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Thread: Stiglitz: Spain Bailout Not Gong to Work

  1. #1
    Havakasha is offline

    Stiglitz: Spain Bailout Not Gong to Work

    http://www.huffingtonpost.com/2012/0...n_1585399.html


    * Nobel laureate a long-time critic of austerity packages

    * Says European Union must promote growth

    * Stiglitz publishing book on Monday

    By Tiziana Barghini

    NEW YORK, June 10 (Reuters) - Europe's plan to lend money to Spain to heal some of its banks may not work because the government and the country's lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.

    "The system ... is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government," Stiglitz said in an interview.

    The plan to lend Spain up to 100 billion euros ($125 billion), agreed on Saturday by euro zone finance ministers, was bigger than most estimates of the needs of Spanish banks that have been hit by the bursting of a real estate bubble, recession and mass unemployment.

    If requested in full by Madrid, the bailout would add another 10 percent to Spain's debt-to-gross domestic product ratio, which was already expected to hit nearly 80 percent at the end of 2012, up from 68.5 at the end of 2011. That could make it harder and more expensive for the government to sell bonds to international investors.

    With Spanish banks, including the Bank of Spain, the main buyers of new Spanish debt in 2011 - according to a report by the Spanish central bank - the risk is that the government may have to ask for help from the same institutions that it is now planning to help.

    "It's voodoo economics," Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. "It is not going to work and it's not working."

    Instead, Europe should speed up discussion of a common banking system, he said. "There is no way in which when an economy goes into a downturn it will be able to sustain policies that will restore growth without a form of European system."

    Stiglitz, a former economic advisor to U.S. President Bill Clinton, is a long-standing critic of austerity packages. He also wrote book attacking the International Monetary Fund for policies it has imposed on developing countries as a precondition for emergency loans.

    What the European Union has done so far has been minimal and wrong in its policy direction because austerity measures to restore risk have the effect of reducing growth and increasing debt, he said.

    "Having firewalls when you're pouring kerosene on the fire is not going to work. You have to actually face the underlying problem, and that is, you're going to have to promote growth," Stiglitz said.

    Instead, sweeping reforms to make Europe more of a fiscal union are needed to solve the debt crisis, reinforce the single currency and ultimately help Germany which, as the richest country in the union, will have to bear the highest cost of guaranteeing any commonly issued debt and providing more resources to boost public spending.

    "Germany keeps saying that the strengthening is fiscal discipline, but that is a totally wrong diagnosis," Stiglitz said.

    Germany is expected to propose at the end of June a road map toward a European fiscal union, but Berlin favors joint euro bonds, backed by all the area's governments, only as a medium-term goal, once other countries have fixed their high debts and budget deficits through austerity measures so they are not reliant on Berlin's deep pockets.

    "Eurobonds is just one institutional arrangement that could work, there are others: a common treasury," said Stiglitz adding that ultimately "there has to be a way of raising revenue across Europe, to support the weaker countries in case of an economic downturn."

    While the economies of Spain, Greece, Italy and Portugal are contracting, Germany grew 0.5 percent in the first quarter. The divide in the euro area in many cases reflects austerity programs to tackle debt and deficit problems.

    Critics have said the focus on cutting costs is aggravating Europe's crisis and jeopardizing the future of the single currency. Greek elections next week could bring to power parties opposed to the tough conditions attached to the country's EU and IMF-led rescue plan and raise the possibility of Greece leaving the euro zone.

    "Germany is going to have to face the question, do they want to pay the price that would follow from the dissolution of the euro, or do they want to pay the price of keeping the euro alive?" Stiglitz said. "I think the price they will pay if the euro falls apart will be greater than the price they will pay for preserving the euro. I hope they will come to realize that, but they may not."

    Stiglitz's latest book, "The Price of Inequality: How Today's Divided Society Endangers Our Future," is scheduled to be published on Monday. It challenges the idea that inequality is an unavoidable evil needed to sustain economic expansion.

    "We could have more growth and less inequality," Stiglitz said, "so we could do better in both dimensions simultaneously." (Reporting By Tiziana Barghini, Editing by William Schomberg and Stacey Joyce)

  2. #2
    SiriuslyLong is offline
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    He's a charlitan hawking his book. Shameless self promotion. lol.

    Stiglitz is an award winning idiot. The solution to inequality does not lie in government programs or incentives or disincentives. It lies with................... family - the family unit. Here's how it works. Your parents are responsible for their children's success. One can argue we need more teachers, but one can also send their children to school prepared and well behaved.

    I know that's hard for a liberal to swallow. Things like personal responsibilty... Guys like Krugman don't have control.

    These nations should default and swallow what they've done to themselves.

  3. #3
    Havakasha is offline
    STIGLITZ: Spain Is In A 'Vicious Downward Spiral' Right Now | Jun. 11, 2012, 1:43 PM
    Simply put, Europe is a mess right now and the nature of the problem lies in Spain.
    "As money moves out of the banks in Spain and into Germany, the banks get weaker and weaker," says renowned economist Joseph Stiglitz. "The lending gets weaker and weaker. The economy gets weaker and weaker. It's a vicious downward spiral."
    Sitglitz tells Business Insider chief Henry Blodget what the EU should have done to ensure the success of the euro in the video below:



    Read more: http://www.businessinsider.com/josep...#ixzz1xY0KYToB

  4. #4
    Havakasha is offline
    Stiglitz negative about Spanish bail-out, calls it “voodoo economics”
    The plan to lend money to Spain to heal some of its banks may not work because the government and the country's lenders will in effect be propping each other up, Nobel Prize-winning economist Joseph Stiglitz said.

    The Nobel-prize winning economist is a long-standing critic of austerity packages


    “The system ... is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government” Stiglitz said in an interview.
    The plan to lend Spain up to 100 billion Euros, agreed on Saturday by Euro zone finance ministers, was bigger than most estimates of the needs of Spanish banks that have been hit by the bursting of a real estate bubble, recession and mass unemployment.
    If requested in full by Madrid, the bailout would add another 10% to Spain's debt-to-GDP ratio, which was already expected to hit nearly 80% at the end of 2012, up from 68.5% at the end of 2011. That could make it harder and more expensive for the government to sell bonds to international investors.
    With Spanish banks, including the Bank of Spain, the main buyers of new Spanish debt in 2011 - according to a report by the Spanish central bank - the risk is that the government may have to ask for help from the same institutions that it is now planning to help.
    “It's voodoo economics,” Stiglitz said in an interview on Friday, before the weekend deal to help Spain and its banks was sealed. “It is not going to work and it's not working.”
    Instead, Europe should speed up discussion of a common banking system, he said. “There is no way in which when an economy goes into a downturn it will be able to sustain policies that will restore growth without a form of European system.”
    Stiglitz, a former economic advisor to US President Bill Clinton, is a long-standing critic of austerity packages. He also wrote book attacking the IMF for policies it has imposed on developing countries as a precondition for emergency loans.
    What the European Union has done so far has been minimal and wrong in its policy direction because austerity measures to restore risk have the effect of reducing growth and increasing debt, he said.
    “Having firewalls when you're pouring kerosene on the fire is not going to work. You have to actually face the underlying problem, and that is, you're going to have to promote growth,” Stiglitz said.
    Instead, sweeping reforms to make Europe more of a fiscal union are needed to solve the debt crisis, reinforce the single currency and ultimately help Germany which, as the richest country in the union, will have to bear the highest cost of guaranteeing any commonly issued debt and providing more resources to boost public spending.

  5. #5
    Havakasha is offline
    Krugman:
    At that point, Europe’s lack of political union became a severe liability. Florida and Spain both had housing bubbles, but when Florida’s bubble burst, retirees could still count on getting their Social Security and Medicare checks from Washington. Spain receives no comparable support. So the burst bubble turned into a fiscal crisis, too.

    Europe’s answer has been austerity: savage spending cuts in an attempt to reassure bond markets. Yet as any sensible economist could have told you (and we did, we did), these cuts deepened the depression in Europe’s troubled economies, which both further undermined investor confidence and led to growing political instability.

    And now comes the moment of truth

  6. #6
    Havakasha is offline
    On U.S.:

    http://www.marketwatch.com/story/myt...2?pagenumber=2
    But just because a large group collectively believes in something doesn’t make it true. Perpetual growth is still a myth no matter how many economists, CEOs, bankers and politicians believe it. It’s still an illusion trapped in the brains of all these irrational, biased and uncritical folks.

    No-win scenario: Damned if we grow? Damned it we don’t grow?

    Capitalism itself is at a crossroads. Growth is capitalism’s sacred cow but it’s “grow or die” theory doesn’t work anymore. With us since 1776, it’s being challenged by a “new god of reality” that’s flashing warnings of an emerging new reality from critics, contrarians and eco-economists. This war is pitting old and new economists:

    Grow OR Die. Traditional economists (pro-capitalism): We’re told we need 3% GDP growth to support the next batch of 100 million Americans. We believe it on faith. Drill Baby Drill. Buy stuff. Get new jobs to fuel growth. We’re out of control. Exploding growth fuels demands as the rest of the world adds 2.9 billion new humans, all chasing their “American dream.”

    Grow AND Die. New eco-economists (environmentalists): They see Big Oil’s destruction of our coastal economies, the rape of West Virginia’s coal mountains, the unintended consequences of uncontrolled carbon emissions and they ask: “When will economists, politicians and corporate leaders stop pretending Earth’s resources are infinitely renewable?”

    Yes, our world is at a crossroads, facing a dilemma, confronting the ultimate no-win scenario, because the “Myth of Perpetual Growth” is essential to support the global population explosion. But all this “Growth” is also killing our world, wasting our planet’s non-renewable natural resources. “Eternal Growth” is suicidal, will eventually destroy Earth. We’re damned if we grow. Damned if we don’t.

    Future economists will be forced into a No-Growth Economics

    But will economists change as long as they’re mercenaries in the employ of Perpetual Growth Capitalists? No. It will take a new mind-set. The difference between the mind-set of traditional economists and the new eco-economists is simple: Traditional economists think short-term, react short-term, pursue short-term goals. New eco-economists think long-term.

    Initially this may seem overly simplistic, but fits perfectly. Here’s why:

    Old traditional economists — short-term thinkers: Traditional economists are employees and consultants for organizations with short-term views — banks, big corporations, institutional investors, think-tanks, government. They all think in lock-step, driven by daily returns, quarterly earnings, annual bonuses. Short business and election cycles are more important than what happens a decade in the future. Their brains are convinced: If we can’t survive the short, long-term is irrelevant.

    Environmental economists — long-term thinkers: New eco-economists see, think and plan for the long-term. They know traditional economists’ and capitalists’ thinking is setting America up for more and bigger catastrophes than the Gulf oil spill and the last meltdown. The “Avatar” film is a perfect metaphor: Soon capitalism will exhaust Earth’s resources forcing us to invade distant planets searching for new energy resources.

    Actually something more immediate will force change much sooner. You are not going to like it: United Nations and Pentagon studies predict population growth (the main driver of all economic growth) will create unsustainable natural-resources demands as early as 2020 with global population exploding from seven to 10 billion by 2050. So expect Depression Era austerity, unemployment and a new no-growth economy.

    Will we change? In time? Plan ahead? No, we won’t wake up without a collapse. We know the Myth of Perpetual Growth is pure fiction. But we also know our leaders, capitalists, economists and politicians all live in a collective conscience that must believe in this bizarre myth in order to justify everything they believe about the future, about progress, about income and wealth increasing, about a better life.

    So we will all hang on … until a catastrophe shocks our world, forces us to wake up and let go, newly aware of the absurdity of the Myth of Perpetual Growth on a planet of finite resources. And it will happen sooner than you think.

  7. #7
    SiriuslyLong is offline
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    Thanks for that last article. It was good. I agree - there cannot be perpetual economic growth. At some point we will have built all the roads, bridges and buildings we need, and as the article notes, it all has to come from somewhere.

  8. #8
    SiriuslyLong is offline
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    Well............

    Infinite growth on a finite planet? Easy-peasy!

    By Tim Worstall Economics Last updated: May 18th, 2012

    You'll have heard this before, no doubt: infinite growth is impossible on a finite planet. It's something of a mantra for environmentalists and is used as absolute proof that we're just going to have to do without that pesky economic growth thing. The problem here is that the conclusion isn't justified by the premise: it's driven by ignorance of what economic growth actually is.

    The basic idiocy starts with the observation that there isn't an infinite amount of stuff out of which we can make stuff. This is obviously true and no one asserts differently. However, it's entirely possible to have a system which is finite in one dimension, and this will not limit growth within that system in another, entirely different, direction.

    Using good old neoclassical economics, we define economic growth as an increase in GDP (not quite, but that's close enough for us). GDP is the value at market prices of all final goods and services. This is, by definition, equal to the value produced in that economy, the value as perceived by those doing the buying of all those things.

    GDP is by no means perfect. Simon Kuznets, who invented it, pointed out much the same things that Ms Lucas and all the rest point out now. It doesn't measure distribution, doesn't measure exhaustion of natural resources and so on. But it is what it is, and it is what we normally mean by economic growth.

    So, using GDP, can we have infinite economic growth on a finite planet by just making ever more things? No, clearly, we cannot: there is a limit to the number of atoms available to us. But that's not actually what we're measuring in GDP: we're not measuring the amount, tonnage (it was the Soviets who measured that), volume or even number of things that are made. We are measuring the value. So, is there a limit to the amount of value that we can add?

    A useful way of thinking about technological advance is that it offers us either better ways of doing old things or the opportunity to do entirely new things. Either of which can also be described as the ability to add more value. Which leads us to the conclusion that as long as technology keeps advancing then we can continue to add more value and thus we can continue to have more economic growth.

    Strange as it may seem, this explanation built purely on standard neoclassical economics is exactly the same as the diagnosis that Herman Daly gives us in ecological economics. He tells us that we face real and imminent resource constraints (I don't agree, but let's go with his argumenent) and that thus we can have no more quantitative growth. This "quantitative" is the same as the above "more stuff".

    More: http://blogs.telegraph.co.uk/finance...et-easy-peasy/

  9. #9
    Havakasha is offline
    http://www.washingtonpost.com/busine...y.html?hpid=z3

    rd Schneider, Updated: Tuesday, June 12, 3:50 PM


    ATHENS — Recession has taken hold in parts of Europe, and the euro zone’s stubborn crisis risks a worldwide shock. Growth is slowing in major developing nations, and the U.S. economy may be faltering.


    Leaders shaping global economic policy: From cabinet officials to central bankers, these leaders are making critical policy decisions that could shape the future path of the global economy.
    U.S., European efforts to steady economies mired in political tangles

    Zachary A. Goldfarb JUN 11
    Policymakers on both sides of the Atlantic are failing to take the ambitious steps economists say are vital for stabilizing Europe’s economy and assuring growth in the United States.


    When world leaders take stock at a summit next week in Mexico, they’ll face the discomforting fact that four years of crisis-fighting, trillions of dollars in government stimulus spending and a massive effort from the world’s central banks have failed to produce the “strong, sustainable and balanced” world economy they are striving to build.

    Is it time to open the cash spigot again?

    “That would be highly due,” said George Pagoulatos, an economics professor who has watched this battered Mediterranean country cut wages in hopes of making its exports more competitive — only to find its major trading partners facing problems of their own. “There is no global demand and no demand in the euro zone,” a situation that leaves Greece with a worsening recession and no clear path to renewed growth.

    Investors may be banking on policy action. On Tuesday, U.S. markets gained on speculation of a coming stimulus measure from the Federal Reserve after next week’s Fed policy meeting and after the European Central Bank endorsed a plan to guarantee bank deposits, Bloomberg reported.

    Charles Evans, president of the Federal Reserve Bank of Chicago, told Bloomberg TV that he would support a variety of measures to accelerate hiring, especially more stimulus. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in the interview. The non-voting Fed official echoed remarks made last week by three voting members of the Fed board, who expressed support for more central bank action if the U.S. economy continues to weaken.

    The slowdown in growth is acute in Greece, where a multi-year downturn, a financial and debt crisis and now a political stalemate have combined to potentially force Greece to drop the euro and unravel a currency union intended to be “irrevocable.”

    But there is heightened concern that the global economy as a whole is running out of steam — that the massive amounts of fiscal stimulus and loose monetary policy used to battle the 2008 recession have failed to nurse the world through an era of shaky growth, stagnant wages and high unemployment.

    The World Bank cut its forecast for world economic growth to 3 percent for 2013 on Tuesday, maintaining its 2.5 percent growth forecast for this year. The bank cited the European debt crisis as a threat to developing markets, saying that “should the situation in Europe deteriorate sharply no developing region would be spared.”

    Major political efforts to quell Europe’s problems have come up short: Even after regional officials committed $125 billion to bolster Spain’s banks over the weekend, the country’s borrowing costs rose again on Tuesday — to their highest level since the country adopted the euro — amid speculation that the amount may not be enough or that the government may also need help. Interest rates on government bonds also jumped in Italy as that country’s prospects for economic growth dim alongside the euro zone’s.

  10. #10
    SiriuslyLong is offline
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    Quote Originally Posted by SiriuslyLong View Post
    He's a charlitan hawking his book. Shameless self promotion. lol.

    Stiglitz is an award winning idiot. The solution to inequality does not lie in government programs or incentives or disincentives. It lies with................... family - the family unit. Here's how it works. Your parents are responsible for their children's success. One can argue we need more teachers, but one can also send their children to school prepared and well behaved.

    I know that's hard for a liberal to swallow. Things like personal responsibilty... Guys like Krugman don't have control.

    These nations should default and swallow what they've done to themselves.
    Spain and Greece shall be (and are being) punished by their stupidity. What about inequality?

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