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Robert B. Reich: Why Europe's double dip could lead to one here
Baltimore Sun ^ | May 2, 2012 | Robert B. Reich

Posted on 05/02/2012 5:59:23 AM PDT by Oldeconomybuyer

Europe is in recession. Portugal, Italy and Greece are basket cases. The British and Spanish economies have contracted for the last two quarters. It seems highly likely that France and Germany are in a double dip as well.

Why should we care? Because a recession in the world's third-largest economy (Europe) combined with the current slowdown in the world's second-largest (China), spells trouble for the world's largest (that's still us).

Don't blame Europe's problems on its so-called "debt crisis." There was no debt crisis in Britain, for example, which is now experiencing its first double-dip recession since the 1970s.

Blame it on austerity economics -- the bizarre view that economic slowdowns result from excessive debt, so government should cut spending.

In their haste to cut the public debt, Europeans forgot the denominator of the equation. By reducing public spending, they removed a critical source of demand at a time when consumers and the private sector are still in the gravitational pull of the Great Recession. The resulting slowdown is worsening the ratio of Europe's debt to its total GDP.

A large debt with faster growth is preferable to a smaller debt sitting atop no growth at all. And it's infinitely better than a smaller debt on top of a contracting economy.

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


TOPICS: Business/Economy; Editorial; News/Current Events; Politics/Elections
KEYWORDS: debt; failure; recession; socialism

1 posted on 05/02/2012 5:59:34 AM PDT by Oldeconomybuyer
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To: Oldeconomybuyer
We are not in a Recession. We are not in a double-dip Recession. We are in a long-wave contraction. This is a decade long period of historic deleveraging and massive wealth elimination.

The sooner folks accept this, the easier it will be allow the contraction cycle to complete.

The Government keeps trying to kick the can down the road. We have run out of road.

2 posted on 05/02/2012 6:03:03 AM PDT by TheWriterTX (Riding the Long-Wave Economic Contraction, Baby!)
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To: Oldeconomybuyer

Never happen

To have a double dip, we would have had to left the 1st one, which despite all the media cheerleading we never did


3 posted on 05/02/2012 6:04:01 AM PDT by qam1 (There's been a huge party. All plates and the bottles are empty, all that's left is the bill to pay)
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To: TheWriterTX

The Left still clings to Keynesian economics. They think we can borrow and spend our way out of this mess. Unfortunately, our huge debt now held at historic low interest rates will help sink any future recovery. Debt servicing costs will skyrocket once the economy really picks up. And both parties refuse to really cut spending. They consider a cut in the rate of increase to be a cut. We are heading off the cliff.


4 posted on 05/02/2012 6:08:19 AM PDT by kabar
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To: Oldeconomybuyer

“By reducing public spending, they removed a critical source of demand...”

WTH is Reich talking about?


5 posted on 05/02/2012 6:11:09 AM PDT by ILS21R (John Locke: When the social contract is broken, the people must revolt.)
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To: TheWriterTX

Gov did not run out of road to kick the can down onto. The problem is the can grew into a boulder.


6 posted on 05/02/2012 6:12:09 AM PDT by Fee
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To: Oldeconomybuyer

Reich is a clown and Keynesian mouthpiece. They’re not even waiting for the event before making excuses now.


7 posted on 05/02/2012 6:13:11 AM PDT by Dr.Deth
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To: Oldeconomybuyer

The lawn gnome economist speaks: “We can spend our way out of the recession, folks!”

Thank God this man is no longer in government.


8 posted on 05/02/2012 6:14:12 AM PDT by Walrus (Can a president be impeached for stupidity?)
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To: TheWriterTX

Don’t candy coat it. What we are in is WDII.

World Depression Two.

And it has a LONG and accelerating fall still to go.

They are using fuzzy numbers to try to convince the uninformed otherwise.


9 posted on 05/02/2012 6:16:49 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: ILS21R

He’s touching on the gorilla in the room: When the economy is as far gone as it is now, austerity, though a better long term solution than monetizing, creates an economic death spiral.

Also, austerity measures, at this point, is the equivalent of a family being underwater on their house by $400,000 and deciding that rather than walk away, they’ll try to reduce their expenses to pay it off. But dad’s only making minimum wage now.

The family will end up in a cardboard box no matter what they do, but if they DO walk away, the bank will come after them. That is why this will end in WWIII.


10 posted on 05/02/2012 6:20:46 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: cuban leaf

Thank you. Sorry you had to waste your time for my laziness. I did in fact look it up and found this:

Post-Keynesian economics:

Conversely, some Post-Keynesian economists argue that deficit spending is necessary, either to create the money supply (Chartalism) or to satisfy demand for savings in excess of what can be satisfied by private investment.

Chartalists argue that deficit spending is logically necessary because, in their view, fiat money is created by deficit spending: one cannot collect fiat money in taxes before one has issued it and spent it, and the amount of fiat money in circulation is exactly the government debt – money spent but not collected in taxes. In a quip, “fiat money governments are ‘spend and tax’, not ‘tax and spend’,” – deficit spending comes first. Chartalists argue that nations are fundamentally different from households – governments in a fiat money system can issue liabilities to pay off debt, and thus (assuming they only have debt in their own currency), need not go bankrupt, unlike households, which cannot issue liabilities.


11 posted on 05/02/2012 6:36:07 AM PDT by ILS21R (John Locke: When the social contract is broken, the people must revolt.)
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To: Oldeconomybuyer
Robert Reich wants both deficit spending and and low interest rates. Those things become incompatible as investors lose confidence in the ability of the government to repay its borrowings because deficits have run on so long that the debt approaches or exceeds GDP.

We have now very nearly reached that point in the US and probably exceeded it in Europe as places like Spain shows symptoms of being unable to roll over its bonds. Meanwhile the United States is monetizing huge percentages of its own debt.

It is not a question of choices for Europe, if a politician can put off austerity and provide the people "plenty" merely by borrowing he will do so. But the Germans at least understand that if they do not impose austerity on places like Greece, but underwrite the debt, the market will not tolerate these excesses.


12 posted on 05/02/2012 6:45:17 AM PDT by nathanbedford ("Attack, repeat, attack!" Bull Halsey)
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To: ILS21R

Usually, when I bring up the “like a family” argument, I actually call out that the difference is that the family can’t just print more money.

And when it is the only option, well, that is where I see the real WWIII scenario. I believe they will HAVE to monetize the debt and those to whom we owe will no be happy. And our perceived miliary weakness will not help. As I said before Obama was president, they will start moving on countries we “protect” like South Korea.

But I’ve noticed, in the vein of “spend and tax”, that they are having a hard time getting the money out there. It’s probably why they want big government. If they hire lots and lots of people and pay them lots of borrowed money, well, that gets it out there. But I’m not seeing that - yet.


13 posted on 05/02/2012 6:47:25 AM PDT by cuban leaf (Were doomed! Details at eleven.)
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To: ILS21R
Reich, like all leftist, particularly those in academia and economics, are just plane stupid. The fact is that Keynesian and ‘ordered’ economies have created nothing but poverty and economic collapse from the beginning of time.

They are morons and should be barred from public life and positions of authority. They should be discussing their ‘theories’ between serving fries and burgers.

14 posted on 05/02/2012 6:54:48 AM PDT by Jim from C-Town (The government is rarely benevolent, often malevolent and never benign!)
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To: Oldeconomybuyer

Have any of those countries actually cut spending? Maybe reduced the rate of growth, but cut?

Especially China? All I’ve heard is how much they are increasing public spending.

So what’s his excuse there? These guys are shameless!


15 posted on 05/02/2012 6:57:47 AM PDT by Monty22002
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To: Oldeconomybuyer
Reich, you moron, nobody is buying our debt now! We spend 42% more than we take in at the Federal level now. Of that more than 60% of the bonds to finance that debt are purchased by our own central bank, The Federal Reserve.

That is an unsustainable situation that will destroy our country.

16 posted on 05/02/2012 6:59:20 AM PDT by Jim from C-Town (The government is rarely benevolent, often malevolent and never benign!)
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To: Jim from C-Town

Agreed. Besides, Munchkins are not to be taken seriously on serious matters.


17 posted on 05/02/2012 7:08:41 AM PDT by glennaro
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To: Jim from C-Town
Reich, like all leftist, particularly those in academia and economics, are just plane stupid. The fact is that Keynesian and ‘ordered’ economies have created nothing but poverty and economic collapse from the beginning of time. They are morons and should be barred from public life and positions of authority. They should be discussing their ‘theories’ between serving fries and burgers.

You'll get no argument from me. Economic history discounts Reich's theories.

18 posted on 05/02/2012 7:12:42 AM PDT by ILS21R (John Locke: When the social contract is broken, the people must revolt.)
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To: Oldeconomybuyer
Because a recession in the world's third-largest economy (Europe) combined with the current slowdown in the world's second-largest (China), spells trouble for the world's largest (that's still us).

What numbers is he using?

2011 GDP (trillion $) per the CIA World Factbook (via Wikipedia):

EU: 17.72

US: 15.06

China: 6.99

19 posted on 05/02/2012 7:55:02 AM PDT by Moltke (Always retaliate first.)
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To: TheWriterTX

” We are not in a Recession. We are not in a double-dip Recession. We are in a long-wave contraction. This is a decade long period of historic deleveraging and massive wealth elimination.”

MIDDLE CLASS ELIMINATION


20 posted on 05/02/2012 8:16:21 AM PDT by stephenjohnbanker (God, family, country, mom, apple pie, the girl next door and a Ford F250 to pull my boat.)
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To: Jim from C-Town; All
"...They should be discussing their ‘theories’ between serving fries and burgers..."

Bill Whittle declares BEST SENTENCE EVER: "Love of Theory is the Root of All Evil"

A must see, as is ALL of his commentary!

21 posted on 05/02/2012 9:45:42 AM PDT by rlmorel ("The safest road to Hell is the gradual one." Screwtape (C.S. Lewis))
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To: stephenjohnbanker
Absolutely. The ZIRP Trap, 1-3-5% returns if you are lucky, can't keep up with the rate of hidden inflation. Dropping asset prices. Wealth disappears; middle class wipe-out.

Also, the power shift in manufacturing from the US to Asia ensures that any mop up afterwards will be painful and slow.

22 posted on 05/02/2012 3:50:12 PM PDT by TheWriterTX (Riding the Long-Wave Economic Contraction, Baby!)
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To: stephenjohnbanker
Absolutely. The ZIRP Trap, 1-3-5% returns if you are lucky, can't keep up with the rate of hidden inflation. Dropping asset prices. Wealth disappears; middle class wipe-out.

Also, the power shift in manufacturing from the US to Asia ensures that any mop up afterwards will be painful and slow.

23 posted on 05/02/2012 3:50:30 PM PDT by TheWriterTX (Riding the Long-Wave Economic Contraction, Baby!)
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To: stephenjohnbanker
Absolutely. The ZIRP Trap, 1-3-5% returns if you are lucky, can't keep up with the rate of hidden inflation. Dropping asset prices. Wealth disappears; middle class wipe-out.

Also, the power shift in manufacturing from the US to Asia ensures that any mop up afterwards will be painful and slow.

24 posted on 05/02/2012 3:50:49 PM PDT by TheWriterTX (Riding the Long-Wave Economic Contraction, Baby!)
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To: TheWriterTX

” Absolutely. The ZIRP Trap, 1-3-5% returns if you are lucky, can’t keep up with the rate of hidden inflation. Dropping asset prices. Wealth disappears; middle class wipe-out.
Also, the power shift in manufacturing from the US to Asia ensures that any mop up afterwards will be painful and slow. “

Correct.


25 posted on 05/02/2012 3:52:31 PM PDT by stephenjohnbanker (God, family, country, mom, apple pie, the girl next door and a Ford F250 to pull my boat.)
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To: stephenjohnbanker

Sorry for the triple-post reply. Lousy connection.


26 posted on 05/02/2012 3:55:13 PM PDT by TheWriterTX (Riding the Long-Wave Economic Contraction, Baby!)
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To: TheWriterTX

BHeen there : )


27 posted on 05/02/2012 3:57:21 PM PDT by stephenjohnbanker (God, family, country, mom, apple pie, the girl next door and a Ford F250 to pull my boat.)
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