The latest fix in the Eurozone is already coming un-fixed. Which is, like, so obvious and so expected that we hesitate to mention it.
But we bring it up to make a larger point: economists are morons. Yes, dear reader, we realize that we are beating a dead horse. We all know economists are morons. And we all know they’re no less moronic since the last time we said so. But today we will beat this horse some more.
The immediate problem was Spanish banks. They are underwater…and sinking further. The Euro-crats announced a plan to bail them out directly, rather than funnel the money through the Spanish government, which is also headed for the bottom of the ocean.
But Ms. Merkel couldn’t go back to Berlin and announce that she had given away the store to the Spaniards. She needed to go back and tell the lumpen that she had fought the hard fight…and that she could hold her head up with the result; the Spanish would have to pay!
In the event, the Spaniards were forced to make more cuts. Bloomberg reports:
Rajoy Announces 65 Billion Euros of Cuts to Fight Crisis
Rajoy’s fourth austerity package in seven months will raise the sales levy to 21 percent from 18 percent; scrap a tax rebate for home buyers; scale back unemployment benefits and study pension cuts; consolidate local governments and eliminate the year-end bonus for public workers. The budget measures, covering the next two-and- a-half years, are about double those previously announced.
The prime minister addressed Parliament in Madrid today as European officials put the finishing touches to a 100 billion-euro bailout for Spain’s banks. The amendments to the budget come less than two weeks after it went into effect and a day after the European Union loosened Spain’s deficit targets.
“I know that the measures I’ve announced aren’t agreeable,” Rajoy said in his 70-minute speech to lawmakers. “They aren’t agreeable but they are essential. We are in an extraordinarily serious situation.”
“I said I would cut taxes and I’m raising them,” Rajoy said. “But the circumstances have changed and I have to adapt to them.”
He should have stuck to his tax cut promises. But we’ll come back to that. Here’s how the UK Telegraph describes it:
Proud Spain again humbles itself to the euro’s demands… The eurozone’s appetite for self harm knows no bounds. With one in four Spanish workers out of a job, output contracting by the day and Asturian miners marching through the capital, the Spanish prime minister, Mariano Rajoy, has determined to push through a further €65bn (£51bn) of austerity measures, as if deliberately set on a strategy of economic death by a thousand cuts. To say “determined” is possibly not the best way of putting it, for this is more like forced with a gun to his head; the latest austerity package is part of the conditionality attached to the eurozone loans for banking bailouts, thereby giving the lie to Mr. Rajoy’s proud insistence that the Spanish bailout is in some way less of a subjugation than the others.
Everybody’s gotta play the game. And the game involves, mainly, keeping the game going…keeping the flow of money going, in other words, from the people who make it to the people who control the system. Economists are just “useful idiots.” They claim to know things they can’t know…and claim to be able to do things they can’t do. And they’re useful…because they want to keep the money flowing!
How do you keep the money flowing to the Spanish banks…whose creditors just happen to be big banks in France and Germany? You attach conditions…in other words, you make the Spanish promise that they won’t waste the money. Then, the money flows…the game continues…until the next blow up.
But wait, if you stop the money flowing…doesn’t the whole thing blow up? You bet! Exactly what should happen… And most people would be better off. Bad debt could be written off. Mismanaged businesses could go broke. Stupid investments could disappear. Then, honest people could pick up the pieces and get back to work.
Obviously, that wouldn’t suit everyone — especially those on the receiving end of the money-flow. They want to keep the game going as long as possible. So, they play the game… Some are supposed to cut spending — so they pretend to cut. Others are supposed to ‘grow’…so they pretend to grow.
And the money keeps flowing…
for The Daily Reckoning Australia
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