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Spain Is Doomed: Why Austerity Is Destroying Europe
The Atlantic ^ | Apr 18 2012, 10:00 AM ET | Matthew O'Brien - Matthew O'Brien

Posted on 04/18/2012 7:43:02 AM PDT by ctdonath2

Let's try a thought experiment. Imagine you walked into the bank, told them you were going to be taking pay cuts for the next few years, and then asked for a loan. You'd be laughed out of the office or else pay an interest rate so high that "usurious" wouldn't do it justice. The logic is simple: If you're in debt and your income is shrinking, it's mighty hard to pay back what you already owe.

... Nearly a quarter of Spain's population is unemployed. Half of its youth are out of work. And it's only going to get worse. Spain is supposed to trim its deficit by some 5.5 percent of GDP over the next two years. That's not a recipe for growth. Just ask the IMF, which downgraded its projections for Spain's economy back in January.

What matters for a nation is its GDP. That's a country's equivalent of personal income. If Spain's GDP is set to fall for the foreseeable future -- and it is -- then who would want to lend to Spain?

(Excerpt) Read more at theatlantic.com ...


TOPICS: Business/Economy; Foreign Affairs
KEYWORDS: eucrisis; europe; gdp; globaleconomy; imf; socialists; spain; spaincrisis
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We face the same coming quandry: deficits must end and austerity spending must ensue, but so much of our GDP is tied up in government spending that the requisite economic growth will take a heavy beating instead. Our only "advantage" is, having a sovereign currency, we can print more money ... and that currency being ever more digital, we can "print" it very very fast. This, of course, does not bode well on any path.
1 posted on 04/18/2012 7:43:14 AM PDT by ctdonath2
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To: ctdonath2

They have no choice.

They want to run Keynesian “stimulative” deficits? But who exactly is going to fund their deficits? Didn’t Italy and Spain just have another jump in their debt CDO’s?

I am not surprised the ECB has stepped in with their LTRO, It is the last, best resort for EU Keynesians and their political project. I am sure that Bernanke and Geithner are advising them to print, print, print.


2 posted on 04/18/2012 7:48:21 AM PDT by PGR88
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To: ctdonath2

If austerity is destroying Europe, how about trying profligacy? Oh, wait, that’s what caused the problem in the first place.

It can’t happen here. /S


3 posted on 04/18/2012 7:49:56 AM PDT by Pearls Before Swine
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To: ctdonath2
The entire fallacy of this argument is the assumption that a government can spend its way into prosperity. There are hundreds of examples in the dustbin of history that prove this is false. There are no examples of its success. Governments cannot simply borrow, or print money, and then give it to those who don't produce, and then expect prosperity.

Adam Smith knew this centuries ago when he wrote "Wealth of Nations". Hard work and exploitation of natural resources create wealth, not the printing of money. This is true of individuals as well as nations. The nations that discourage hard work and the exploitation of resources are doomed to fail.

4 posted on 04/18/2012 7:52:51 AM PDT by norwaypinesavage (Galileo: In science, the authority of a thousand is not worth the humble reasoning of one individual)
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To: ctdonath2

>> This, of course, does not bode well on any path.

Yes, and no.

In the near term, the austerity path is painful. But it’s the only way to get back to a working and growing economy.

It’s astounding to me that folks (and their leaders) somehow expect to find a way out that involves no pain at all, and no serious changes in the way we do economic business. Such a path does not exist.

The day of reckoning is here. It’s time to pay the price for our worldwide lunacy. It’s a high price to be sure, but running our debt up further to “avoid pain” will only increase the inevitable pain later.


5 posted on 04/18/2012 7:53:33 AM PDT by Nervous Tick (Trust in God, but row away from the rocks!)
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To: ctdonath2

~1 month ago, our economy (and national debt) was estimated to have hit 101% of GDP. We are in such deep doo-doo that, if Europe and Greece collapse, we will be sucked into the economic sinkhole with them.

Of course, with the global economy that has been forced on us by the “One-Worlders”, once we go, the rest of the world pretty much collapses with us. IOW, we are facing a nasty, NASTY global depression. This spells disaster for a significant majority of the world’s teen and twenty-somethings because they are going to have to clean up the mess that Obama and our criminal Congress has dumped on them.

If you have kids and you haven’t taught them the fundamentals of conservatism and responsibility and introduced them to the brilliance of the Founder’s Declaration of Independence and Constitution, then NOW is the time. Do it NOW, BEFORE they have to rise up as leaders and fix the mess the politicians are leaving them.


6 posted on 04/18/2012 7:54:22 AM PDT by DustyMoment (Congress - Another name for white collar criminals!!)
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To: ctdonath2

Has Europe actually tried austerity or is this more socialist propaganda? I say the latter...


7 posted on 04/18/2012 7:56:32 AM PDT by frogjerk (OBAMA NOV 2012 = HORSEMEAT)
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To: ctdonath2

What this author is proposing is that Spain accelerate the process that brought them to the brink of economic failure. Do not cut back on entitlements. Keep borrowing and spending. Spoken like a true short term minded liberal Keynesian who refuses to make the hard choices. This author is perfect for Obama’s economic team.


8 posted on 04/18/2012 7:57:39 AM PDT by chuckee
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To: norwaypinesavage
The point is that while a government certainly cannot spend its way into prosperity with money it does not have, once you cut off that extraneous spending all the dependents are hung out to dry. Of course, such are the consequences to long-term bad behavior.

Upshot is: Spain is doomed. Hence the title.

9 posted on 04/18/2012 7:58:28 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: ctdonath2
, but so much of our GDP is tied up in government spending

Why is it that government spending ever got to be part of GDP? Just what product is it that government produces?

10 posted on 04/18/2012 7:59:17 AM PDT by Politically Correct (A member of the rabble in good standing)
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To: ctdonath2

Without some kind of incredible breakthrough in technology, there is not going to be a way out of this death spiral. These stupidass socialists will never make any meaningful cuts.

But the problem is, even if they do, it won’t solve anything in the short term. Lets say you chop government in half gradually over a 6 month period. That is going to put a lot of people out of work(government workers) in an economy that cannot absorb them...and to make matters worse, those people will stop spending money when they have no job and this will hurt the economy even more(in the short term).

The only way out of this is massive increases in manufacturing...and the only way that is going to happen is a sudden technology breakthrough. Fully autonomous android robots that can learn, better batteries, a new kind of computer, better spaceships, space elevator, permanent colony on the moon with its own mining and manufacturing...these are the kinds of things we need.


11 posted on 04/18/2012 8:00:46 AM PDT by mamelukesabre
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To: ctdonath2

Only under socialism would cuts in government spending be bad, for in reality what is at work is that far too many people have spent their lives being dependent upon socialist government policies and how that has been exhausted, like so many animals at a zoo, they cannot support themselves.


12 posted on 04/18/2012 8:01:13 AM PDT by theBuckwheat
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To: chuckee

This article just gave me a migraine.


13 posted on 04/18/2012 8:02:04 AM PDT by corlorde
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To: norwaypinesavage
Galileo: In science, the authority of a thousand is not worth the humble reasoning of one individual.

Have you found a source for this quote? I have found it attributed to Galileo Galilei by François Arago in a written work from 1859, but have not found it in Galileo's actual writings.

14 posted on 04/18/2012 8:03:08 AM PDT by LucianOfSamasota (Tanstaafl - its not just for breakfast anymore...)
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To: ctdonath2

What Spain needs is a big ole tax increase. That will solve everything. /sarc


15 posted on 04/18/2012 8:03:55 AM PDT by BO Stinkss
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To: ctdonath2

The same pinheads who insist that a government can spend it’s way into prosperity never take that same action in their personal lives.

“When your outflow exceeds your income, your upkeep becomes your downfall”.

applies to all levels of the economy.


16 posted on 04/18/2012 8:05:04 AM PDT by Texas resident (Hunkered Down)
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To: Nervous Tick

With half of those under 25 unemployed there, and total unemployment at 25% and rising fast, austerity may be the only path but it’s not a sure one. A lot of people aren’t going to survive it; remember the line “9 meals away from revolution”. If enough value isn’t created fast enough (not printed), attrition is the remaining solution.

Methinks our leaders are looking at the same future and figure if a crash is inevitable they may as way party their way to it.


17 posted on 04/18/2012 8:06:40 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: ctdonath2

-—Spain is supposed to trim its deficit by some 5.5 percent of GDP over the next two years. That’s not a recipe for growth. Just ask the IMF——

Has anything good ever come from the IMF? Are we allowed to ask?

Contract the hell out of gov’t services, cut regulations, and cut the govt budget by 50%.

Or follow the IMF’s advice.


18 posted on 04/18/2012 8:09:25 AM PDT by St_Thomas_Aquinas (Viva Christo Rey!)
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To: ctdonath2
You can no more spend your way into prosperity than you can screw yourself into virginity.

Free up the markets, reduce government debt, get out of peoples way...

Things will take care of themselves from there.

Don't take my word for it. It's worked every time it's been tried over the last 5000 years...

19 posted on 04/18/2012 8:11:18 AM PDT by Dead Corpse (Steampunk- Yesterday's Tomorrow, Today)
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To: ctdonath2
Lest try another thought example. You are spending so much money that you can't pay your bills. You want to borrow more money for more spending without any way to increase your income. Would any rational person loan you more money when your income can't support your existing spending and no new sources of income have been proposed?
20 posted on 04/18/2012 8:11:36 AM PDT by GonzoGOP (There are millions of paranoid people in the world and they are all out to get me.)
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To: frogjerk
Has Europe actually tried austerity or is this more socialist propaganda? I say the latter...

Austerity is not nice.

Kicking the can down the road is.

Nice always wins elections.

See California.

21 posted on 04/18/2012 8:12:08 AM PDT by cicero2k
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To: mamelukesabre

Even an “incredible breakthrough in technology” isn’t going to happen fast enough; takes 6-24 months for any large-scale business model to ramp up, but once people go 3 days without food it’s over. Even meaningful cuts (the “austerity” referred to) won’t help because there’s insufficient productivity to backfill the erosion of wealth. Fork, done.


22 posted on 04/18/2012 8:12:42 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: mamelukesabre

The solution here is to look to non-fiscal effects of government policy.

Regulation is a hidden tax - effectively unfunded mandates. Reducing regulation is in part like a tax cut, it can act like a fiscal stimulus but without involving money.

Fiscal austerity can be combined with deregulation to work our way out of this jam.


23 posted on 04/18/2012 8:13:51 AM PDT by buwaya
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To: Politically Correct
"Just what product is it that government produces? "

Investments in growing the number of 'rat voters.

24 posted on 04/18/2012 8:14:31 AM PDT by Paladin2
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To: ctdonath2

It’s funny how much the left doesn’t get austerity measures. There’s been a spate of stories lately about how they didn’t fix the economy, I keep reminding my friends austerity measures are about acknowledging you’re broke, not about growing the economy.


25 posted on 04/18/2012 8:15:04 AM PDT by discostu (I did it 35 minutes ago)
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To: ctdonath2

>> A lot of people aren’t going to survive [austerity]

Yes. That’s correct.

>> “9 meals away from revolution”.

Yes! Civil unrest, up to and including revolution, is one possible (and unpleasant) outcome.

Note on both of the above: BAD OUTCOMES ARE A DEFINITE CONSEQUENCE OF BAD BEHAVIOR. As inconvenient as that fact is, it can’t be wished away.

>> If enough value isn’t created fast enough (not printed), attrition is the remaining solution.

Yes. However, the real problem is that over the last few decades the world has largely shifted its mindset away from generating new wealth through productive endeavor, towards “making money” by speculating on increasing value in something (the something flits from real estate to equities to precious metals to junk debt to...) Just as many occupations in the speculation industry (think real estate and construction) are gone never to return, many bubbles have popped for good (I hope anyhow). Reinflating these bubbles, if it is in the cards, will only kick the can down the road.

That problem is compounded by an attitude of entitlement to various government benefits, cradle-to-grave. It’s as if every restaurant is a smorgasbord and every patron a fatty who expects to pay 99 cents for all they can eat. Unsustainable.

The economic upheaval of the ‘30s was quite different from this upheaval. Whatever Uncle Ben thinks about his vast knowledge about the Great Depression, his toolset is not appropriate for dealing with this one.


26 posted on 04/18/2012 8:18:10 AM PDT by Nervous Tick (Trust in God, but row away from the rocks!)
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To: mamelukesabre

Your conclusion is the same as mine. No real recovery until some sort of new gizmos drive the market. The automobile, airplanes, radio and movies help make the Twenties Roar after the downturn right after WWI. Post war technologies including the space race drove the post war era as the world recovered from the Depression and WWII. Electronics including CDs, DVDs, and the personal computer overcame Carter’s malaise.

What will be the new invention that brings back prosperity? And will the Luddites and control freaks in the government let it happen?


27 posted on 04/18/2012 8:19:47 AM PDT by SoCal Pubbie
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To: mamelukesabre

——Lets say you chop government in half gradually over a 6 month period. That is going to put a lot of people out of work(government workers) in an economy that cannot absorb them..-——

Think of it this way. These govt employees hinder real productivity or, at best, produce nothing of value. IOW, one quarter of their potential work force might as well be on the dole.

Cutting govt employment by 50% immediately releases 15% (?) of their people for work that is of value to the Spanish people.

Productivity and tax revenues would grow immediately, also because investment would flow in.


28 posted on 04/18/2012 8:20:00 AM PDT by St_Thomas_Aquinas (Viva Christo Rey!)
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To: ctdonath2

Unless drastic turn around America is on the path to destruction. The Constitution is already an unknown document to more than half of Americans.


29 posted on 04/18/2012 8:21:08 AM PDT by Logical me
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To: GonzoGOP

Close, not quite. The point here is austerity spending at the too-late point.

Example: You finally stopped your prolific spending. The banks have backed off to give you economic breathing room. They’re not going to send the debt collector, but they’re not going to loan you any more money either. You have four mouths to feed. You have a job, but it’s two weeks ‘till payday, work is a 2-hour drive away, and the gas tank is empty.
Response: The problem isn’t that you’re on a tight budget. The problem is yer doomed.

Get ready for the collapse of Spain.


30 posted on 04/18/2012 8:22:49 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: St_Thomas_Aquinas

Cut regulations is key.
Spain is choked on regulations.
So are we for that matter.
Deregulation is like a tax cut.


31 posted on 04/18/2012 8:22:58 AM PDT by buwaya
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To: All
You can't teach a Keynesian a doggone thing. You can show them the real world results of their theory and they just ignore it.

Talk about a bag of hammers.
32 posted on 04/18/2012 8:23:34 AM PDT by Proud_texan (Scare people enough and they'll do anything.)
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To: mamelukesabre
Without some kind of incredible breakthrough in technology, there is not going to be a way out of this death spiral.

The spiral always ends.


The question is only if it is in a smoking hole in the ground, or if like Captain "Sully" Sullenberger you can make a controlled impact. In this metaphor the plane is the social system, the passengers the citizens of the nation involved. The plane is gone either way. You might be able to save the passengers, but if you try to stretch the glide too far you are probably going to lose both. Austerity is like putting the plane into the river while you still have enough airspeed to have some control.
33 posted on 04/18/2012 8:33:08 AM PDT by GonzoGOP (There are millions of paranoid people in the world and they are all out to get me.)
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To: ctdonath2

Spain will leave the Euro this year, and they won’t announce the fact beforehand.

It’ll all happen in the space of one weekend. Domestic bank accounts will be re-denominated in pesetas, robbing account holders of ~30% of their wealth. There’ll be a limit on withdrawals until the new currency stabilises.

The only alternative is an unlimited bailout by Germany.


34 posted on 04/18/2012 8:35:59 AM PDT by agere_contra
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To: ctdonath2

Why does Spain need to borrow money?


35 posted on 04/18/2012 8:36:43 AM PDT by blueunicorn6 ("A crack shot and a good dancer")
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To: mamelukesabre

Excellent post.. you are entirely right.


36 posted on 04/18/2012 8:41:55 AM PDT by Kratos
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To: GonzoGOP

Tangential thought: solve the problem by offering a free plane ticket to a random airport.


37 posted on 04/18/2012 8:41:59 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: blueunicorn6

They can’t generate enough wealth fast enough to feed everyone, so they need a loan.
Of course, nobody will loan ‘em money because feeding everyone won’t generate enough wealth to pay back the loan in any sane period.
Time to hunger being much less than time to payback, no loan, no food, bad news.


38 posted on 04/18/2012 8:44:34 AM PDT by ctdonath2 ($1 meals: http://abuckaplate.blogspot.com/)
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To: ctdonath2

austerity? why not try prosperity. Those unemployed young people should start working.


39 posted on 04/18/2012 8:58:38 AM PDT by campaignPete R-CT (and we are still campaigning against MITT and for Newt in CT and RI.)
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To: ctdonath2

The ECB makes up some pretend money that it lends to Spanish banks so they can buy Spanish bonds.

It’s a recipe for great financial stability.


40 posted on 04/18/2012 9:03:24 AM PDT by mojito
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To: ctdonath2

If they had been allowed to go bankrupt years ago they would already be bouncing back by now. Moral hazard created by theses endless bailouts is killing Europe.


41 posted on 04/18/2012 9:08:01 AM PDT by nobama012
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To: ctdonath2

“Methinks our leaders are looking at the same future and figure if a crash is inevitable they may as way party their way to it.”

A global economic Barackolypse makes the world government go round.

People starving worldwide will accept it to get to eat.

In the minds of our “leaders”, everyone wins. They get world government, and the people get fed.


42 posted on 04/18/2012 9:25:31 AM PDT by MikeSteelBe (Austrian Hitler was, as the Halfrican Hitler does.)
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To: Proud_texan
Agreed. This article is from the Krugman school of economics.
43 posted on 04/18/2012 9:26:01 AM PDT by mojito
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To: St_Thomas_Aquinas

DREAM ON!

That aint gonna happen in the short term. In the long term in a capitalist free market society, yes, you are correct. But the sudden contraction of the economy that will result from chopping the government in half will CRASH AND BURN the whole country way before any free market style recovery has a chance to get started.


44 posted on 04/18/2012 9:28:47 AM PDT by mamelukesabre
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To: ctdonath2

Consolidate all government handout programs into one program.....a government loan program. No more giveaways. I don’t care if people are borrowed up to the top of their head, it’s a loan and you will pay it back. You might have to answer phones from your apartment or clean up streets, but you will have a job. The Great Giveaway has got to stop. It’s killing the country and it’s destroying good people. Yep, a lot of government employees will lose their present job. So what? As the cost of labor goes down, private business can hire more employees. Work is good for people. Sitting around on your ass doing nothing makes you bored, jealous and angry.


45 posted on 04/18/2012 9:32:01 AM PDT by blueunicorn6 ("A crack shot and a good dancer")
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To: mamelukesabre
Valid points. Even if we did the right things to fix America, the world is has changed.

Our current model is to create the technology and outsource the manufacturing of it, ie Apple products overseas. Now, that's great for the consumer, they can purchase the product, but the US loses out in jobs here, taxes, and numerous other benefits.

America's great growth in the past was partly due to our technology advantages. Now, other countries have caught up in numerous ways, for it was easy for them to do so. Especially, considering the rush of companies to help them. We in the end our cutting our own throats.

Throw in our fake growth, by simple tricks of low interest rates, increased Gov't spending, and the fact that we have greated so much debt, the US will not recover.

46 posted on 04/18/2012 9:38:48 AM PDT by Theoria (Rush Limbaugh: Ron Paul sounds like an Islamic terrorist)
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To: mamelukesabre
The only way out of this is massive increases in manufacturing...and the only way that is going to happen is a sudden technology breakthrough.

We could also try eliminating corporate tax, reducing personal tax drastically and slashing government regulation.

The labor needs of the expanding private sector could be met by the newly unemployed government workers, if they could be taught to produce.

47 posted on 04/18/2012 9:39:17 AM PDT by dead (I've got my eye out for Mullah Omar.)
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To: norwaypinesavage

Over-regulated socialist economies are doomed to fail. Until we start defining the problem accurately we will not be able to identify a solution. Until then the people of these countries are being played by bankers, policians and complicit media into rank serfdom. A slavery of the will -but that’s the premise of socialism isn’t it?


48 posted on 04/18/2012 9:40:29 AM PDT by Justa
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To: mamelukesabre

Lol! Yes, I know it’s a dream. In all likelihood, Spanish politicians will follow the path of least resistance, and perma-recession will result.


49 posted on 04/18/2012 9:43:43 AM PDT by St_Thomas_Aquinas (Viva Christo Rey!)
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To: ctdonath2

A breakthrough will influence banks and lending rates. That will buy them several years to get their sh1t straight. In theory. But a socialist politician is like a money grubbing whore addicted to crack. Odds are if a breakthrough does buy them time to ramp up manufacturing, they will squander it through corruption and graft and business as usual.


50 posted on 04/18/2012 9:47:56 AM PDT by mamelukesabre
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