Iceland, Greece, Portugal, Spain and then the United States? Are these financial crises real? They are all strikingly similar, a worldwide economic collapse and strangely, the answer seems, uniformly, to squeeze the people, real hard. Governments must move toward austerity measures it is said, to enable repayment to international banks.
It prompts the question, who is calling the shots here? Speculators circle the wounded, betting in favor of default driving up interest rates and deepening the crisis. So is the crisis real or man made? The Greek Prime Minister Papandreou addressed it this way, "There is only one dilemma: Will we let the country go bankrupt or will we react? Will we let the speculators strangle us, or will we take our fate in our own hands?"
The immediate problem is an under performing world economy. So why the rush towards austerity? When Herbert Hoover tried that policy during the last Great Depression it only made matters worse.
The 3 percent solution,
In 2008 Ireland began austerity measures that amounted to 9 percent of GDP. This next proposed round of cuts will be even more severe then the last, six billion Euros next year alone. Then another fifteen billion Euros by 2014, as labor leaders argue, that the cuts will strangle any chance at growth. This isn't a sick economy, this is a relatively strong economy. After a disastrous 2009, the Irish economy grew at 2.2 percent in 2010.
Ireland's corporations are making profits, is this another jobless recovery? Will the additional budget cuts crush economic consumption and make a bad situation worse? Ireland isn't broken, its suffering from a down turn in the world economy. It has a strong export sector but is being dogged by economic wolves.
All across Europe we see the same scenario, draconian budget cuts in the name of continued financing from international banks. If Weimar Germany teaches us anything, it is that extorting vast sums out of a struggling economy will likely end badly. These aren't unhealthy economies in good times. They are unhealthy economies in a time of economic plague. So what's the hurry? Why not implement modest budget reform and try to assist the spending side of the equation to stimulate growth as Roosevelt did in the 1930's?
The United States is a different story entirely, Free Trade, exorbitant military spending and massive tax cuts have created a huge hole in the budget. Because wage growth is flat, for the majority of Americans, their ability to consume, pay taxes and grow the economy out of the crisis is limited. The United States exports commodities and imports finished goods, a lose-lose proposition. High volume, low profit items such as, grain, coal and timber yield export dollars but few jobs and little room for growth.
The flip side are products such as nuclear power, defense products and commercial aviation which yield huge profits on low volumes. The much heralded Boeing "Dreamliner" is made up of 60 percent foreign components. It won't be so much, built in the United States as assembled in the United States. Meanwhile in China, they push ahead with C-919 the first Chinese civil airliner designed for export. After years of building components for Boeing and Airbus the China Aircraft Corporation is preparing to jump into the world market fray along with its American partner General Electric.
Still the question haunts us, what's the hurry? Why impose permanent draconian solutions and stifle growth and prolong an otherwise temporary situation?
As John Prine wrote, "there's a hole in Daddy's arm where all the money goes." There is a hole in Daddy's world where all the money goes.
Peoples Republic of China 9.096 percent growth, India 7.4 percent growth. Vietnam 5.3 percent, Laos 7.59 or Indonesia 4.546 percent growth.