interesting IMF position regarding national debt

[PhoenixAsh]

The IMF has expressed concern at the rate with which some countries are lowering their budget deficit. For some none European countries like the US the budget deficit is expected to be lowered by 2% in the comming year. For European countries this is expected to be 3%.

In the past the IMF has warned countries to lower their budget deficit and that the rate at which this happened was to slow.

Now the IMF is switching their position saying that in a weaker economic situatoin a fast reduction of national deficit might have an averse effect on economic growth and recovery.

Now to be extremely simplistic (and I am very sure somebody will explain it much much better....or correct any mistakes I might be making):

This position makes sense....cutting budget will decrease the amount of money spend by the government and therefore reduce the amount of money that needs to be borrowed at interest rates. On the long run this will theoretically reduce costs....and therefore increase the amount that can be spend plus it will improve the credit ratings which will improve interest rates. So on the long term the reduction makes sense.

However on the short run the reduction of government spending will also mean the government will spend less money....therefore reduce the amount of money in circulation and therefore decrease earnable income. Usually these reductions will be made at the expense of government spending on social programs and subsedies etc. Which will reduce spending money for the social minimum groups, unemployed etc.

Now...what is remarkable...is that Carlo Cottarelli (Director of the Fiscal Affairs Department) has now stated that governments should not decrease
but rather extend support for unemployment benefits and should reduce income tax.

http://www.voxeu.org/index.php?q=node/7604


Now...what is even more interesting is that he states that fiscal austerity might become self defeating. In otherwords....cuts will NOT solve the economic problems, they will not affect them positively...nor negatively.

What is being argued is that fiscl austerity which is implemented to fast will be answered by a decline in economic activity and therefore reduction of actual government income.

So the balance of the austerity measures might simply be 0. And they will have no use whatsoever or even a negative one.


So this is a huge argument against cuts here...



Now before we get to exited...all of this OFFCOURSE....does not go for Greece, Ireland and Portugal.... These countries need to stick to radical restructuring and austerity measures because they have an already very unhealthy economy. But it does go for all countries that are currently not in any real economic trouble.


So there you go....capitalism in a nutshell...we are well an truely fucked.

[runequester]

It suits the forces of capital to encourage significant amounts of debt, because it binds the country to the foreign market and leaves them open to later manipulation, foreign investment and eventually privatisation of state resources.

As far as austerity, it will not improve the economy (people having less money to spend means less money circulating in the economic system, and eventually less taxable revenue/sales) but then, austerity was never intended to improve the economy.

[Q]

Yes hindsight20/20 is pretty much correct: Obviously it is the case that an austerity policy will be hurting the economy. Because if you cut, this means attacking peoples living standards, meaning less purchases, meaning less tax revenue, meaning less income for the state, meaning it needs to cut more in order to pay off its debt. Cycle repeat.

The only real solution within capitalism is to re-industrialise the economy. In the period of the 1970s until now there has been a policy of moving away from industrial capitalism and onto financial capitalism in the west. The reason for this was that industrial capitalism, and the Keynesian and Fordist policies that came with them, empowered the working class movement to become a dangerous threat to the ruling class. This became obvious especially with the events in 1968 in France and elsewhere.

So, neoliberalism has nothing to do with economics, but is explicitly a political agenda to break and demoralise the working class, without having to resort to desperate measures, such as fascism in the 1920's and 1930's.

The ruling class rather prefers to go bankrupt than move back towards a rationalised decline of capitalism in the form of Keynesian and Fordist policies. Ergo, there are no solutions within capitalism and we'll be facing some tough times as the working class is far from being capable of seizing power for itself.

[MotherCossack]

f**king tories!
they must be pissing emselves!
how can they be so f**king inept and still remain [if tory backed polls are to be believed] the party*in which most people still have most faith?! to LOOK AFTER THE F**KING ECONOMY!!!!!!
Osborne is an utter w**ker. and so, oh soooo dim!!!!!
how on earth can anyone believe that he could even know how to look after 50p pocket money without giving it to a weirdo in exchange for some mouldy old beansprouts .
as far as i'm concerned... IMF idiots may fuck-up
gotta go folk need me