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Thread: Europe's pain is coming America's way

  1. #1
    SiriuslyLong is offline
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    Europe's pain is coming America's way

    By Frida Ghitis, Special to CNN
    updated 10:33 PM EDT, Thu April 5, 2012

    Amsterdam, Netherlands (CNN) -- The problem has become so complicated, that perhaps only a child can solve it. An 11-year-old Dutch boy, Jurre Hermans, entered a serious economics competition with a plan for bringing the Greek economy back from the brink.

    In the end, Hermans, the youngest ever to enter the Wolfson Economics Prize, received a 100 euro voucher for his original idea -- conceived on the notion of exchanging debt for slices of pizza. Maybe Washington can invite him for some budget brainstorming. Meanwhile, Europe's crisis goes on, still in need of creative solutions.

    Beyond the placid old Amsterdam canals, the bustling bike lanes and the quaint tulip fields, roils a furious debate about the future of the Netherlands. On the surface, the issue is what to do about the budget deficit. In reality, it is about whose life will become more difficult. Who will pay more? Who will receive less? It is a question coming soon to a deficit-spending country near you: the United States.

    In other parts of Europe, in places like Greece and Spain, similar discussions have toppled several governments and have escalated into huge, sometimes violent protests, as people lash out in frustration against government decisions they find intolerable.

    I believe that some time next year, with the election in the past, when either Barack Obama has started his second term or Mitt Romney has finished unpacking in the White House, Americans, too, will discover that budget debates are not just academic exercises or political theater. It's a good bet that just as Europe has come up against the reality that deficits cannot grow forever, so too will America. Investors, who have taken losses in the European debacle, will start looking at America's books, questioning its solvency, and demanding change.

    The European economic crisis has unfolded most dramatically in Greece, where the economy has plunged into a depression. With its budget deficit and national debt rising out of control, the Greek government sought help from the eurozone, where rich countries demanded stark austerity measures in exchange for a bailout.

    Greece, like other countries in Europe, had given up its own currency in exchange for the euro, so it did not have the option of printing more money or devaluing the currency to pull itself out of the mess created in part by politicians who gave voters what they wanted without troubling to bring up the unpleasant fact that someone, sooner or later, would have to pay.

    Today, the Greek people are enduring economic pain that makes America look like a paradise of prosperity. Unemployment stands at 21%, wages are collapsing for both government and private sector workers.

    A series of new taxes have been imposed, including a "solidarity" tax, new property taxes and higher self-employment taxes. The VAT, a national sales tax on all transactions, has jumped from 13% to 23%. The minimum wage has been been sharply cut. Poverty has increased dramatically.

    After all that, Greece is still required by European rules to cut another 4.7% of gross domestic product from its budget, equivalent to the United States suddenly cutting more than $700 billion.

    Even if it achieves those goals, or rather because it will enact such draconian cuts, the Greek economy is expected to sink deeper.

    The European economic pact requires countries to keep their budget deficits below 3% of GDP. That became increasingly difficult as the world entered a recession. In Greece's case, the government had been concealing its deficit spending. In other countries, especially those that relied heavily on real estate, home prices collapsed, and tax revenues declined, opening up the budget gap.

    The Dutch economy, one of the healthier ones, now faces a 4.6% deficit. There's talk of across-the-board pay freezes and even more social safety-net cuts, among other ideas. Unemployment is just 6%, but the country has returned to recession.

    In Spain, the government wants to avoid requiring a bailout the way Greece, Ireland and Portugal have. The newly-installed government of Prime Minister Mariano Rajoy needs to slash the budget by 5.5% of GDP, even more than Greece.

    Spain expects unemployment, already the worst in the developed world, to go over 24% this year, about the same experienced by the United States during the Great Depression.

    The European crisis is far from over, but it already has important lessons for the United States, where federal deficit figures are treated as poison darts to be thrown among politicians, rather than as an important problem needing adult solutions.

    The top three lessons from Europe are these:

    • Deficits matter and sooner or later will have to be cut

    Read the other two lessons here, but be reminded of the first. Some think deficits don't matter:

  2. #2
    SiriuslyLong is offline
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    No, no, no.... Deficits don't matter... Here is a list of Krugman articles saying such. Krugman is Hava-gafa-kasha's "favorite" economist. He "follows" him.

    I agree with the author. Our deficit is unsustainable and will have consequences. What the consequences will be is up for debate, but rest assured that this behavior cannot go on forever.

    Liberals think this link is a scare tactic: To them, it is a faux argument. The only scare tactic I've seen in the news is Obama wanting to tax the rich because they are rich and others are not. Great reason, eh?

  3. #3
    SiriuslyLong is offline
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    It's not about solutions, it's about getting a vote.

  4. #4
    SiriuslyLong is offline
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    Here, I'll help him.

    I'll even give him a small analogy. Is it better to treat a cold, or wait until it gets in your lungs and becomes pneumonia and THEN treat it?

  5. #5
    Havakasha is offline
    Austerity alone is not a solution. Growth has to be considered.
    I have been posting articles for the past year that warned It was a mistake on Europe's
    part as well as the U.S. to concentrate exclusively on Austerity.
    For example those (SeriouslyWrong) who have posted in praise of England's Austerity plan will
    now have to acknowledge the negative consequences of just such a path.

    Europe's Economic Suicide

    Europe’s Economic Suicide
    Published: April 15, 2012

    On Saturday The Times reported on an apparently growing phenomenon in Europe: “suicide by economic crisis,” people taking their own lives in despair over unemployment and business failure. It was a heartbreaking story. But I’m sure I wasn’t the only reader, especially among economists, wondering if the larger story isn’t so much about individuals as about the apparent determination of European leaders to commit economic suicide for the Continent as a whole.

    Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s rescue. It offered Europe’s banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

    The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

    But they didn’t. Instead, they doubled down on their failed policies and ideas. And it’s getting harder and harder to believe that anything will get them to change course.

    Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.

    In a way, it doesn’t really matter how Spain got to this point — but for what it’s worth, the Spanish story bears no resemblance to the morality tales so popular among European officials, especially in Germany. Spain wasn’t fiscally profligate — on the eve of the crisis it had low debt and a budget surplus. Unfortunately, it also had an enormous housing bubble, a bubble made possible in large part by huge loans from German banks to their Spanish counterparts. When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause.

    Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.

    This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

    Continue reading by clicking on the link at the top
    Last edited by Havakasha; 04-16-2012 at 03:29 PM.

  6. #6
    SiriuslyLong is offline
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    Yeap, that's the topic. Europe's Pain is Coming our Way!!!

    Learn a little about the possible consequences of runaway national debt:

    Treat the cold or the pneumonia it causes? Europe's Pain is Coming our Way........

  7. #7
    Havakasha is offline
    The Austerity programs in Europe, put in place to deal with economic problems and debt,
    are backfiring and if theyproceed as planned are sure to bring continuing pain to Europe and to the U.S.
    as Mr. Krugman explains in the article I posted (and has predicted for the past several years) You have to tackle debt in a slow and responsible way, at the same time that you foster growth. Timing and growth policies are critical and I believe that people like
    SeriouslyWrong (and Mr. Schiff) push economic theories based on rigid ideological thinking (Austrian Model) on these threads which are counterproductive to our economic well being.

    You would think that SeriouslyWrong would be a little less arrogant about his economic point of view given that he has as one of his main economic theorists the "amazing" Peter Schiff. lol

    For example:

    "In other words, Peter Schiff may be a classic case of a stopped clock: he's been predicting a market decline FOREVER and when the market has declined he's hailed as a genius by his cult fans."

    Now, had you listened to Peter in 2002, 2003, 2004, 2005, 2006 or even 3/4 of 2007, you lost your shirt. Had you placed bets based on Schiff's market calls, you lost everything you wagered.

    The S&P (.INX) went from 1054 in May of 2002 (the date of the interview) to 1561 in Oct. 2007, a 48% gain and the Dow (.DJI) rose 40%.

    Banking stocks, the primary victim of the housing bust, went up (JP Morgan (JPM) 36%, Bank of America (BAC) 41%, Wells Fargo (WFC) 39% , Wachovia (WB) 31% and American Express (AXP) 51%) during that time frame (dividends excluded which would dramatically add to results).

    Bottom line? Had you listened to Mr. Schiff at anytime before Oct. 2007, you lost...big. To those who did, there is little consolation in the praise being heaped on him today.

    Milton Freidman said, "markets can stay dislocated longer than you can stay solvent." For those who bet with Schiff between 2002-2007, they know the statement well.

    Why is it a big deal? After all, Berkshire's (BRK.A) Warren Buffett claims he cannot time the market and often watches share prices decline in investments (like recent investments in Goldman Sachs (GS) and GE) before a rebound. How is this any different?

    For one, Warren's loss is limited to his investment. He buys 1 share of stock "a" at $25. $25 is the most he can lose.

    Now, if we listen to Peter and "short" stock "a" at 25, our loss has no limit. If it goes to $100, we lose $75. In shorting, we are only limited in our upside. If "a" goes to zero, "Schiffers" profit $25.

    Buffett's strategy is an investing one and Schiff's is a trading and timing one.

    Buffett followers can hold their shares, collect their dividend and wait for the rebound. Schiff followers collect no dividend and watched for over 5 years as their bet went wrong. How many stuck around? How many shorted into every market drop or "presumed" top over 5 years, only repeatedly losing money as the market kept rising and Schiff kept pounding his message home?

    Schiff should not be getting the praise he is getting today for being "so right" after saying the same thing and being "so wrong" for the previous 5 years.
    Last edited by Havakasha; 04-17-2012 at 10:43 AM.

  8. #8
    Havakasha is offline
    These are the economic predictions he has made in the past..

    SeriouslyWrong posted this in Jan. 2011. "i wouldnt dismiss ANY of his (mr. schiff's predictions)
    for 2011" He said ANY. But what happened is that he got ALL those predictions WILDLY WRONG. Those are the facts and as you notice he cant defend or refute THESE FACTS.

    Just let this sink in when thinking about whom Mr. SeriouslyWrong chooses as his hero for economic and financial advice. It should help you evaluate his judgement as pertains to a whole host of issues (especially economic).

    The predictions of Peter Schiff were for a "CATASTROPHIC" market crash in early 2011. His prediction was for "HYPERINFLATION" in 2011. Not normal or high inflation but HYPERINFLATION. His prediction was for gold to rise to $12,000 or the Dow to fall to 1,400 within the next 2 years.
    His prediction was for interest rates on 10 year notes to be at "4% at the beginning of 2011 and
    rise to 5% or even 6%% in 2011 or 2012. His prediction was that the dollar would collapse in 2011. And on and on and on....


    You would have lost your shirt if you bet with him.

  9. #9
    Havakasha is offline
    His entire economic point of view collapses if he is honest about these facts.

  10. #10
    SiriuslyLong is offline
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    Quote Originally Posted by Havakasha View Post
    His entire economic point of view collapses if he is honest about these facts.
    Wow are you extreme. Aren't you the same guy who recognizes that ever increasing national debt is unsustainable, yet will not discuss why? Why won't you discuss why?

    You don't have a leg to stand on.

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