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The wrong problem

Written By: - Date published: 7:13 am, September 21st, 2011 - 51 comments
Categories: capitalism, economy, jobs - Tags: , ,

Economist Paul Krugman argues that governments the world over need to wake up to the fact that they’ve been trying to solve the wrong problem:

A Constant Flow of Bad News for Europe and the US

In the United States, we have zero job growth, with unemployment still at nosebleed levels, according to a recent government report. Meanwhile, the interest rate on 10-year bonds is down to 2.04 percent, and it’s negative on inflation-protected securities. Aren’t you glad we pivoted from jobs to deficits a year and a half ago?

Meanwhile, on the other side of the pond, “Is Austerity Killing Europe’s Recovery?” asks The Washington Post. Howard Schneider, a staff writer who covers international economics, wrote on Sept. 1: “After more than a year of aggressive budget cutting by European governments, an economic slowdown on the continent is confronting policymakers from Madrid to Frankfurt with an uncomfortable question: Have they been addressing the wrong problem?”

Yah think?  Too bad there weren’t any prominent economists warning that the obsession with short-term deficits was a terrible mistake; that austerity would undermine hopes of recovery. Oh, wait.

Cant blame Krugman for indulging in a bit of “I told you so”.

The awful thing is that those of us who warned about all this — based not on some unorthodox doctrine, but on basic textbook macroeconomics — weren’t so much argued down as just ignored. Somehow, those with actual power were convinced that fiscal austerity wasn’t just an option but the only option…

Iceland has been very much in the deadlines since 2008.  One of the first economies to fall over, the only country where the public successfully rebelled against foreign debt and chose a different path to recovery:

Iceland, the Exception

[In Iceland] the exchange rate has been stabilized, Iceland’s public finances have been put on a sustainable path, and significant progress has been made in rebuilding the financial sector. Policy implementation has been impressive, earning the authorities significant credibility. …

Iceland still has high unemployment and is a long way from a full recovery, but it’s no longer in crisis. It has regained access to international capital markets, and it has done all that with its society intact. And it has done all that with very heterodox policies — debt repudiation, capital controls and currency depreciation. It was as close as you can get to the polar opposite of the gold standard.  And it has worked.

Too bad there weren’t any warnings warnings warnings warnings warnings warnings warnings warnings warnings warnings warnings here in NZ that the obsession with short-term deficits was a terrible mistake; that austerity would undermine hopes of recovery. Oh, wait.

51 comments on “The wrong problem”

  1. Colonial Viper 1

    Many of these international governments spend more time talking to and working for their banksters now, then to their citizens. And it has become a merry go-round as exemplified by the US and Europe: senior banksters end up in senior government positions and vice versa. Geithner, Paulson, Summers, Legarde as just a few examples.

    In some instances there does not look like there are any real walls between the corporations, the banks and the government any more – they are just different parts of the same sprawling bank-focussed entity.

    Every time you hear about a “bail out package” for Greece etc just remember that it is really nothing more than more debt. Extra debt leant by other tax payers to allow Greece to meet its existing loan repayments to the international private banksters.

    None of that”bail out” money goes anywhere near the Greek citizen, it just buries their country further into debt, and makes their negotiating position even worse when it comes time for the bankster initiated firesale of strategic greek assets.

  2. The only way is to abolish the reserve bank system which is a privately owned for profit system and the right of :we the people” to print our own currency again.
    But with Bill English visiting the WTO, IMF and babyface “helicopter” Ben Bernanke that is not going to happen any time soon.
    The next phase of global financial collapse is the fact that the US Federal Reserve has now announced that the European banks can borrow unlimited amounts of fiat currency which isn’t worth the paper it isn’t printed on provided they insure it with real assets . That is what people like you and me have to earn with hard slog.

    My guess is that Bill English (and not John Key who wants to keep his fingers clean even though he spoke with Bernanke last month) is going to bring the bad news home.
    Here is what Max Keiser and Bill Still the Director of the Money masters have to say about it

    • vto 2.1

      travellerev, how does the NZ Reserve bank system work? Surely not like the Fed in the US? Like, is it privately owned? Is it a fractional reserve system? anything else? Because I agree the international money system is like a runaway train and the engine drivers are racing to pile out before she plunges into the abyss … but what about our system and how it integrates with the international system?

        • vto 2.1.1.1

          duh, so easy I coulda done it myself..

          so how are we protected from international turmoil if we are so apparently independent? I guess through borrowing in various forms both publicly and privately. And perhaps also through wholesale international runs on banks which could spread like a contagion to our banks here, especially the aussie-owned ones. In which case – are the taxpayers going to have to bail the depositors out again? I bloody hope not.

          And pile all of this on top of the recent middle east revolutions, Greek upheaval, English riots, and even the current Wall Street protestors who have called upon the middle east uprising issues in support no less. It’s like a whole bunch of semi-independent fires are about to conjoin to form the worlds largest ever financial and hence political firestorm….

          i’m running for the hills…

          • aerobubble 2.1.1.1.1

            Your car is crashed, you forgot why you crashed it,
            now in your need to get back on the road you get in your car and can’t
            fathom why the car won’t start as it always has.
            The same myopia that descended on the fiscal elites during the
            Great depression has returned to disease the fiscal elites again.

            Even if we get some new energy sources, methane hydrate, solar, etc,
            they will all cost more to extract – and then re bury the carbon afterwards.
            So we know that means the general blob on the street will less
            active in running around buying stuff that breaks a year and a day
            after they brought it, even the private petrol engine car is a dodo.
            And so all the wealth ascribed to keeping large western populations
            sedated by consumerism is going to come to a grinding halt, even
            with the drip of new alternative fuel sources (that cannot possible
            take the place of petroleum, or keep up the ‘growth’ trends that
            produced decade on decade cheap high density liquid gold).

            So the whole ideology of free markets, look no hands economists,
            and take no prisoners big media, is not only boring, its positively
            destructive.

            Our future in their cold hearted dead headed hands. Truly a
            perfect storm.

      • Afewknowthetruth 2.1.2

        The Rothchild financial empire took control of a large sector of the NZ economy in 1875 and commenced the wealth extraction process [via interest on loans] the Rothchilds are noted for.

        • Rich 2.1.2.1

          Um, is out and out nazism allowed here?

          • McFlock 2.1.2.1.1

            What the Rothschilds aren’t major bankers?
              
            If AFKTT had gone on and on about their religion, as nazis are wont to do, then I’d agree. It’s a thorny one, I grant you – for instance there’s a bigass issue of criticism of Israeli govt actions veiling antisemitism, but at the same time that doesn’t mean that all criticism of Israeli actions is antisemitic (by any means – the use of wp artillery shells in urban residential areas, sabra&chatila, and so on). 
             
            Think you might be activating the nazi klaxon a bit early, there.

      • travellerev 2.1.3

        The NZ Reserve act effectively separated the elected NZ government from the right to print our own money. The Reserve bank run by unelected individuals has responsibility to the crown which most people interpret  to be the NZ government but which is also the nickname of the finance capital in London run by the Rothschild’s cartel who are also the Queens bankers by the way.

        Here is a list of banks owned by this cartel. It also names the NZ central bank I.E the Reserve bank.
        In 2008 the Reserve bank without ever announcing this to the NZ public was lend 9 billion dollars by the New York reserve bank. Why? If we are independent form the International system why was this done under secrecy?

        HS gives you the official link the NZ reserve bank but here is the mandate of the NY fed and I hope that you will agree with me that they are eerily the same.

        What is interesting is that the NZ reserve bank states that:

        New Zealand’s monetary policy framework is conventional by current international standards, designed around an overall goal of price stability.

        The international financial system is a debt based fractional banksing system. In other words the Reserve bank system allows unelected officials to lend fiat money out of thin air against bonds from the government which are basically IOU’s the population has to pay back with their hard slog. Our reserve bank is no different. It is like every where else a fractional banking system.

        What is interesting is that the story of the 2007-8 collapse was that they solved it by lending 700 billion dollars to banks 500 billion dollars to European banks but the first audit of the Federal reserve revealed the had lend more like 16.1 TRILLION dollars worldwide without any transparency whatsoever.

        Here is where it gets really interesting:

        John Key was an upon appointment only member of a small committee which “advises” the Federal Reserve. The period before John Key became a member his boss shared a place on that same committee with Robert Rubin. Also on that list is Larry Summers. Both Robert Rubin and Larry Summers are acknowledged as the masters of their protege Timothy Geitner who was once the director of the Federal reserve of New York and who is now the Secretary of Treasury under Obama. John Key met with both Geitner and Bernanke when he recently visited the States.

        Another interesting fact is that Don Brash, who is close friends with several of the members of the group for a new American century was the Reserve bank governor at the time of the Reserve act signing.
        Let’s put it this way: To have a PM who meets more then any other PM before him with people who are either the chairman of the Federal Reserve of New York or have been high officials in the Federal Reserve, the NZ Reserve bank receiving 9 billions of dollars outside of normal transactions when the financial system is almost collapsing and to have Mike Moore who is a Bilderberger and an ex- high official in the WTO as well as a member in the trilateral commission and a fervent Globalist judging by the book title “Saving globalism” as the NZ Ambassador and no doubt at hand when Bill “double Dipton” English the peasant from NZ meets with Ben “Helicopter” Bernanke and officials from the WTO does not bode well for the long term independence of New Zealand.

        Also when Bill English states that New Zealand has to grow through saving and local growth he shows he has no concept of the financial global realities because in a debt based system Money gets destroyed when people pay of their debts.

        My guess is that he is going to get some much needed education such as: If you don’t borrow your population into centuries of debt we go bankrupt and we don’t like that and here is what we’ll do to your country if you don’t (Video’s of murder and mayhem and financial ruin).

        Added to that it pays to remember that John Key has large amounts of shares and long term investments in the Bank of America which is currently collapsing into the abyss making his Prime ministerial position one of a huge conflict of interest!

        Hope this helps!

        • Muzza 2.1.3.1

          Finance Minister Muldoon changes law to allow Mafia-controlled banks to begin operations in New Zealand. Links also made by N.Z.I. in preparation for:

          *

          Paxus control with Hong Kong and Shanghai
          *

          Wells Fargo with Broadbank
          *

          Chase Manhattan with General Finance
          *

          Bank of America and Barclays with Fletchers and Renouf in New Zealand United Corp

          All members of the Business Round Table Organization.

        • dave brown 2.1.3.2

          All these ‘warnings’ are beside the point. No section of the ruling class could learn anything from them because the crisis is not manageable. There is no conspiracy of a bunch of rogues responsible for this crisis. No trilateralist, globalist, multi-lateralist, Rothchildish plotters lurking in the Bretton Woods.

          The system is in a crisis that goes back to its inability to exploit workers enough to maintain its profits and basic condition that has plagued capitalism since the end of the post-war boom. This is a necessary consequence of the laws of capitalist development. If you can’t screw the workers labour power enough to make a profit you have to look for new ways of ripping off workers. The big monopolies tried to boost their falling profits by going on a global grab of cheap labour and assets in the 80s and 90s – so-called neo-liberal globalisation – but this did not stop the rot.

          The result was that bosses stopped investing in production where it was not profitable and trillions of their capital accumulated in the international banks was speculated in bidding up the prices of already produced assets like working class housing and boosting credit driven demand.

          When the decline in productive investment workers were sacked or their falling wages could not keep up with inflated mortgage repayments the credit and housing bubbles burst and the biggest banks faced bankruptcy.

          As the ruling class does in times of crisis its uses its executive state institutions including the central banks to shift the burden of the crisis on to weaker states and ultimately onto the backs of workers. Hence bank debt became taken over as sovereign debt for which, we the people, have to pay either in by savage austerity measures imposing new taxes of wages or cuts to the social wage.

          Thus the crisis is transferred from the bosses to society in general and that is why the only way to avoid the barbarism of wars, depressions and global poverty and misery, is socialism. We can see the way out today in Greece where the workers do have an option which is default on the debt, nationalise private assets and plan a socialist economy.

          Michael Roberts blog has a running commentary on all these questions.
          Start here and work back http://thenextrecession.wordpress.com/2011/09/20/default-is-in-the-air/

          • Muzza 2.1.3.2.1

            Don’t really know much about history do you bro.
            Try Tarpley.net you might learn something.

        • kenny 2.1.3.3

          Money does not get ‘destroyed’ when a debt is repaid; the money is counted as new money and goes back into the system for further lending.

  3. randal 3

    Why Iceland has a finacial sector is a mystery to most people.

  4. Hilary 4

    vto – I hear the Wall Street protests have spread to Spain and France. They are still occupying Wall street after several days, even though the big media have banned coverage, and twitter and yahoo trying to block. Can follow through the twitter link #occupywallst

  5. queenstfarmer 5

    Krugman’s just angry because his economic theories have failed. The biggest stimulus in history has abjectly failed. And yet he wants to double-down.

    • millsy 5.1

      So what would you do? Slash and burn? They are closing LIBRARIES, farmer. LIBRARIES.

      Give me one reason why ordinary people should have to shoulder the burden for this downturn in terms of reduced services and worse living standards than the previous generation.

      • queenstfarmer 5.1.1

        Countries need to live within their means. Pretty simple really. If the populace supports higher taxes, then the Govt will have more money at their disposal (even if an ever increasing amount is wasted).

        It’s hardly surprising some libraries are closing – thanks to the internet & computers, I rarely need to venture into a library anymore.

        Ordinary people always shoulder the burden. The bottom ~50% in this country pay no net taxes. The guys at the very top pay by far the most, as they should (disgraceful tax avoidance & loopholes excepted). The middle class always shoulders the burden.

        • The Voice of Reason 5.1.1.1

          Countries need to live within their means … and we do. We have one of the smallest public services of any developed country and one of the smallest Government debt ratios in the world. Though, admittedly, the latter is growing as a result of the need to borrow millions every weekto fund the tax cuts for the wealthy. I think the problem actually is that rich refuse to live within this country’s means and the rest of us are required to pay to keep them in the lifestyle they have become accustomed to.

          • TightyRighty 5.1.1.1.1

            Yes, I see the rich on benefits to pay for sky tv satellite dishes and never ending fast food when i drive through wealthier areas. I’m always aghast at the way rich people line up at instance finance in remuera for loans to see them through to pay day to cover the poor spending choices they have made. Even though the poor pay no tax and receive benefits, somehow it’s escaped you that it’s not the rich who live beyond their means. On a macro scale, the poor are the problem, but according to you, it’s not their fault right? so you say the rich must pay until everyone is equally poor. The slow durrr of stupidity really is a better moniker for you.

            • AAMC 5.1.1.1.1.1

              Your Religion is failing you Tighty, I see you still have the Faith, but look around you, it’s coming undone, the Greed of the Rich is undoing them, they should have had the sense to throw a few crumbs…

            • mik e 5.1.1.1.1.2

              Sticking to your chicago BS Tighty Almighty.They are taking their lead from the National party $76 billion debt we should deal to them as well aye tighty.These companies which lend at last resort are Run by very wealthy people. Who are just like the banks that are lending to the European piigs.Irresponsible lenders the govt ie tax payer picks up the bill[ponzi blackmail scheme].Balance of payment in NZ hits the skids again overseas owned companies [major bank huge profits heading offshore] profits increase ,The poor still pay tax more that capital gaingters GST Dummy plus the companies where they spend all their money pay tax as well dummyNZ back on spending spree nothing learned.The Remuera set more than likely pay less tax than the poor they can afford overseas holidays gst free investments tax free investments set up companies right vehicles holidays food trusts.Your answer would be eugenics no doubt.

            • mik e 5.1.1.1.1.3

              Thats so they can watch fox spews.The people in Remuera are happy that these people aren’t getting ahead because it keeps the big four banks rich with the profits from rental mortgages the landlords rich through tax free capital gains.And the take ways businesses employ people pay Exorbitant rent to property investors who don’t pay much tax the banks get another slice . wow Tighty I though you were doing a degree in economics or have you just been reading Act and Chicago school comics again.The no research based propaganda school of exploitative imperialistic brain washing.

        • Colonial Viper 5.1.1.2

          Countries need to live within their means. Pretty simple really. If the populace supports higher taxes, then the Govt will have more money at their disposal (even if an ever increasing amount is wasted).

          How can the money be “wasted”?

          It enters circulation again and is placed back in the general community.

          Instead of sitting piled up stagnating uselessly in some rich guys property or stacked high bank account.

      • aerobubble 5.1.2

        They won’t, thats why Key and his ilk are so desperate to cling on to any
        economic reality that continues the old order, they are betting the free
        market (that the rancid right have so distorted with propaganda newsspeak)
        will now suddenly advance some new energy source. They don’t seem
        to understand that a free society underpinned not undermineds a free
        market. Murdoch, Fox, and the whole army of dittoheaded newsmedia
        are the bottleneck strangling the free market.

    • KJT 5.2

      Free money for banks to continue gambling with. A stimulus??

      A Keynesian stimulus is when you prime the part of the economy that does real things.

      • Colonial Viper 5.2.1

        Yeah, queenstfarmer is being disingenuous when he says that printing money for the banksters is going to be good for the economy.

        Who it was good for was Wall St and the big banks.

        Main St and blue collar workers just keep getting ground into the dust, seeing their property and pension values fall and fall.

  6. Afewknowthetruth 6

    Being an economist, Paul Krugman is also focused on the wrong problem (predicament), and anything he says on the matter of global economics will be largely irrelevant.

    The root cause of the current downward spiral (from which there is NO ESCAPE via orthodox economics) is energy depletion and resources depletion. The peak in global per capita energy was around 1979, and we are now into net total energy decline, peak oil having occured over 2005-2006 and most of the readily accessible high quality coal having been burned decades ago.

    As long as economists and governments remain locked into the fantasy world in which EROEI is of no significance everything will get rapidly worse. Since the bulk of economists and politicians are scientifically illiterate (especially when it comes to energy) there is no hope for anyone caught up in maintream culture.

    The collapse I and others have repeatedly warned about over the last ten years has now arrived.

    http://msn.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10753248&ref=rss

    Of course the ‘clowns’ at the IMF refuse to talk about any of the fundamentals that make the global system possible, and keep pretending that by forecasting growth they can somehow miraculously make it happen.

    It’s all in the book I am ‘not allowed’ to mention.

    .

  7. Zaphod Beeblebrox 7

    So the IMF does not like Greece not paying off its debts back quickly enough! What does it propose? More spending cuts. Result- more unemployment and economic stagnation and higher government deficits.

    Then its lends more money which increases the repayments meaning there is even less opportunity to get paid back.

    You’d think these muppets at the IMF would have learnt from Agentina in 2001. There Kirschner refused to pay back the debt- increased spending and ran the economy at 6% GDP (which it has been since). The IMF squealed and complained then backed down. It was a problem of their own making.

  8. Afewknowthetruth 8

    Without an energy supply nothing happens.

    With an increasing energy supply more can happen.

    With a decreasing energy supply less must happen.

    It really could not be simpler.

    The belief that economies run on money or credt is a very common delusion. Modern economies run on oil.

    M King Hubbert wasn’t far out in the predictions he made in the early 1970s for the world economy of the early 21st century. Decline and fall.

  9. vto 9

    Clearly, interest should be banned.

    What would happen? I guess it would force “capital” to find other uses to be put to, which would certainly boost productivity for a start. If it was not possible to get interest on your money then where would people put it?

    • Colonial Viper 9.1

      Interest should be banned, and governments should issue and control the quantity of debt-free interest-free money in an economy.

      • mik e 9.1.1

        CV in certain areas of the economy like housing and job creative industries .Inflation is the biggest problem increasing savings instead of interest rates would solve this problem the major banks wouldn’t haver a bar of it thats why you find so many Nact party politicians in their corporate box’s.CHCH would be the best place to start print enough money to fix CHCH but the Govt would have to control purchases of materials and organize the rebuild so inflation doesn’t damage the economy.

        • Colonial Viper 9.1.1.1

          Pouring a billion printed dollars in to fix Christchurch would not be any more inflationary than pouring in a billion dollars of insurance money to fix Christchurch.

          • mik e 9.1.1.1.1

            CV that is correct there is going to be increased inflation because of that, building materials and real estate is already going up thats why govt needs to step in bulk buy materials at the cheapest prices and bare land.The rebuild needs to be more carefully managed.Transportable houses that can be moved quickly, that wouldn’t be damaged ie made of wood.On top of the insurance payout there needs to be several billion more invested to make up the short fall as well as having a line to print in case of no re insurance.

    • millsy 9.2

      I wouldn’t go as far as banning interest, but it is crystal clear that the finance sector needs to be razed and rebuilt.

  10. Galeandra 10

    Queenstreet farmer knows lots as usual-‘Krugman’s just angry because his economic theories have failed. The biggest stimulus in history has abjectly failed. And yet he wants to double-down.’ so he repeats misinformation from Koch-Fox’nall as ‘fact’ or supportable analysis and slags off Krugman as if he’s a petulent child. Did he read Krugman’s innumerable columns during and after Lehmans etc and Democrats’ bailout of the banks— where he argued endlessly it was never enough money to do the job; and the underweight funding was hoarded by banks (or used for bonuses) even though community liquidity was at vanishing point, anyway.
    The ‘ biggest stimulus in history’ it was not. Do some reading; he gives a good link on that very issue in today’s column, if you can be bothered.

    Oh, but wait, you can’t…..’ I rarely need to venture into a library anymore.’ Brother, it sure as hell shows. Better vote National, too much to think about otherwise.
    And when unemployment goes on rising , and violence burgary and general crime rise with it, along with ill health and all the other indicators of distress, stick your chest out. The 1930’s replay has already kicked off, and you’re one of the little turkeys who helped bring it about.

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