IMF has one cure for debt crises – public spending cuts with tax rises

[CHIMO]

Deadly riots. Public sector unions taking to the streets. An austerity package of mouthwatering severity. The news from Athens last week could mean only one thing: the International Monetary Fund had been in town.

For Greece, the arrival of a top team of fund economists from Washington was a sign that the country had run out of options. The phone call a prime minister or president makes to the director general of the IMF is the one all politicians dread, only made when a crisis is so serious that governments are prepared to accept the large doses of economic pain and political unpopularity that inevitably follow.

The fund's line is that there is no gain without pain. That was the message delivered to Jim Callaghan's Labour government when it sought help during the sterling crisis in 1976 and, as the Greek prime minister George Papandreou has found out, the message remains the same today.

After announcing his institution would jointly bankroll a €110bn (£93bn) rescue package, the fund's Dominique Strauss-Kahn admitted that the immediate prospects for the Greek economy were bleak, but added that he was "confident that the economy will emerge more dynamic and robust from this crisis – and able to deliver the growth, jobs, and prosperity that the country needs for the future".

http://www.guardian.co.uk/business/2010/may/09/greece-debt-crisis-imf-european-commission

[DJ13]

1. K&R

[Go2Peace]

2. The debt, in terms of history, is not catastrophic. This is about "Disaster Capitalism"

Europe is a HUGE target. They are now going after Europe's social structure and starting to turn their clock back. The media portrays this as necessary, but it isn't. What has happened is the bankers crashed the economy, and at the same time they shut down the spigot, so that European governments have no choice but austerity. Which in real terms means attack social programs.

The amount of debt, in terms of GNP, is ***NOT*** historical. It is not as urgent to cut, but they have all been tied to the machine that will make them. All part of the plan.

[notesdev]

6. So the official numbers say

but they've been caught lying about them already, so that's why the risk premium shot the moon. And it's their own damn fault for putting themselves in a position where they needed more and more debt with no plan to ever pay it down.

Good thing for us, our debt is denominated in our own currency and we can print it away if we please. Greece joined the Euro (and lied to do so) and gave up that power in the process. That's what's different this time around, they have no devaluation option like countries that can print money have.

[bossy22]

8. Europe is a huge target for many reasons

But the main was is that European economic growth has its days numbered. With a low birth rate the economic growth in europe is going to slow (from an already slow standard). It is quite possible that growth will actually turn negative by 2030 as the population begins to shrink. Europe can't keep up its social structure with the belief that there will always be another generation to fund it; because at the rate they are going, there isnt going to be

[Heywood J]

9. Technically, it's not historical, but

the last time we hit this mark of debt vs. GDP/GNP, it was World War II and we were fighting a globe-spanning war against one of the most evil forces the world had ever seen. We also had much more of the means of production at home, not to say anything of the GI bill, the Marshall Plan, etc. We're a bit poor and trading on China for those.


Thus, while not historical debt levels, it's pretty bad.

[Statistical]

11. It isn't just debt to GDP that is just one metric.

Their primary deficit is 8%, tax collection is poor at best, and the country got caught hiding debt.

When you combine all that nobody wants Greek debt at this point. Yield in 2 year Greek bonds are now 11%.

Roughly 20% of Greece's debt comes due in next 3 years. Have you ever tried to finance 150% of GDP at 11% interest. It won't work. Greece would implode.

[JDPriestly]

3. Here is the catch:

OK so pain is necessary, but let's share it.

The IMF's idea of economic recovery is inflicting pain on the already poor and middle classes. The wealthy (including the IMF itself) are never to be asked to pay a price equivalent to that the poor will have to pay.

In these situations, it is so easy for the rich to shift the cost (and maybe even the blame) to the poor and hard-working middle-class.

Let's make sure that does not happen, at least not here, not this time. Write your members of Congress right now and keep writing.

[fasttense]

4. And no one questions that the bankers should get paid back 100%.

The bankers who caused this problem expect to get back every penny on their very bad investment. Why? Isn't that all part of the capitalist game? You make a bad loan, you eat the loss.

So, why should poor and middle class people pay back the money the bankers loaned? Their corrupt and greedy politicians borrowed more than they should have. Oh well, take the money out of the politicians hide, void the illegal and immoral loans. Why should the Greeks be held responsible for the illegal behavior of their politicians? Make the banks eat their own losses.

Most countries are in debt because they bailed out their bankers, instead of bailing out their citizens. But it's the average citizen who has to pay. We should all look at Argentina and follow their plan of default and devaluation.

"Argentina, which had been the IMF's poster child during a decade of austerity after 1990, abandoned its programme entirely in 2001 – deciding that default and devaluation was preferable to indefinite economic agony. The fund warned that the result would be pariah status, deep recession and hyper-inflation; Argentina actually grew by more than 60% over the subsequent six years."

The IMF destroys countries and economies.

[w4rma]

7. I agree. I see no reason why the loansharks should get paid back, at this point. (nt)

[socialist_n_TN]

5. Don't forget "privatization" .........................

of EVERYTHING. It's the shock doctrine all over again, but this time targeting the social democracies of Europe.

[Heywood J]

10. What we as a country haven't done yet and will need to do is

have that inevitable moment every family has when the bread-winner loses his/her job, someone becomes seriously ill, etc. and there's a sit-down at the kitchen table where the finances are combed over to see what is sustainable, what is not, and what will need to be done to survive. Aside from sporadic ideas about cutting trendy causes or increasing particular taxes, we haven't had a thought-out nationwide discussion about the state of our finances.

This is long overdue and we need to figure out exactly what we're spending money on and what (potential) income sources we have, before we fix the budget.

[fasttense]

12. There are so many sources of revenue that the government turned its back on

when they embraced neoliberlism or "free" trade. Tariffs, taxes on each trade, 95% tax on anything (profit, dividends, wages) over 3 million, pumping fees for oil corporations, windfall profit taxes, taxes on corporate profits, and on and on.

But our politicians are in bed with the corporations and banksters, so the will is not there. It's much easier for them to screw over the middle class and poor than to tax themselves and their bed mates.

To make matters worse there is an orchestrated attack on sovereign debt. This will affect us at the state level. True at the federal level we can print all the money we want but at the state level we can't. So the financial terrorist have aimed to bring down the states.

"Now comes concrete proof of this conspiracy in the form of a Feb. 8 “idea dinner,” held at the Manhattan townhouse of Monness, Crespi, Hardt & Co, a boutique investment bank. Among those present were SAC Capital Advisors, David Einhorn of Greenlight Capital (a veteran of the fatal assault on Lehman Brothers in the late summer of 2008), Donald Morgan of Brigade Capital, and, most tellingly, Soros Fund Management. The consensus that emerged that night over the filet mignon was that Greek government bonds were the weak flank of the euro, and that once a Greek debt crisis had been detonated, all outcomes would be bad for the euro. The assembled predators agreed that Greece was the first domino in Europe. Donald Morgan was adamant that the Greek contagion could soon infect all sovereign debt in the world, including national, state, municipal and all other forms of government debt. This would mean California, the UK, and the US itself, among many others. The details of this at dinner were revealed in the headline story of the Wall Street Journal on Friday, February 26, 2010. (See article at
http://online.wsj.com/article/SB40001424052748703795004575087741848074392.html"

"Greece does not need a bailout from Germany, the sinister International Monetary Fund, or from anyone else. Least of all does Greece need to accept the advice of Austrian school or Chicago schools charlatans who recommend the catharsis of a deflationary crash that would destroy an entire generation through unemployment, poverty, and despair. Greece needs to defend itself with a 1% Tobin tax on all derivatives and other financial transactions. Greece should take the lead in outlawing credit default swaps, which amount to issuing insurance without meeting the capital requirements of being an insurance company. Greece needs to enforce EU and national antitrust laws."

http://nwotruth.com/soros-goldman-hedge-funds-attack-greece-euro/

[Heywood J]

14. Indeed. Aside from the overlooked sources of revenue, we have so many outflows of cash.

http://en.wikipedia.org/wiki/List_of_United_States_federal_agencies
http://en.wikipedia.org/wiki/List_of_federally_funded_research_and_development_centers
http://en.wikipedia.org/wiki/2010_United_States_federal_budget

We need to sit down and look at how many of these are feasible and desirable to sustain in the long run, given the current cash-flow situation. I'm sure each agency or department is important to someone, but so are the cable TV and eating out, and those are usually the first to go.

[CHIMO]

15. “The People of Greece Are Fighting for the Whole of Europe”: Tariq Ali and Mark Weisbrot Discuss Gre

The European Union and the International Monetary Fund have approved a nearly $1 trillion package to stop Greece’s debt crisis from spilling beyond its borders into the rest of the eurozone. Stocks surged in Europe, Asia and the United States Monday after EU leaders agreed to a $960 billion package to contain Greece’s financial troubles. Meanwhile, the austerity measures demanded by the IMF and the European Union as a condition of their loan are continuing to exact their toll. Greece’s two main unions have continued to hold protests against the reforms. In a statement, one of the unions said, “The crisis should be paid by…all those who looted public finances.” Last week nearly 100,000 people participated in a mass demonstration and a twenty-four-hour general strike against the austerity measures.

MARK WEISBROT: Well, I think Tariq is right in terms of the injustice of trying to restructure these economies on the basis on, you know, really punishing the workers and the vast majority of people. But there’s also an irrationality to it, even from the point of view of the bondholders themselves and the financial sector and the, you know, whole system, because what they’re doing is they’re making the recession worse in Greece. And this is quite deliberate.


The economic theory which they’re using is called an internal devaluation, because they’re keeping the euro, and they want to keep the euro, and so what they’re trying to do is create enough unemployment so that wages and prices will fall, and then Greece can become competitive, even keeping the same nominal exchange rate with the euro. So this is a process that goes on quite a long time, and it’s very brutal, and it doesn’t usually work. In fact, the projections from the Greek government say that, you know, their debt is now 115 percent of GDP, and if they go through the program and it works, then two-and-a-half years from now they have a debt of 149 percent of GDP. So this is really irrational, and you can really see the irrational—irrationality of the financial markets, because they’re demanding more cuts, which of course make the economy worse. And the same is true for Spain and Portugal and Ireland and Italy, which all have similar problems, and they’re all being pushed further into recession by this kind of program. So it’s really wrong.


And, you know, I was debating the former finance minister of Greece, who was responsible for the so-called reforms of the 1990s, which prepared Greece to adopt the euro. And he ended up saying, “Well, we can’t leave the euro, because Greece is culturally incapable of managing its own economic affairs.” And so, this is the kind of attitude I think you have. And they’re punishing Greece. I wouldn’t call it a bailout; I think they’re more being thrown overboard. And they’re doing it—you know, it’s really not even rational from the point of view of trying to resolve the crisis, because you’re still—you’re making it worse there, and you’re making it worse in Spain and in Portugal and in Ireland, as well, and also Italy. So this is a problem they’re going to have to resolve, and they’re not resolving it.

http://www.democracynow.org/2010/5/11/the_people_of_greece_are_fighting

[dmallind]

13. And DU darling Roubini said the same thing on NPR this morning

Both Greece and the US need to do exactly that according to him.....