Learning From Greece (Paul Krugman)

[Dover]

April 9, 2010
Op-Ed Columnist
Learning From Greece
By PAUL KRUGMAN


The debt crisis in Greece is approaching the point of no return. As prospects for a rescue plan seem to be fading, largely thanks to German obduracy, nervous investors have driven interest rates on Greek government bonds sky-high, sharply raising the country’s borrowing costs. This will push Greece even deeper into debt, further undermining confidence. At this point it’s hard to see how the nation can escape from this death spiral into default.

It’s a terrible story, and clearly an object lesson for the rest of us. But an object lesson in what, exactly?

Yes, Greece is paying the price for past fiscal irresponsibility. Yet that’s by no means the whole story. The Greek tragedy also illustrates the extreme danger posed by a deflationary monetary policy. And that’s a lesson one hopes American policy makers will take to heart.

The key thing to understand about Greece’s predicament is that it’s not just a matter of excessive debt. Greece’s public debt, at 113 percent of G.D.P., is indeed high, but other countries have dealt with similar levels of debt without crisis. For example, in 1946, the United States, having just emerged from World War II, had federal debt equal to 122 percent of G.D.P. Yet investors were relaxed, and rightly so: Over the next decade the ratio of U.S. debt to G.D.P. was cut nearly in half, easing any concerns people might have had about our ability to pay what we owed. And debt as a percentage of G.D.P. continued to fall in the decades that followed, hitting a low of 33 percent in 1981.

So how did the U.S. government manage to pay off its wartime debt? Actually, it didn’t...cont'd


http://www.nytimes.com/2010/04/09/opinion/09krugman.html?ref=general&src=me&pagewanted=print

[ixion]

1. Too late...

we're already walkin' that path...

[whattheidonot]

2. fat cats.

the fat cats in charge do not want any inflation, all others be damned. Even with little sign of inflation employment and wages are going slow. The Fed can change this but they do not. They are controlled by big money and the president has not put the big heat on them . the people are going to have to make the changes. do not deal with big banks and do not buy from big companies. start co-ops , eliminate middlemen, deal with locals,use small banks etc. good article about this on Alternet.com.