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Thread: The Austerity Spiral? (obligatory loleconomics thread)

  1. #1381
    Maximillian's Avatar
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    We having nothing to fear but fear itself?

    I have been watching with some interest various groups trying to track where the stimulus money has gone to and why it hasn't had the desired effect. The idea behind stimulus is that in a downturn you have idle economic capacity - both capital and labour - and the aim of stimulus is to get money moving again when businesses and consumers won't spend.

    But what happens if you hand out stimulus and a fair portion of it goes into debt reduction rather than spending? That is what happened to some of the stimulus passed out in 2008-2010, it went into paying down debt or even boosting savings. Some of it wound up in China where it was also saved. Then the banks in their turn were more interested in reducing their own debt problems than lending that money out again.

    So you have this catch 22 - Governments around the world are handing out cash and that cash is not being spent and therefore is not stimulating the economy.

    Even here in Australia retail is suffering as people pay off mortages and credit cards rather than shop. The problem is that so many people think that the GFC will get far, far worse and they are trying to build up reserves.

    In many ways this reminds me of the Great Depression where it took a World War to spur the world economy out of its slump.
    Last edited by Maximillian; June 4 2012 at 12:57:01 PM.

  2. #1382
    Donor Rudolf Miller's Avatar
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    The only problem I can see is that Keynsian stimulus should be combined with surplus savings/debt paydowns during better times so as to provide better access to the rainy day fund during downturns. And I'm not sure politicians will ever have that kind of willpower.

    But yes, Krugman's logic is tough to ignore. I feel like gifting my dad the text of his book and rip the author's name off to see if he agrees with what he reads. Then reveal to him that it's Krugman.

  3. #1383
    Bartholomeus Crane's Avatar
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    Quote Originally Posted by Rudolf Miller View Post
    The only problem I can see is that Keynsian stimulus should be combined with surplus savings/debt paydowns during better times so as to provide better access to the rainy day fund during downturns. And I'm not sure politicians will ever have that kind of willpower.

    But yes, Krugman's logic is tough to ignore. I feel like gifting my dad the text of his book and rip the author's name off to see if he agrees with what he reads. Then reveal to him that it's Krugman.
    Well, that's the whole problem with any Keynesian stimulus package. How do you ween politicians off spending again when things are getting better.

    But the answer to that, and Maximillian's point (how do you keep that money from being spend on savings/debt reduction), is to invest in infrastructure and other projects with a clear end-time. You can only build a bridge once. Once it is done, the money has been spend. If you want to keep spending, you'd have to build a bridge somewhere else, and that means another decision has to be made. Furthermore, you have to spend that money on actual things, like concrete. It is not like handing out tax credits or breaks that can be siphoned off into debt relief. You can hoard concrete, but that does nothing for debt relief.

    The profit of the contractors, or the some of the wages will go to that in some part, but all the rest (and that's a large proportion) will have stimulated a whole chain of companies and people along the way downward, in your own country. It doesn't matter that much if it is done inefficiently, as the vast majority of the money will be spend in country anyway, and if the infrastructure projects are benefitial overall, you'll be reaping that benefit in the better times to come. At any rate, investing stimulus money in finite-time projects like infrastructure, forces the government to make another decision later on. Much unlike tax breaks that seem to be infinitely expandable with hardly any decision making in the proceedings.

    The point is: the decision (hard-fought) to do stimulus by Obama was the right call then, as it is now. It was the execution where it failed to deliver. Tax cuts and benefits become fixed, and where directed at the wrong people. If $800bn had been spend on finite term infrastructure projects, they would have had a much bigger impact by now. Just like Ike build the interstate road network, perhaps Obama should build an interstate high-speed rail network, or fancy energy grid, or something like that. That's real tangible stuff that will employ a lot of people to build it, and will provide benefits lasting decades, also during the time things will be better. And it is not like it isn't needed: infrastructure-wise the US is practically falling apart.

    But, ofcourse, the Republicans and financial lobby won't like it, so the wait is for the presidential elections and a less obstructive political situation (although I think Obama could make a splash promising it now!).

    As for the Great Depression: the situation is looking more and more like it as we go along. Politics and politicians have made sure of that ...

  4. #1384
    Bartholomeus Crane's Avatar
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    Quote Originally Posted by elmicker View Post
    Quote Originally Posted by Bartholomeus Crane View Post
    ... the Lib Dems aren't doing enough in this regard ...
    The lib dems aren't the labour-lite some people seem to think they are. They're a very liberal party, in the most classic sense of the word. They genuinely believe in austerity. Cable is on the fringe of his party in promoting stimulus; there's a reason he was only made business secretary when the lib dems were given treasury secretary in the cabinet. The Orange Book Liberals, those who believe strongly in laissez faire attitudes to markets as the solution to all things, absolutely dominate lib dem policy at the moment.
    They do, but also because they're in the coalition, and this is the coalition's line (and the Lib Dems are exerting themselves to please!). I don't think they are labour-lite, but at least the Lib Dems have people like Cable, and he's not unimportant, and I don't think he's that much on the fringe of the party as a whole either. He may look like in the current situation, but the fact that he's actually in government means he's not entirely without backing. In fact, I have more faith in that side of the Lib Dems than in most of Labour when it comes to this. If only the Lib Dems grew a pair ...

  5. #1385
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    The problem with big-ticket infrastructure projects is that they can take years to go from planning to actual construction. A terrible term they use here is "spade ready" .i.e. a project that is ready to go. Plus you run into NIMBYism and all the red/green tape that slows major projects down.

    Having lived through the late 80's recession to me the mistake that was made at the start was - rather than allowing the worst offenders to go down, whether private corporations or a nation like Greece - all that has been achieved by propping everyone up is the world economy has been kept in a perpetual state of crisis.

    The longer the crisis continues the less effective Government efforts to combat it become and the worse the pain waiting at the end will be.
    Last edited by Maximillian; June 4 2012 at 02:00:11 PM.

  6. #1386
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    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2

  7. #1387
    Sirial Soulfly's Avatar
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    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    More here:

    http://www.zerohedge.com/news/egan-j...rades-uk-aa-aa

  8. #1388
    Larkonis Trassler's Avatar
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    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    Nothing to LOL about mate... and in all seriousness it's because of people like you that this has happened.

  9. #1389
    Sirial Soulfly's Avatar
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    Quote Originally Posted by Larkonis Trassler View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    Nothing to LOL about mate... and in all seriousness it's because of people like you that this has happened.
    Pattern is a banker ?

  10. #1390
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    Quote Originally Posted by Sirial Soulfly View Post
    Quote Originally Posted by Larkonis Trassler View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    Nothing to LOL about mate... and in all seriousness it's because of people like you that this has happened.
    Pattern is a banker ?
    It would be one hell of an epic troll if I was right?

    Sent from my HTC One X using Tapatalk 2

  11. #1391
    Aurora148's Avatar
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    Quote Originally Posted by Sirial Soulfly View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    More here:

    http://www.zerohedge.com/news/egan-j...rades-uk-aa-aa
    "They are doing okay given the circumstances but we want our name in the media so here's an extra negative sign just for lolz"

  12. #1392
    Aurora148's Avatar
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    In other news, Lembit Opik is now a professional wrestler (starts at 2:41):



    At least it shows that ex-MPs aren't having trouble finding employment.
    Last edited by Aurora148; June 5 2012 at 01:05:42 AM.

  13. #1393
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    Quote Originally Posted by Aurora148 View Post
    Quote Originally Posted by Sirial Soulfly View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    More here:

    http://www.zerohedge.com/news/egan-j...rades-uk-aa-aa
    "They are doing okay given the circumstances but we want our name in the media so here's an extra negative sign just for lolz"

    Why don't you leave Britney alone amirite?

    Also welp at dat graph.

    Sent from my HTC One X using Tapatalk 2
    Last edited by Pattern; June 5 2012 at 01:07:35 AM.

  14. #1394
    felix-arb's Avatar
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    been watching a grand designs from 2003

    guy got lent 750k from his bank to build a house... he was a carpenter.


    love to see that happen these days lol

  15. #1395
    Donor lt's Avatar
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    Quote Originally Posted by Sirial Soulfly View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.

    Sent from my HTC One X using Tapatalk 2
    More here:

    http://www.zerohedge.com/news/egan-j...rades-uk-aa-aa
    Wow, didn't think my country's debt was that big tbh (overall, state debt doesn't seem that bad).
    Coming soon(tm).


    <3 Entrox.

  16. #1396
    GeromeDoutrande's Avatar
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    UK government debt as a percentage of GDP (other countries can be added in the menu on the left of the page for comparison):

    http://www.google.co.uk/publicdata/e...l=en&ind=false

  17. #1397

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    Quote Originally Posted by Sirial Soulfly View Post
    Quote Originally Posted by Pattern View Post
    LoL. The UK just had it credit ratings downgraded.
    More here:

    http://www.zerohedge.com/news/egan-j...rades-uk-aa-aa
    Oh no, a ratings agency that's being prosecuted for material misrepresentation has downgraded the UK. I'm sure all of maybe 3 people outside the Labour party will care.

  18. #1398

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    So despite government austerity govt debt as a proportion of GDP is going up? But the solution is more austerity? If people believe that then I'd like to talk to them about a business opportunity I have with my Nigerian cousin

  19. #1399
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    Quote Originally Posted by GeromeDoutrande View Post
    UK government debt as a percentage of GDP (other countries can be added in the menu on the left of the page for comparison):

    http://www.google.co.uk/publicdata/e...l=en&ind=false
    A normal personal might conclude that recessions/depressions are bad for reducing debt....

  20. #1400
    punkboy101's Avatar
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    It seems that some companies have come up with the perfect solution to cut cost's and increase profits.

    http://www.guardian.co.uk/uk/2012/ju...ant-unemployed

    It's not that I'm against people on benefits having to do a little volunteer work for their dole, but the fact that these people worked for a private company and didn't get paid is beyond unacceptable. Why should private corporation's, who no doubt get paid a significant chunk of cash for these things, be able to use what is effectively slave labor.
    yes, I am Le terribad at BF3


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