A voice of sanity on government debt

Standard and Poor’s – a voice of sanity on government debt

Debtonation, 03 May, 2010.

This is my latest piece for the Huffington Post.

It might seem extraordinary, but in the midst of deficit-cutting mania it’s a rating agency, Standard and Poor’s, that is talking common sense about government debt.

By doing so they are challenging members of the international Austerity Party – a political party that dominates economic debate across the world.

In this case the rating agency was commenting on the crisis in Greece and Portugal – but the comment could just as well apply to the United States – or any other economy trying to recover from a financial crisis induced by private bankers.

Standard and Poor’s officials are quoted by the New York Times (28 April, 2010) as saying:

“The main reason for downgrading the debt of Greece and Portugal was the prospect that forced austerity packages would be an even bigger drag on economic growth.

It is the most vicious of circles: stagnating economies are forced to cut back more, which reduces their ability to generate revenue and thus pay off their debts.”

This economic common sense makes a refreshing change from the suicidal howls of the lemming-like hordes leading the international Austerity Party. These dominate all economic debate on the airwaves, in newspaper columns, economic blogs and political outlets.

As they head for the cliffs, they can be heard baying for cuts in government spending – regardless of economic common sense; regardless of the likely economic impact.

Their argument is simple: when a nation is at its weakest, when its debts are highest, when the economy is at greatest peril, then it is imperative to apply draconian policies for cutting the deficit.

These policies must include vicious cut-backs on efforts by the government to stimulate economic recovery, and generate the revenues that will repay debts.

In particular government must cut back on public investment in infrastructure that creates jobs, generates tax revenues (through the ‘multiplier’) and helps the economy recover, so that debts can be repaid.

In other words, when an economy – any economy – is heavily in debt and on its knees…..

That is the moment, argues the Austerity Party, to cut off its legs.

Before forcing it to run the marathon.

Forgive the violence of my analogy, but sometimes words, as Keynes argued, have to be a little wild, to rouse people from their blindness to grave threats and risks.

Right now the European Union and IMF, with the forceful backing of the German Chancellor and Finance Minister, are coercing the democratically elected Greek government into effectively disabling the Greek economy.

According to the Financial Times (2 May 2010) there is to be ” a huge fiscal tightening equal to 16 per cent of gross domestic product – an extra 11 per cent on top of the 5 per cent already announced.”

“Greece’s vicious recession is poised to continue and deepen……The fiscal targets require huge upfront cuts in public spending, including reductions in public sector pay, jobs and pensions.”

The IMF’s representative Poul Thomsen had the gall to argue that this disastrous economic strategy “is credible because it has a lot of support from the international community; it is credible because it is socially well balanced; it is credible because it is the [Greek] government’s programme.”

This is a dishonest and delusional statement.

It is dishonest because it is blatantly not the Greek government’s program. It is the German government’s condition for making bailout funds available.

It is delusional, because it is an economic strategy designed to fail.

While it may be credible with the members of the international Austerity Party – it is not economically viable.

Ask Standard and Poor’s.

The voice of common sense.

Drowned out by the hysteria and flawed economics of the Austerity Party.