Stimulated/Austerity
No matter what culture we talk about, it always fights the last war. Germany is scared to death about hyperinflation since that was its experience after the Communist Revolution in 1918 during the early 1920s. The United States has been scared to death about another deflation as in the Great Depression and chooses to “stimulate” the economy through an increase in spending. That has caused tremendous turmoil for there are those who put TV advertisements showing the National Debt and telling people they have to buy gold as a hedge against inflation, which of course does not correlate since the debt has increase 1700% since 1980, the Dow 1500% and gold only 46%. Yet nothing ever really correlates long-term since it depends upon confidence.
Nevertheless, there has been little agreement among academics as well as politicians regarding what is the proper economic policy. Economists like Paul Krugman have argued that stimulus was the only thing to help unemployment and to hell with the debt to GDP ratios. Of course this view is part Keynes and part fiction that somehow debt levels no longer matter. Still other economists argued as they did under Hoover and FDR’s Brains Trusts that to cut spending to reduce deficits would restore confidence in government among the bondholders. They have claimed that unless there is austerity, the nation would move into hyperinflation causing bond investors to suddenly freak-out resulting in higher interest rates. If we follow that logic, we end up with the collapse in bond markets since the rising interest rates would in itself cause the borrowing to rapidly increase.
Obviously, the debate is far more complicated than just stimulate or austerity. The austerity obviously creates higher unemployment and causes the economy to implode with massive deflation resulting in higher unemployment placing the entire economy at risk from civil unrest. Talking to people on Capitol Hill, you ask under what theory can the government just borrow year after year with no intention of ever repaying any debt and they concede that an individual cannot run his finances in that manner, but they are government and the exception to that concept. You ask on what grounds? The reply is simply – it has always been so!
The Obama Solution
Then there is the Obama Solution. Stimulate, but raise the hell out of taxes to pay the bondholders – sort of having your cake and eating it too (Stimulated/Austerity). This is really perhaps even more destructive for it is destroying the capital formation necessary to create jobs only ensuring that there will be a structural change within the economy preventing future economic expansion. This will only permanently impair economic growth long-term since small business provides 70% of all employment – not giant corporations.
This quest to get more taxes is leading to the destruction of the global economy as the US threatens to confiscate assets of any foreign company for failure to report what Americans are doing overseas. This has led to Americans being thrown out of everywhere. Americans can no longer open an account in Europe. This is curtailing the ability of Americans to participate in international trade and that further reduces the long-term economic growth. The austerity adopted by Europe has resulted in NEGATIVE economic growth and this demonstrates that there is absolutely no hope of reversing the trend without major political upheaval. We are dealing with the failed ideas of a generation that must be killed and buried as it is being replaced by a new generation of youth whose future has been destroyed by Socialism.
