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May 24 2011

Krugman Decoded

I often find it’s better to read him bottom to top, like stack language or a blog.

The ‘elite’ economists are arrogant morons-

If Greek banks collapse, that might well force Greece out of the euro area – and it’s all too easy to see how it could start financial dominoes falling across much of Europe. So what is the E.C.B. thinking?

My guess is that it’s just not willing to face up to the failure of its fantasies.

What are those fantasies?

European leaders offered emergency loans to nations in crisis, but only in exchange for promises to impose savage austerity programs, mainly consisting of huge spending cuts. Objections that these programs would be self-defeating – not only would they impose large direct pain, but they also would, by worsening the economic slump, reduce revenues – were waved away. Austerity would actually be expansionary, it was claimed, because it would improve confidence.

What are the results?

(T)he confidence fairy hasn’t shown up. Europe’s troubled debtor nations are, as we should have expected, suffering further economic decline thanks to those austerity programs, and confidence is plunging instead of rising. It’s now clear that Greece, Ireland and Portugal can’t and won’t repay their debts in full, although Spain might manage to tough it out.

Realistically, then, Europe needs to prepare for some kind of debt reduction, involving a combination of aid from stronger economies and “haircuts” imposed on private creditors, who will have to accept less than full repayment. Realism, however, appears to be in short supply.

Clinging to a thin reed of hope.

I often complain, with reason, about the state of economic discussion in the United States. And the irresponsibility of certain politicians – like those Republicans claiming that defaulting on U.S. debt would be no big deal – is scary.

But at least in America members of the pain caucus, those who claim that raising interest rates and slashing government spending in the face of mass unemployment will somehow make things better instead of worse, get some pushback from the Federal Reserve and the Obama administration.

“Realism, however, appears to be in short supply.”

State and local governments may cut 450,000 jobs in FY2012

Reuters

Mon May 23, 4:23 pm ET

NEW YORK (Reuters) – Around 450,000 people who work for U.S. states, counties, cities, towns and villages could get pink slips in fiscal 2012, sharply up from the 300,000 positions shed this year, a report said on Monday.

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