Greece – return to growth demonstrates the role of substantial fiscal deficits

We had news this week that the annual rate of real GDP growth in Greece is finally positive after two quarters of positive growth. The austerity merchants are out in force congratulating themselves on a victory. Some victory. What the official data doesn’t publish are the long-term implications of the Depression that Greece has been locked in for the last six years. I look at that question in this blog (a little). Further, despite the claims by the European Commission and the lackies that it relies on to spread its distorted economic news that Greece has achieved a primary fiscal surplus, nothing is further from the truth. The fact is that the Greek fiscal deficit expanded considerably last year and despite all the austerity is still pumping public euros into the Greek economy and therefore supporting growth. The slight return to growth is not a victory for fiscal austerity but a demonstration that if large deficits are maintained for long enough growth will eventually rear its head.
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    Posted in Eurozone | 8 Comments

    Japan returns to 1997 – idiocy rules!

    The financial press was ‘surprised’ that Japan had slipped back into recession, which just tells you that their sources don’t know much about how monetary economies operate. Clearly they have had their heads buried in IMF literature, which tells everyone that cutting net public spending will boost growth because the private sector is scared of deficits. This prediction has never worked out in the way the theory claims. It is pure free market ideology with no empirical basis. The other problem is that cutting net public spending when private spending is weak also pushed up the deficit. Back in the real world, Japan believes the IMF myths, hikes sales taxes to reduce its fiscal deficit, and goes back into recession – night follows day, sales tax hikes moderate spending, and spending cuts undermine economic growth. Kindergarten stuff really. Eventually this cult of neo-liberal economics will disappear but in the meantime while all and sundry are partaking in the kool aid, millions will be losing their jobs, poverty rates will rise and the top 10 per cent in the income and wealth distributions will continue to steal ever more real income from the workers.
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      Australian Treasurer unqualified to do his job

      Australia hosted the recent G20 Meeting in Brisbane and showcased our embarrassing political leadership. Leading into the summit, our Prime Minister had said he would “shirt front” Russian leader Vladimir Putin. Instead he met with the Russian and together they cuddled a native animal (Koala). Then at the opening address, our Prime Minister was humiliating when he told the other 19 world leaders how bad Australians were for rejecting his $7 a visit private contribution to doctor consultations as part of his plan to get the fiscal balance back into surplus. A few days after the US-China signed a major carbon reduction pledge and the rest of G20 nations were working to ensure the final statement of the meetings re-affirmed the World’s desire to address climate change, our Prime Minister was telling the World leaders how tough his government was in getting rid of the Carbon Tax and repeating his mantra that Coal was our future. At least, the Australian government’s insistence that climate change not be on the G20 meeting agenda was ignored by the other nations much to the embarrassment of our leaders. These dorks think they are big time. All the proved was how unsophisticated the political leadership in this country is. The Tea Party Republicans in the US make our lot look like fools! The assessment is that our self-trumpetted ‘macho man’ PM came out with sand kicked in his face looked liked “a coward and a weakling” (Source). And if that wasn’t enough we had the ordeal of watching our Treasurer strutting the world stage with the ‘Finance Ministers’ demonstrating how unqualified he is for that important national job.
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        Posted in Economics | 8 Comments

        Saturday Quiz – November 15, 2014 – answers and discussion

        Here are the answers with discussion for yesterday’s quiz. The information provided should help you understand the reasoning behind the answers. If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
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          Saturday Quiz – November 15, 2014

          Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
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            Friday lay day – troubles in Australian universities

            Friday lay day – short blog – good – its going to be a very hot day here in Newcastle, NSW today. Today a brief reflection on the latest scandal/crisis to hit the Australian university sector. The Fairfax media this week published the results of their investigation into so-called Essay Mills – Universities in damage control after widespread cheating revealed. It appears that non-English speaking students in our universities have been purchasing tailor written essays from an organisation in Sydney and using them as assessable items to gain progress in their degree programs. What can be done about that?
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              Posted in Friday | 4 Comments

              When fiscal policy is misrepresented

              On Tuesday, Australians woke to headlines – Treasurer Joe Hockey faces $51 billion deterioration in finances between budget and MYEFO, economists say – and a story of “black holes”. The so-called director of budget and forecasting at a consulting firm in Australia (inaptly named Macroeconomics) claimed that the May fiscal statement (aka The Budget) was “economically sound”, which just tells you that the director is not worth listening to on matters macroeconomic. Then along came the US-China so-called ‘historic’ climate deal to muddy the waters further. And nothing I have read in the news since Tuesday about either issue makes any sense from a macroeconomic perspective.
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                Posted in Economics | 7 Comments

                Back to 1917 – the wealth distribution in the US

                The current evolution of Capitalism is taking the world back to where it was in the early C20th, before trade unions were strong enough to protect workers’ rights, before central governments were willing to mediate the class struggle and step in to make sure workers had the means to enjoy the material prosperity that the system generated, before wages growth allowed workers to share in productivity growth and build a modicum of material wealth. There is no class struggle, Bill! How many times do I hear that now. It is just a convenient sop by those with a vested interest in promoting that view or who has been conned to believe that to be the case. Of course there is a class struggle. Industrial capital might be sharing the hegemony with totally unproductive financial capital and the robber barons of the C19th and early C20th are less prominent and the banksters and the politicians in their pay have replaced them, but don’t ever think that there is a massive conspiracy to undermine the welfare state and put workers back into an even more subservient position than before. Unemployment, part-time precarious work, tax evasion and all the rest of the scams are working a treat.
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                  Posted in Economics, Labour costs, US economy | 11 Comments

                  Catalonia’s vote largely misses the point

                  The bets are on at the moment that the Eurozone will dip back into recession for the third time since 2008 such is the incompetence of the policy makers and the policy framework they have erected to operate within. There is constant talk that the ECB will once again step in to save the day but all they can do is stop a nation going broke by guaranteeing their fiscal deficits and/or buying their debt. The central bank has very limited capacity to actually stimulate aggregate spending, which is the source of economic growth when there is massive idle productive capacity. In this context, the vote on Sunday by Catalonians (well around 33 per cent of them), which was overwhelmingly yes (81 per cent), is interesting although I doubt it will lead to anything constructive – like the Community exiting the Eurozone and really becoming independent. Most likely, Spanish prime minister Mariano Rajo will come up with some fiscal compromise to relieve the calls about Spain robbing Catalonia blind and the same problems will persist. I don’t pretend to know much about the cultural issues but in the scheme of things as I show below the economic circumstances the Community finds itself in are a direct consequence of being part of the Eurozone. That would have to change for there to be any meaning to the calls for secession. I don’t hear those arguments coming out strongly at all.
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                    Posted in Eurozone | 9 Comments

                    European Commission is once again bereft of credibility

                    The European Commission released its – European Economic Forecast – Autumn 2014 – which is its bi-annual statement of economic outlook. In his editorial to the outlook, Director General Marco Buti admits that “euro area is still projected to have spare capacity in 2016″, which means the Commission is overseeing economic policy choices that will deliberately impose a recessionary bias for the next two years (at least) and deliberately force millions of Europeans to endure joblessness, savings erosion and the march towards poverty and despair for the next two years. Its a statement of monumental policy failure and the Director General Marco Buti should resign immediately just after he sacks his policy advisers.
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                      Posted in Eurozone | 4 Comments