Sunday, January 29, 2012

@10:53, 01/29/12 2

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There is a parable about debt that I learned as a child:
If you owe the bank one hundred dollars and can't pay, you have a problem.
If you owe the bank one million dollars and can't pay, the bank has a problem.

The banking system has a terrible problem.
Greece is sovereign and cannot go bankrupt.
The Euro zone has no mechanism to expel a state.
If Greece is found to be in default the European Central Bank (ECB) will fail.
Germany can admit Keynes was right, the liquidity trap exists, or they can allow the world financial system failure.
So far they are going for failure.

http://krugman.blogs.nytimes.com/2012/01/29/destructive-austerity-usa/

"January 29, 2012, 9:20 am

Destructive Austerity, USA

Jared Bernstein has been emphasizing, rightly, the extent to which our weak recovery is being undermined by cutbacks at the state and local level:
But it’s even worse than he says. Why? Because if you look at what’s being cut, it’s heavily focused on investment:
That is, we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.
It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster."

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