John Nichols — Martin O’Malley Has the Right Solution for Puerto Rico’s Debt Crisis

Puerto Rico is not Greece.

But the United States commonwealth is confronted with a debt crisis. It faces the threat of a brutal round of austerity cuts, which could make a bad circumstance dramatically worse. If ever there was a moment that called for enlightened leadership that recognizes both the economic and social challenges facing the Puerto Rico, this is it.

Former Maryland governor Martin O’Malley heard that call as the crisis began to come into focus last month and declared, “As a nation we must help our fellow US citizens not only because it’s the right thing to do, but because our region’s economic stability depends on it.”

Urging the Obama administration and Congress to act “to avoid Puerto Rico’s economic collapse,” O’Malley said in a statement….

The Nation
Martin O’Malley Has the Right Solution for Puerto Rico’s Debt Crisis

John Nichols

Working America’s Second Annual #TurkeyTalk: The Seq-what?-ster Edition

Picture this: You’re home for the holidays, about to dive into that rich, golden-brown pumpkin pie, when suddenly a conversation erupts with your mother-in-law about “deficit reduction” or “Debt Crisis”. We spend too much, she says, indignant. Why can’t the Federal Government pay its bills—I do. A “harrumph!” is implied by the look she’s giving you. What do you say?

Working America
Working America’s Second Annual #TurkeyTalk: The Seq-what?-ster Edition

(h/t John Zelnicker in the comments)

I actually did make an opportunity to explain the basics of MMT to my friends when we gathered recently. Took about five minutes and everyone got it instantly. 1) Currency issuer v. currency users, 2) saving is a drag, 3) no problem offsetting demand leakage due to saving drag with deficits and accumulating debt. In attendance were three psychotherapists, a high school teacher, a multimedia developer, a plant scientist, and bank project manager. A pretty diverse crowd with little prior knowledge, even the bank project manager.

Expansionary fiscal austerity all the rage at Davos

DAVOS, Switzerland -- As much of the globe grapples with lean economic prospects, and as Europe in particular sinks toward a recession that could spread to multiple shores, world leaders gathered here this week appear to be operating with a rough consensus over how to proceed: Attack budget deficits by cutting spending in a bid to sow confidence in bond markets.

The logic of austerity as curative assumes that the basic problem limiting economic growth is investor fears about the size of government budget deficits, and visions that the bond market may suddenly demand sharply higher rates of interest to enable lending. Governments could be forced to impose growth-killing tax increases to square their books. With such worries in mind, those in control of money are supposedly hewing to the sidelines, depriving economies of credit and investment.

Among finance ministers participating here at the annual World Economic Forum, the word “uncertainty” has been getting a vigorous workout. When times are troubled, goes the thinking, lack of clarity provokes investors to imagine the worst, and to act accordingly. They hold tight to their money, producing self-fulfilling prophesies of pullback.

“If you want to have more internal demand, you have to have confidence,” the German finance minister Wolfgang Schaeuble declared here Friday morning, during a discussion about the future of the eurozone. “If you make your deficit sustainable, people will gain confidence.”

But among some economists, deficit reduction as a growth strategy amounts to a wrong-headed leap of faith.

“Austerity won’t even prevent the next crisis, let alone solve the current one,” the Nobel laureate economist Joseph Stiglitz told The Huffington Post.

Cutting government spending in times of economic weakness further reduces demand for goods and services, he said, which reduces incentives for businesses to invest and hire -- a self-reinforcing dynamic of diminishing fortunes.

This is followed by George Soros's warning about debt-deflation as the risk of austerity, along with his accusing Germany of economic imperialism. Ouch.

Dr. Doom (Nouriel Roubini), too, predicting, well, doom.

Oh, and Geithner is on board with austerity “for parts of Europe, for a long period of time...."

Read it at The Huffington Post
World Economic Forum: At Davos, Austerity Reigns

by Peter S. Goodman

This is way beyond clueless and even exceeds moronic. It is malfeasance. "Ignorance is no excuse before the law." 

Belief in the confidence fairy is magical thinking. These people really do act like wizards waving their magic wands around.

Moritz Schularick — Credit booms gone bust

Carmen Reinhart and Kenneth Rogoff tell the history of financial crisis as a tale of excessive public debt. But what more commonly drives financial instability, says Moritz Schularick, is excessive private debt. Financial crises are credit booms gone bust. Schularick and his collaborators compile a long-run data set of disaggregated credit flows, separating loans for productive investment from loans for the purchase of existing assets. A marriage of economic history and modern statistical methods to investigate the role of finance in the macroeconomy -- this is new economic thinking. 

INET video interview
Credit Booms Gone Bust

by Moritz Schularick, professor of economics at the John F. Kennedy Institute of the Free University of Berlin, Germany. His current work focuses on credit cycles, the determinants of financial crises, and the international monetary system.

The phony debt crisis!

At a Treasury auction today of 4-week bills, investors were prepared to give the government over a quarter of a trillion dollars AT ZERO PERCENT INTEREST!

And they keep telling us there's a debt crisis and we need to cut the debt!

If this doesn't show how the whole debt thing is a total farce and a total propaganda lie, then I don't know what will.

Euro Crisis, Neo-Liberalism and Undoing the Welfare State

Gerry Epstein: German elite profited from the Euro Zone, now wants to use crisis to undo welfare state and privatize

Italy engulfed in debt crisis

Italian 10-year bond yields have hit a new euro-era high of 6.64 per cent, on fears over mounting political uncertainty.

Italy has come under fresh market pressure to deal with its mountain of debts as the country's cost of borrowing jumped to a euro-era high.

The yield on Italy's 10-year bonds jumped another 0.33 percentage point on Monday to 6.64 per cent, its highest level since the euro was established in 1999.

"Greece has pulled back from the abyss but it is still very much wobbling on the edge and what we are seeing now is Italy fast approaching Greece in terms of concerns" - Louise Cooper, BGC financial analyst

Italy, which is the eurozone's third-largest economy and has debts worth 120 per cent of national income, is increasingly at the forefront of investor concerns over Europe's debt crisis.

Read the rest at Al Jazeera, Italy's borrowing costs reach euro-era highs

Tyler Durden — Morgan Stanley's Joachim Fels Says Europe's Pandora's Box Has Been Opened

Zero Hedge has a short summary of a client note sent by Morgan Stanley's Joachim Fels that sees the EZ situation worsening, along the lines that MMT predicted from the outset of the ill-designed EMU.

Read the whole post (it's short) at Zero Hedge
Morgan Stanley Says Europe's Pandora's Box Has Been Opened

EU, we hardly new ye

The EU warned Tuesday that the eurozone requires permanent tough austerity measures if it is to cope with public debt set to crash through the 100-percent-of-GDP barrier and keep rising for many years.

With an ageing population piling up social security and pension costs, the European Commission says a radical long-term correction is required to put public debt throughout the 17-nation euro currency area on a sustainable path.

“The deterioration in the public finances of the euro area since the onset of the economic and financial crisis comes on top of already high starting levels of debt,” the Commission said in its quarterly report on the euro area.

This “at a time when the European economies are facing the prospect of the sustainability challenge of an ageing population,” it added.

The report used projections for future age-related spending and concluded that “in the absence of additional consolidation measures” the overall picture would show “debt passing the 100-percent-of-GDP mark over the next 15 years and continuing to increase thereafter.

“It is clear that in order to reverse the increases in (debt) growth and ensure the sustainability of public finances, significant permanent consolidation measures — over and above those already introduced — will be necessary in a number of euro area countries.”

Read the rest at EU says eurozone needs ‘permanent’ austerity by Agence France-Presse via Raw Story

I guess the EU leadership has decided that the time of their continent on the world stage has passed. Nutty.

Euro debt crisis migrating to the core

German and French credit default swaps starting to blow out now.

Germany 5yr sovereign CDS

France 5yr sovereign CDS