19 notes

Spain's deficit means more austerity (poverty) on the way

The news out of Spain is that their budget deficit was surprisingly bigger than anticipated after they implemented more austerity this year: massive social spending cuts and higher taxes in the context of over 20% unemployment and rising.

Economist Mike Norman says the new government announced that even more austerity is coming in order to cut the deficit. See the pattern?

Austerity only makes deficits bigger by decreasing aggregate demand and output, and aggravating unemployment: thus with higher unemployment that means lower tax revenues and higher transfer payments = bigger deficit.

Spain, Portugal, Ireland, Italy and Greece must be allowed to spend more to fight unemployment and must maintain higher deficits, not lower.

These countries need to grow their economies back to stability, and I believe this entails a transition out of the euro and an orderly default on foreign debts.

Thoughts ?

7 notes

Posted 1, December, 2011

Talking Hungary: “The Economist” Apparently Doesn’t Know what Debt Deflation Is

Not paid in full

A new mortgage law annoys the banks, but will do little for the economy

…goes the title for a piece from The Economist back on October 1.

I’ll be focusing a big on Hungary’s economic situation this month and from now on in general.

So, a major development in early October was the decision by Hungarian Prime Minister Viktor Orban’s government to allow homeowners who took foreign currency mortgage loans (mostly in Swiss Francs) to repay them in Hungarian Forints at their previous exchange rate (before they depreciated during the course of the economic crisis.)

The article author for The Economist claims the new reforms “will do little to help economy”…

But apparently is unaware that the more money that Hungarian families are using to pay down inflated mortgages, the less money they can use on goods and services in the real economy.

This is the essence of debt deflation..Irving Fisher knew all about it over 80 years ago. But mainstream economics, which is what The Economist practices, still doesn’t get it.