Mitchell’s laws: The more budgets are cut and taxes increased, the weaker an economy becomes. Until the 99% understand the need for deficits, the 1% will rule. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Visualize, you walk into a bank looking for a loan. You tell the loan officer your income is not large enough to cover your current expenses. Moreover, your current debts are so high, there is no reasonable possibility you ever will be able to service them, much less service any new debts.
What will the bank loan officer do?
If this occurred before 2008, and the loan you sought was a home mortgage, the bank would have given you the loan, under the belief that the collateral would keep increasing in value, and if you didn’t pay, the bank always could sell your house and make a profit.
That was then. This is now. Today, loan officers are a bit more careful (unless they happen to work for one of the “too-big-to-fail” banks in which there is no risk. If things go well, they make a fortune, and if things go poorly, Timothy Geithner will bail them out.)
Anyway, all of the above is merely a confirmation of the general rule: If someone can’t service his current debts, don’t put him even deeper in debt – which leads me to the following headline:
“Bailout” in Eurospeak means another loan. You see, Spain is hopelessly in debt, because although their debts are not especially high, they are monetarily non-sovereign. They can’t create the euros to pay even modest debts.
Austerity is collapsing their economy. Each day, their ability to service their debt declines. That’s why they need euros. So rather than give Spain euros, Europe will lend them the money, putting them deeper in debt.
Here are a few excerpts from the article:
. . . the eurogroup statement said that it expected Spain’s banking sector to implement reforms and that Spain would be held to its previous commitments to reform its labor market and manage its deficit.
Translation: “Reform its labor market” means cut salaries and employment. “Manage its deficit” means cut stimulative spending. No explanation on how this will help Spain pay its debts.
U.S Treasury secretary Timothy Geithner welcomed Spain’s decision and the offer of European support, describing them as “important for the health of Spain’s economy and as concrete steps on the on the path to financial union, which is vital to the resilience of the euro area.”
Translation: Putting Spain deeper in debt, while cutting salaries, increasing unemployment and reduced stimulative spending, will help the euro. Trust me. Haven’t I done a great job for the U.S. economy?
French Finance Minister Pierre Moscovici said, “The accord announced tonight speaks to a reinforced solidary among the countries of the eurozone and to their resolute desire to ensure its stability,” he said in a statement.
We political leaders don’t give a fig about our starving people. Hey, we have jobs. All we care about is “stability,” whatever than means.
Analyst Rafael Pampillon if IE Business School in Madrid said, “This uncertainty, and hence the panic, will slowly dissipate from the markets. He added that with polls forecasting a pro-Euro victory in Greek elections, markets would be further relieved because the austerity conditions imposed on Greece would most likely be fulfilled.
Translation: I agree with Moscovici. Austerity is good. Who cares about the starving Greeks? If they’re stupid enough to vote for austerity, let ‘em eat flaming cheese.
Anyway, I have money.
Spain’s in its second recession in three years, with unemployment at nearly 25 percent and little hope for improvement this year. Prime Minister Mariano Rajoy’s government has imposed a wave of austerity measures since he took office in December that have raised taxes, made it cheaper to hire and fire workers and cut government funding for education and health care.
Translation: I don’t get it. When I arrived, there was a fire, so I poured on some gasoline to put it out. but the more I poured, the worse the fire got. It’s truly a mystery.
Spain is the fourth euro nation to receive “bailouts,” after Greece, Italy and Portugal, and as anyone can see, these bailouts have had no positive effect. What a surprise.
Note to Europe: When you bail a boat, the water is supposed to go to the outside of the boat, not in. Just a thought.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports