into a recession that could have been avoided. Had policymakers provided fiscal support for stricken countries in the South and guarantees on their government bonds, (as the USG does for US Treasuries) then their economies could have continued to grow while the necessary reforms were put in place. But the Troika (The IMF, the ECB, and the European Commission) decided to make the bailouts conditional on member states’ acceptance of harsh austerity measures which forced leaders to slash government payrolls, services and programs. The result was entirely predictable; economic activity began to sputter as one country after another succumbed to a vicious slump.


So the downturn was a basically matter of choice, a self-inflicted wound brought on by poor decision-making in Brussels and Frankfurt. Anyone could see what the result was going to be because contractionary policy leads to economic contraction. Implement policies that are designed to shrink the economy, then the economy will shrink.

For the last month or so, the focus has mainly been on Spain, and for good reason. Spain’s banking system is crumbling beneath the weight of tens of billions in non performing loans generated by the gigantic housing bubble which is still deflating. Unemployment in Spain is the highest in Europe at 24 percent. (Youth unemployment is over 50 percent) Even so, Spain’s right wing PM Mariano Rajoy is attempting to reach the deficit targets demanded by the troika which will push unemployment higher while further deepening the depression. According to Der Speigel:

“The prime minister recently announced that he wants to reduce expenditures in the country’s education and health system by €10 billion. …. To meet the demands of the central government, the regions would have to slash 80,000 out of 500,000 teaching positions.”

As you can see, austerity measures and debt consolidation are only adding to Spain’s woes. Eventually, after much unnecessary misery, Spain will require a bailout, although ECB president Mario Draghi insists that this is not so.

But Europe’s problems are not limited to Spain or countries on the periphery. France’s output has slipped for a second month in a row and the pace of the decline is accelerating. The service sector is also showing signs of distress as belt tightening measures take hold and gradually reduce aggregate demand. Unemployment is edging higher as the slump deepens. According to data from Eurostat the seasonally adjusted jobless rate in France reached 10 percent in April, a 12 year high. Ballooning unemployment has led to an uptick in poverty which now affects 13.5 percent of the population. Austerity measures have led to a decline in personal consumption, an erosion of confidence, and a more generalised slowdown across all sectors. Still, intractable bankers and bureaucrats in Brussels and Frankfurt have not veered one bit from the original policy. They remain steadfast in their commitment to austerity.

Here’s Draghi defending austerity in an interview with the Wall Street Journal:

“There was no alternative to fiscal consolidation, and we should not deny that this is contractionary in the short term. In the future there will be the so-called confidence channel, which will reactivate growth; but it’s not something that happens immediately, and that’s why structural reforms are so important, because the short-term contraction will be succeeded by long-term sustainable growth only if these reforms are in place.” (“Q&A: ECB President Mario Draghi”, Wall Street Journal)

Notice how Draghi does not defend austerity on the basis of any identifiable economic theory, nor does he cite any examples of austerity’s successes. (Are there any?) Nor does he name any prominent economists who support the theory. It’s all just “Trust us, we’re the experts”…. “contractionary expansion will work because we say so” even though the economy is sinking, unemployment and extreme poverty are at record highs, and the Eurozone is embroiled in the worst slump in the last 80 years. “Trust us. We know what we’re doing”.

And here’s a sample of Draghi’s views on taxation from the same interview:

“A ‘good’ consolidation is one where taxes are lower and the lower government expenditure is on infrastructures and other investments.”…”A ‘bad’ consolidation is actually the easier one to get… by raising taxes and cutting capital expenditure.”

Let’s summarize: Cutting public spending and austerity, “Good”. Raising taxes, “Bad”. Isn’t this the same right wing blather we’ve heard for years?

“Austerity” amounts to an attack on Europe’s social model and aims to roll back the progressive advances of the last century. There’s nearly-universal agreement that belt tightening doesn’t lead to recovery, but just make matters worse. Trimming deficits in the throes of a recession is a surefire way to choke off economic activity and foment social unrest. And so it has. Aside from turning many of the EU’s biggest cities into free-fire zones, austerity is reshaping the political landscape and fueling radical elements on the right and left who are calling for an end to the 17-member union and a return to national sovereignty. (Hooray)

Still, policymakers seem oblivious to the political firestorm they’ve touched off. They remain focused laserlike on their primary objective, which is to make sure that a bigger share of the national wealth moves up the income chain. The way they do this is by demagoging the fake “debt crisis” while their political lackeys and “technicians” slash pensions, health care and subsidies to protected industries; hack away at state budgets, reduce their federal workforce, crush organized labor, remove tariffs and taxes on capital, and privatize more public assets and services. Smaller government means less activity, fewer jobs, weaker demand, and greater hardship for working people. In other words, austerity achieves exactly what it was meant to achieve; bigger profits for the 1% and zilch for everyone else. Here’s a clip from an article in Reuters:

“The euro zone’s business slump deepened at a far faster pace than expected in April, suggesting the economy will stay in recession at least until the second half of the year….

“Today’s dismal PMI figures clearly indicate that the euro zone economy remains in dire straits”….European factories had their worst month since June 2009. Companies said their order books were shrinking and they were cutting jobs in reaction to falling demand….

“There are no real drivers of growth here, which suggests that although the overall rate of decline is modest at the moment, we could see it continue to worsen in coming months,” said Chris Williamson, chief economist of PMI compiler Markit.” (“Euro zone slump deepens unexpectedly in April”, Reuters)

Draghi’s ”debt consolidation” and “structural reforms” have increased deflationary pressures and deepened the slump. They’ve been a total flop as anyone with half-a-brain could have predicted.

So, are we supposed to believe that the ECB president didn’t know what the effect of his policies would be, that he didn’t know that contractionary policies would result in economic contraction?

Of course, he knew. Draghi’s not an idiot; he’s a very competent economist. This just shows that he had an ulterior motive, that the policy was crafted to serve the interests of his banking buddies and not those of the 99%. After all, the real purpose of austerity is not to cut deficits or spur growth, but to stuff government into a fiscal starightjacket so that private industry and big finance get a bigger slice of the pie. Isn’t that what this is really all about?

Sure, it is. Austerity is just the euro-version of “starve the beast”.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2012 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules