

 	 It's Your Choice, Europe: Rebel Against the Banks or Accept Debt-Serfdom - nextparadigms
http://www.oftwominds.com/blogdec11/euro-debt-serfdom12-11.html

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viandante
Guys, this article is really wrong. I am European and the problem is much
deeper than that. It concerns the welfare system that has grown too big to be
sustained by income taxes. Even having a taxation that is now close to 50% of
the GDP.

Banks are only a small subset of the problem. Europe has to find a way to
either increase welfare productivity or to reduce it in order to reduce public
expenses.

What is driving now the crisis are public expenses, don't fool around with
other fantasies.

Edit.

People are voting down. Not sure why. I am being harsh, but rationale, that
should be fine with HN style.

~~~
nhaehnle
_It concerns the welfare system that has grown too big to be sustained by
income taxes._

Or, to put it another way, the income taxes have become too low to support the
welfare system.

To be honest, the amount of spurious framing in these debates is annoying me.
_Of course_ the welfare system is sustainable. The only question is whether
there is a _will_ to sustain it.

One way to look at it (which, admittedly, may be a form of framing as well):
Do we want to live in a perhaps demanding but still caring society, where you
can focus on achieving great things, or do we want to live in an uncaring
society, where the majority is forced to focus on maintaining what little they
have.

Fear of losing status or real standards of living is a great productivity
killer, because fear generally switches our brains into a narrow-minded tunnel
vision mode. That mode may be useful when you're chased by wolves in the
forest, but it's not such a great thing for being productive in a complex
economic environment.

 _What is driving now the crisis are public expenses, don't fool around with
other fantasies._

There are always two sides of the coin. Where you see high expenses, I see low
income.

It is also important to note that public welfare systems tend to be more
efficient than private ones. In the case of Germany, for example, the overhead
of private pension funds is often around or above 4%, where the overhead of
the public pension system is below 1%. So for the same amount of pensions
provided, the private system is more expensive and less efficient than the
public system.

~~~
viandante
All what you want. But Italy has a tax to gdp ratio close to 50%. Germany has
it probably higher than 40%.

You want to increase taxes? Fine. Then say you want to nationalize the
economy, because that is the end result.

~~~
nhaehnle
I am sorry, but that does not logically follow. If you think it does, then at
least you have to explain why you think this is the case. There certainly have
been times with higher tax ratios without a nationalized economy.

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rd108
Thank you for framing the choice like this. The article mentions as a case in
point Iceland; our Western media has conveniently ignored the miracle that
occurred there post-banking crisis. They threw the government and banking
chiefs out and started their democracy afresh- actually having ordinary
Icelandic people help reformulate their Constitution and their future. It's a
beautiful story: <http://wilmaswish.blogspot.com/>

~~~
toyg
A beautiful story which is only partially true, and which would probably never
scale. Paris alone has 7 times the population of Iceland; good luck having the
whole European population "reformulate their Constitution[s]".

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nodata
Just so I understand the difference between Europe and USA+UK...

The USA has tons of debt too. Per person it's unmanageable. The only reason
this is okay (and we keep talking about Europe) is that the USA can print more
money and Europe can't. Is this right?

UK: The pound isn't doing so well at all. The UK can also print money. Same
argument as the USA?

~~~
peteretep
The Pound (GB, rather than Syrian) is doing just fine - almost no-one can
borrow as cheaply as the UK can, and inflation is a little too high, but
that's factored in to the price. The UK also still maintains an AAA rating,
and unlike much of the other European AAAs, isn't on credit watch either. The
UK economy isn't growing so well, and we won't have eliminated the structural
benefit as soon as they'd have liked, but ain't nothing wrong the Pound.

~~~
nhaehnle
_The UK economy isn't growing so well, and we won't have eliminated the
structural benefit as soon as they'd have liked_

This is largely by choice. The UK government is on the forefront of the
austerity crowd. They cut spending and fire people. Is it any surprise that
GDP (which is basically the sum of all spending) is on a disappointing
trajectory?

In a way, the UK government is doing economics a huge favor by acting as a
laboratory that implements unneeded austerity.

The proponents of austerity predicted an upswing of activity as a result. I
would say their theory has been proven wrong by now.

~~~
peteretep
As with all economics, anyone suggesting they know with any certainty at all
how something is going to turn out is trying to separate you from your money
;-)

The Economist has a pretty good article this week looking at just this:
<http://www.economist.com/node/21541021> \- I'm not sure if the full text is
available to non-subscribers. Their opinion seems to be that the austerity
plan was basically right, but it could now be loosened a little to encourage
growth.

~~~
nhaehnle
A quote from the article:

 _Left untackled, the budget deficit, which at 11.2% of GDP in 2009-10 was
larger than those of almost all other rich countries, would soon have
undermined confidence in the government’s ability to service its public debt._

This is the crucial flaw in the article's argument. The UK government is
monetarily sovereign, and therefore always able to service its debt. That
pretty much destroys the article's argument in favor of austerity.

Note that, unlike economists, most bond traders seem to actually understand
the importance of monetary sovereignty. This is why you now hear talks about
Germany's debt possibly being downgraded, but nothing about the UK or Japan,
and not any more about the US (where the only thing that was ever in question
was the government's _willingness_ to pay, not its _ability_ ).

~~~
peteretep
> This is the crucial flaw in the article's argument. The UK government is
> monetarily sovereign, and therefore always able to service its debt. That
> pretty much destroys the article's argument in favor of austerity.

This is almost true technically, but not true how it matters. In order to
service "unserviceable" debt, they need to cause inflation. Expected inflation
gets priced in to bond yields, and inflating your way out debt ends up being
not very useful if you will then need to go back to the money markets at some
point in the future.

But actually, your central point is also not quite true: the UK government is
NOT monetarily sovereign - in theory anyway - because it's the BOE who sets
the money supply in practice. And it's for this reason that they have an
inflationary target. Can the government intervene? Almost certainly. Will this
further fuck market confidence and drive up bond yields? Yes. Do you get to a
point where no-one will buy government bonds in GBP rather than USD?
Absolutely.

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falava
GDP and government debt comparison:

<http://www.wolframalpha.com/input/?i=gdp%2C+debt>

~~~
david927
It's not so simple. First, GDP has reflective aspect, so that if you sell me
something for $10 and I sell it to Bob for $20, GDP goes up $30. It's a much
rougher figure than we expect and if there is a crisis, it may decline rapidly
where the debt figure will not.

Secondly and more importantly, not included in that government debt amount are
future obligations. For example, in the US, unfunded obligations for
government employee retirement and veterans' benefits, Social Security,
Medicare and other programs are around $50 trillion. Add that in.

The coming crisis will be a surprise to many. But Thanksgiving is only a black
swan to the turkey, not to the butcher.

