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I'm not sure why, but a lot of these articles fail to properly distinguish between government fiscal austerity (government reducing deficit or debt) and monetar

I'm not sure why, but a lot of these articles fail to properly distinguish between government fiscal austerity (government reducing deficit or debt) and monetary austerity (central banks reducing the growth of the money supply). There are reasons to perform austerity but it's rarely a good idea to do it on both of these sides at the same time. When governments are trying to get out of a debt hole, monetary policy should be expansionary enough to allow for the private sector to grow and replace the economic activity that the government is halting. The alternative double austerity leads to, on an economy wide scale, investors' attempts at building wealth, being transformed into hoarding of intrinsically valueless pieces of paper or electrons instead of being tied to something real, instead of being tied to factories, businesses projects and tools that allow people to work. It leads to people not working and not being able to subsist because the investment market is put into a gridlock. The detrimental effects are not evenly distributed. It disproportionately and very nonlinearly affects groups that are economically vulnerable, the less educated, people working in commoditized industries where margins are thin, the inexperienced. The potential for livelihood for these people simply disappears when hoarding paper becomes more alluring than investing in these types of job creating projects. The resulting desperation pushes people to extremes. The ECB has been doing a mild version of this for the past decade, putting western civilization at risk. The US central bank is finally doing a better job but only after reasonable leaders were pushed aside and fanatics gained power. There is now a risk that the fanatics will get the credit for the better economy which might help them maintain power.

qubex 9y ago
I’m Italian and I’ve witnessed this over the course of the past five to ten years. The whole county, fragile enough to begin with, has been subjected to an utter death-march of diminishing returns as margins decrease, no longer cover fixed costs, and cause businesses to fail while dropping prices all the way until whole swathes of the economy simply shrivel up and die. I was struck by the parallels between what is described in this paper and the very recent (week old) national elections, the first to be held in five years. There was an overwhelming swing towards extremist parties (one in two voted either for the xenophobic nationalistic formerly openly racist Northern League or the wildly populist Five Star Movement). The disposition along the north/south axis correlates sharply with unemployment and other forms of economic/social duress and I cannot help fearing that this is the fate that will befall us.
- BenoitEssiambre 9y ago
  It's all so sad... The ECB could solve these problems by a snap of their fingers at not cost. Almost everyone would profit. I'm stumped as to how to solve the problem of central bank incompetence.
  - qubex 9y ago
    It’s not only the ECB and it wouldn’t be at no cost, insofar as quantitative easing (which I think you’re referring to) would cause inflation which in turn would diminish the real value (in terms of future purchasing potential) of creditors and consequentially would be unpalatable to creditor nations (such as the much-maligned Germany, for example).
    - BenoitEssiambre 9y ago
      Any gains Germany gets from overly tight money are temporary and transient. If they want to get a better deal on their loans, they should negotiate the loans better. Running a disastrous monetary policy to indirectly improve their loan terms is an insanely destructive thing to do both to the indebted countries and to the weaker parts of their own economy. Also, the loans they make are mostly with the countries' governments but as you probably know, euros are used by non government entities too. Germany shouldn't strangulate all of the eurozone's private markets just to manipulate terms of government loans. On top of this, not allowing people to work and destroying their countries' economies greatly increases the chance these countries are going to default or restructure parts of their debt, again, not to Germany advantage. Finally, having neighbors with poor economies is bad for your exports and your own businesses. In the long run Germany has much to gain if people of Europe have functioning investment markets and the tools are available for people to work and produce.
      - qubex 9y ago
        Actually you’re right. Italy at least is being totally ruined by this state of affairs. It seems that at some point this country is undergoing some kind of social collapse, and that once that has passed the critical threshold a financial side-effect will be inevitable. I don’t really see a way out of this. It seems that all the citizens are passengers in a crashing aeroplane, and that the pilots themselves are sitting up front but have been severed from the controls and stripped of all agency. The aviation the outcome would be obvious, and that’s why you’re essentially correct in saying that gravity needs to be switched off, at least temporarily, for the benefit of everybody. Again, I don’t see this happening.

qubex 9y ago

I’m Italian and I’ve witnessed this over the course of the past five to ten years. The whole county, fragile enough to begin with, has been subjected to an utter death-march of diminishing returns as margins decrease, no longer cover fixed costs, and cause businesses to fail while dropping prices all the way until whole swathes of the economy simply shrivel up and die. I was struck by the parallels between what is described in this paper and the very recent (week old) national elections, the first to be held in five years. There was an overwhelming swing towards extremist parties (one in two voted either for the xenophobic nationalistic formerly openly racist Northern League or the wildly populist Five Star Movement). The disposition along the north/south axis correlates sharply with unemployment and other forms of economic/social duress and I cannot help fearing that this is the fate that will befall us.

BenoitEssiambre 9y ago
It's all so sad... The ECB could solve these problems by a snap of their fingers at not cost. Almost everyone would profit. I'm stumped as to how to solve the problem of central bank incompetence.
- qubex 9y ago
  It’s not only the ECB and it wouldn’t be at no cost, insofar as quantitative easing (which I think you’re referring to) would cause inflation which in turn would diminish the real value (in terms of future purchasing potential) of creditors and consequentially would be unpalatable to creditor nations (such as the much-maligned Germany, for example).
  - BenoitEssiambre 9y ago
    Any gains Germany gets from overly tight money are temporary and transient. If they want to get a better deal on their loans, they should negotiate the loans better. Running a disastrous monetary policy to indirectly improve their loan terms is an insanely destructive thing to do both to the indebted countries and to the weaker parts of their own economy. Also, the loans they make are mostly with the countries' governments but as you probably know, euros are used by non government entities too. Germany shouldn't strangulate all of the eurozone's private markets just to manipulate terms of government loans. On top of this, not allowing people to work and destroying their countries' economies greatly increases the chance these countries are going to default or restructure parts of their debt, again, not to Germany advantage. Finally, having neighbors with poor economies is bad for your exports and your own businesses. In the long run Germany has much to gain if people of Europe have functioning investment markets and the tools are available for people to work and produce.
    - qubex 9y ago
      Actually you’re right. Italy at least is being totally ruined by this state of affairs. It seems that at some point this country is undergoing some kind of social collapse, and that once that has passed the critical threshold a financial side-effect will be inevitable. I don’t really see a way out of this. It seems that all the citizens are passengers in a crashing aeroplane, and that the pilots themselves are sitting up front but have been severed from the controls and stripped of all agency. The aviation the outcome would be obvious, and that’s why you’re essentially correct in saying that gravity needs to be switched off, at least temporarily, for the benefit of everybody. Again, I don’t see this happening.