Young University Student Offers Infinitely More Sensible Arguments On Austerity Than Peter Schiff

From Newsweek - Jun 2010

"We have entered the Age of Austerity. It's already arrived in Europe and is destined for the United States. Governments throughout Europe are cutting social spending and raising taxes—or contemplating doing so. The welfare state and the bond market have collided, and the welfare state is in retreat. Even rich countries find the costs too high, but the sudden austerity could perversely trigger a new financial crisis.

Europe's plight is now the most obvious threat to the already lackluster global recovery. The International Monetary Fund forecasts the world economy will expand about 4 percent in 2011. Although this sounds respectable, the underlying growth predictions for the United States (2.3 percent) and Europe (1.8 percent) are so low that there would be little, if any, reduction in the 38 million unemployed in these two major economies.

On the one hand, huge deficits and debts—the sum of past deficits—mean some countries can no longer borrow at reasonable interest rates. Last week, rates were about 10 percent on Greek 10-year government bonds and more than 6 percent on Irish and Portuguese bonds. Even these rates would be higher if these countries hadn't acted to cut long-term budget deficits. By contrast, rates are about 2.3 percent on 10-year German government bonds and 2.4 percent on 10-year U.S. Treasuries.

On the other hand, abrupt tax increases and spending cuts threaten deeper recessions. In Greece, the value-added tax (a national sales tax) was increased four percentage points; the normal retirement age is also being raised. Portugal approved a VAT increase of two percentage points. In Ireland, government workers' salaries were cut an average of 7 percent. In Spain, grants for new children are being abolished. Unemployment rates are already about 11 percent in Portugal, 12 percent in Greece and 14 percent in Ireland.

To some economists, this is folly. Desmond Lachman of the American Enterprise Institute foresees a futile downward economic spiral. As recessions worsen, losses in tax revenue and higher jobless spending will offset some projected improvements to budget deficits. So, more tax increases and spending cuts will be needed.

People will lose patience, Lachman says. Governments will fall or decide that default—repudiating some debts—is a lesser evil than tolerating persistent mass misery. "It's a race between Greece and Ireland" to see which defaults first, he argues. The defaulting country will also abandon the euro and create its own currency to regain some control over its interest rates and exchange rate.

The danger: another financial shock, perhaps like Lehman Brothers' failure. If one country defaults, investors will dump bonds of others. European banks, with more than $1 trillion in loans to Greece, Ireland, Portugal and Spain, will suffer more losses, Lachman says."

Category:

Comedy

Tags:

• Peter
• Schiff
• Ireland
• austerity
• Sarah
• Palin
• gold
• warren
• buffett
• jim
• rogers
• marc
• faber
• nouriel
• roubini
• paul
• krugman
• goldman
• sachs
• banks
• bailouts
• economy
• berkshire
• hathaway
• lloyd
• blankfein
• business
• stocks
• bonds
• investments
• austrian
• economics
• mises
• rothbard
• keynes
• friedman
• keynesian
• monetarist
• vat
• tax
• taxes
• sales
• value-added
• inflation
• default
• money
• printing
• loose
• recession
• hyper-inflation
• sovereign
• debt
• crisis
• currency
• dollar
• euro
• CNBC
• fox
• news
• Russia
• today
• RT
• Bloomberg
• reuters

[SidneyBou]

What was Schiff wrong on? I guess the government should hire more politicians.

[SchittReport]

@SidneyBou

read the title and the text. nobody said schiff was wrong on this issue - my argument is that the kid offers a more sensible, alternative view.

[ohio1998]

Excellent vid. This is a huge mess and we can all agree on that. I don't particularly care for Schiff's plan to let everyone fail and then just pick up the pieces later. Not a good idea.