Results 1 to 10 of 11

Thread: Stiglitz: Spain Bailout Not Gong to Work

Hybrid View

  1. #1
    Havakasha is offline
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358

    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
    Guru
    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    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
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358
    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
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358
    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
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358
    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
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358
    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
    Guru
    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    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
    Guru
    SiriuslyLong's Avatar
    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    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?

  9. #9
    Havakasha is offline
    Legend
    Havakasha's Avatar
    Joined: Sep 2009 Posts: 5,358
    First, the Spanic (for a panic in Spain). We’ve just seen one rescue package for the troubled Spanish banks. But who says 100 billion euros is enough? This is a country that is sliding into deep recession, and where the government is cutting spending fast — which is only going to deepen the recession. The economy is forecast to contract by 1.7% this year, and the actual outcome could be much worse. During a recession, businesses go broke, unemployment rises, and loans don’t get repaid because people don’t have any money. None of that is good for the banking system.

    Worse, no one really knows precisely where the bailout money will come from, or how much is actually needed. One thing that can be said for certain about euro land, after two years of this crisis, is that everything is always worse than it looks at first sight. Nothing has really been done to make sure that Spain is on the path to recovery. If the rescue falls apart, however, and Spain has to come back for another package, then there will be a massive run on its financial system.

    That will be the Spanic.

    Next, a Quitaly (for Italy’s quitting). The Spanish bailout puts pressure immediately on Italy. The precise terms of the Spanish bailout have not been agreed yet, but the reports are that Spain’s banks are going to get funding at an interest rate of 3%. Italy’s banks, and the Italian government, have to pay 6%, if they can get funding at all. The Spanish money does not even come with very onerous conditions — at least no more onerous than the budget cuts already being imposed by the government.

    Imagine how that is going to feel to the Italians. The Spanish get to borrow money at half what it costs them — and this at a time when very high borrowing cost are pushing your country into the fifth recession since the nation joined the single currency. Worse, Italy has to stump up around 22% of the Spanish rescue — borrowing money at 6% to give to its neighbors at 3%. That isn’t going to go down well. Inside Italy, pressure is inevitably going to grow for it to get the same terms — and if it doesn’t, it will threaten to quit the single currency, with all the chaos that could bring about.

    Finally a Fixit (for a Finnish exit). The crisis will finally come to a head when one country decides to get out. Finland is the most likely. Why? Because it is a small nation with a strong economy. It is easy to head for the door. Finland would be better off on the first day, just as Estonia was when it decided to leave the ill-fated ruble zone created after the collapse of the old Soviet Union. It doesn’t particularly have to worry about the impact on the European Union, in the way that Germany would if it opted out. If a country such as that leaves, it is effectively game over, but no one can really say that of a tiny place such as Finland. And it has a strong anti-euro political grouping; the True Finns scored well in the last election and may well improve their position in the polls.

    Finland is already demanding collateral for its portion of the Spanish loan. That could well turn into a deal-breaker — no collateral, so we’re out of here. Once one country leaves, it is much easier for the next to leave, in much the same way as it is easier to be the second person to leave a really bad party than the first.

    A Finnish exit will be the trigger for the single currency to either be taken apart, or else for a smaller euro zone with fewer countries and tighter rules to be created. Either way, it would bring the crisis to a much-needed resolution.

    Nothing about that process is likely to be smooth. And if it does play out like that then the only assets you want in your portfolio while it is happening are dollars and gold, and maybe a few Swiss francs as well. Everything else would sink to bargain-basement levels. But at least the whole sorry saga would be reaching its end.

    http://www.marketwatch.com/story/how...ist=beforebell

  10. Ad Fairy Senior Member

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •