{"id":1252,"date":"2011-08-01T11:16:29","date_gmt":"2011-08-01T15:16:29","guid":{"rendered":"http:\/\/www.multiplier-effect.org\/?p=1252"},"modified":"2011-09-02T14:41:55","modified_gmt":"2011-09-02T14:41:55","slug":"gross-distraction","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/gross-distraction\/","title":{"rendered":"Gross Distraction"},"content":{"rendered":"

Bill Gross has weighed in<\/a> on the debate about excessive sovereign debt, invoking a study produced by Kenneth Rogoff and Carmen Reinhart that purports to show a negative relation between debt and economic growth. The \u201cMaginot line\u201d is a debt ratio of 90%, beyond which economic growth slows by 1%. Yet Mr. Gross does not consider the alternative: \u00a0that high deficit and debt levels can be caused by plummeting revenue collection in the midst of an economic crisis. Neither Gross nor Rogoff and Reinhart offer any clear argument for their interpretation of the direction of causation, but the evidence this time around for the US is quite clear: \u00a0it is the collapse of revenue that accounts for most of the growth of deficits. Unlike the case of Ireland (where the Treasury actually absorbed bank debt), the US bail-out of Wall Street has added virtually nothing to government deficits.<\/p>\n

Further, like the original study, Gross lumps together countries with sovereign currencies (such as the US and the UK) and countries that abandoned currency sovereignty (the EMU members who adopted the euro, for example) or countries that never had it (those on specie standards).<\/p>\n

The greatest fear surrounding growth of sovereign debt is that some point is reached where it becomes difficult or impossible to service the interest due. As that point is approached, markets demand ever higher interest rates, creating a vicious cycle. Greece knows that scenario all too well. But the case is different for the US, the UK, and even for Japan\u2014as issuers of their sovereign currency they can make all payments as they come due. Involuntary default is not possible.<\/p>\n

We are left with the possibility of a voluntary default, or a decision to \u201cinflate away\u201d the debt (something Gross discusses). The first of these certainly appears relevant, given the debate consuming Washington over the last months (although an agreement appears to have been reached<\/a>, whether it will pass the House should still be considered an open question). The second is at best a remote possibility\u2014inflation is not an emergent issue.<\/p>\n

As we near the August 2 \u201cDay of Reckoning,\u201d when the US government exhausts the extraordinary measures it has been taking since hitting the $14.3 trillion debt ceiling, Washington\u2019s myopic debate makes for a tragic farce. While politicians have been toying with the possibility of voluntary default, outside the beltway real problems abound:\u00a0 unemployment, housing foreclosures, torched 401k plans that have stalled earned retirements, and college graduates struggling to begin their careers with paying jobs. Rather than pointing to the US government\u2019s debt as the cause of slow growth, Gross should consider these headwinds.<\/p>\n

But there is a more profound problem with this farce.<\/p>\n

This fabricated debt crisis is being used as a pretext for an attempt to destroy the last vestiges of FDR\u2019s New Deal, utilizing \u201cshock doctrine\u201d to wave aside resistance. In her best-seller The Shock Doctrine: The Rise of Disaster Capitalism<\/a>, <\/em>social critic Naomi <\/em>Klein argues that crises are intentionally created to push the free market agenda. In the midst of a crisis, social protections can be undermined, paving the way for ever more virulent versions of free market capitalism.<\/p>\n

One of the reasons we have not already slipped into the first great depression of this new century is that the federal government\u2019s safety net has not yet been entirely removed. A near-record one fifth<\/a> of last year\u2019s personal income came from the federal government. Most of the growth was due to countercyclical social spending on programs like unemployment benefits\u2014thanks to extensions. But the extensions will end soon, punishing states with the worst unemployment.<\/p>\n

Despite 14 million unemployed, and millions more with reduced hours, both political parties remain focused on the debt. This diverts attention away from America\u2019s real problems, and allows the predators to go after the last of the Rooseveltian-inspired social safety net under the pretense that the government is \u201cbroke.\u201d<\/p>\n

And that is the ultimate farce. The predators who produced the crisis, crashed the economy, and created the deficit are able to use shock doctrine to eliminate the only protections their prey have left.<\/p>\n","protected":false},"excerpt":{"rendered":"

Bill Gross has weighed in on the debate about excessive sovereign debt, invoking a study produced by Kenneth Rogoff and Carmen Reinhart that purports to show a negative relation between debt and economic growth. The \u201cMaginot line\u201d is a debt ratio of 90%, beyond which economic growth slows by 1%. Yet Mr. Gross does not […]<\/p>\n","protected":false},"author":208,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1252","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/1252","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/208"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=1252"}],"version-history":[{"count":11,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/1252\/revisions"}],"predecessor-version":[{"id":1579,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/1252\/revisions\/1579"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=1252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=1252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=1252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}