Reckoning from Buenos Aires, Argentina
This will be our last Daily Reckoning until April 17th.
So, what well-chosen words can we leave you with?
How about “if,” “but” and “maybe?”
Yes, dear reader, if everything continues to clunk along as it is today…maybe the world financial system will hold together until we get back.
We certainly hope so. We’ve been waiting years to watch the final crack up of the phony-money system. We don’t want to miss it!
But you never know. For all we know, the system is cracking up now…right before our eyes. We just don’t recognize it.
Take this item from yesterday’s news. It proves that Lent is bad for you:
WASHINGTON (AP) – Europe has endured the pain of layoffs, wage cuts and tax increases designed to bring government debt under control.
So where’s the gain?
Far from falling, debt burdens are rising fastest in European countries that have enacted the most draconian austerity programs, according to The Associated Press’ Global Economy Tracker, which monitors the performance of 30 major economies. The numbers back up what many analysts say: Austerity isn’t just painful. It can be counterproductive and even make a country’s debt load grow.
Many fear the cutbacks will cause Europe to sink into a self-defeating spiral: Higher debt leads to harsher austerity, growing social instability and deeper economic problems. Governments could find it even harder to pay their bills.
The pain is already intense. Portugal’s unemployment rate hit a record 14 percent at the end of last year. Ireland’s economy contracted a worse-than-expected 1.9 percent in the July-September quarter of 2011. And Greece reported that its already basket-case economy shrank 7 percent in the October-December quarter of last year.
“This isn’t a healthy situation,” says Peter Morici, an economist at the University of Maryland.
Under a deal approved Tuesday by the 17 countries that use the euro and the International Monetary Fund, Greece will get a $172 billion bailout in exchange for accepting another dose of austerity that includes laying off 15,000 civil servants and slashing the minimum wage by 22 percent.
– Portugal cut pensions, reduced public servants’ wages and raised taxes starting in 2010. Yet in the third quarter of 2011, government debt equaled 110 percent of GDP. That was up from 91 percent a year earlier.
– In Ireland, middle-class wages have been reduced 15 percent and the sales tax boosted to 23 percent (the highest in the European Union). But its debt amounted to 105 percent of economic output in the third quarter of last year; a year earlier, it was 88 percent.
– In Britain, Prime Minister David Cameron staked his political future on his austerity plan. Government debt ratios, though, reached 80 percent in third-quarter 2011, up from 74 percent a year earlier. And Moody’s this month cut its outlook on Britain’s prized AAA credit rating from “stable” to “negative.”
– In Greece, two years of austerity programs have devastated the economy and triggered riots. Still, the government’s debt equaled an alarming 159 percent of the country’s GDP in the July-September quarter of 2011. That was up from 139 percent a year earlier.
Oh, what luck! Now Paul Krugman and other spend-spend-spend economists and policymakers have the argument sewn up.
Before they argued that a) additional spending and big deficits were “stimulus” measures. They were supposed to make things better.
Now they can prove that b) cutting spending is bad for an economy. It makes the economy worse off…without actually reducing debt.
If they can’t win on A, they can’t lose on B.
We don’t want to exaggerate the importance of this. But it is as if Mardi Gras is good for you. But Lent is bad for you. Austerity doesn’t work. Spending makes things better. Not spending makes them worse. It is as if the debit side of the balance sheet has been cut off. All credits, in other words. Forget the debits. It is as if we could all have everlasting life without ever dying.
Maybe they could show that it works the same for dieters. Maybe they could prove that cutting back on their eating actually causes them to gain weight. From there it would be only a hop-skip-and-jump to concluding that they should eat more!
Sometimes it seems as if the whole progress of the 21st century has been used to remove the impediments to catastrophe – good sense, prudence, tradition, rules, principles, and the lessons – learned at such great cost over so many centuries. Like unread copies of The Wealth of Nations or The Decline and Fall of the Roman Empire, they are tossed into the trash bin. No stain of history is left on the spotless mind of the new century.
The century began with George W. Bush’s ‘pre-emptive war’ doctrine – contradicting everything nations had learned over at least 2000 years. Even the Romans new better than to go to war unprovoked. Not that the attacker can’t win from time to time. But an aggressor nation sets the gods against himself; eventually, he is punished…often brutally. We saw that as recently as 7 decades ago, when the aggressor nations of WWII – Germany, Italy and Japan – were crushed.
But now the US is the aggressor. Can good guys be bad guys? We don’t know, but we think we see the gods edging over to the other side.
So too was it long established that the rule of law was more comfortable and agreeable than the rule of men. Law was predictable. Law was fair.
Men were given to prejudice, perfidy, and power-struggles. Especially in a matter as important as war, the highest authority in the US – the Constitution – makes it clear that the law must be followed. Congress had to consider, debate and decide.
But that law went out the window long ago. In the 21st century it was forgotten altogether. Now, the president can decide for himself how and when to waste the nation’s treasure and the lives of its young men and women. Iraq, Afghanistan, Libya…Sudan…Pakistan…where were the declarations of war?
Who needs them? Besides, they just got in the way of catastrophe.
And what about Habeas Corpus? That’s gone too. Established hundreds of years ago, to protect citizens from the arbitrary power of their own government, habeas corpus is…well…history. Now, the president can decide who lives and who dies…who gets sent to jail…and who lives at taxpayer expense.
But our beat is money. And in the world of money, too, the constraints that kept people from going into bankruptcy and ruin have been removed.
Once government leaders were ashamed of deficits. Now they’re proud of them.
Once, economists, finance ministers and heads of households tried to avoid debt; now they welcome it.
Once, a central banker who created money “out of thin air,” had his private parts cut off; now his manhood grows with the money supply.
Once, a banker who lent money at less than the inflation rate was regarded as a fool; now he is seen as a hero.
Once, we were happy…young…handsome…and now…oh, never mind.
That’s all for us…we’re headed for the hills.
for The Daily Reckoning Australia
From the Archives…
Mixed Economic Blessings
2012-02-17 – Nick Hubble
Lost in Translation: An Important Note for Daily Reckoners
2012-02-16 – Joel Bowman
How Warren Buffett Looks at Stocks vs. Gold Investing
2012-02-15 – Bill Bonner
That Fair Dinkum Bloke Barack Obama
2012-02-14 – Dan Denning
Building With New BRICS
2012-02-13 – David Thomas