May 1st, austerity or growth the false debate

In this 1^er May, I thought Marianne's note would be appropriate, so I hope you too are enjoying your day off; )))

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Austerity or growth the false debate. the debates for or against austerity in fact miss the point: public debt, austerity and expansionist policy are two sides of the same coin.

Everyone is now aware of the miscalculation of the economists Reinhart and Rogoff, ardent promoters of accounting rigor and slayers of public deficits exceeding 90% of GDP

The tragicomic of this error "excel" discredits the proponents of austerity, who clung to this study to breathe a semblance of rationality into their obsession with balancing the public accounts. It weakens the bad omens according to which all fallen empires have collapsed under the weight of their debts, unlike Keynesian and heterodox economists (of which I am proudly a part) who have been repeating for years that public debts must on the contrary be domesticated in the context of a recession.

Whether seen as trivial or fundamental, Reinhart and Rogoff's error – like the fiery debates it sparks – diverts attention while sidestepping the real question. Chronologically, it is indeed under the weight of private indebtedness (of which of course the financial sector takes the lion's share) that our economies have folded.

The causal relationship between the financial crisis on the one hand and private debt on the other is thus much stronger and more obvious than the hypothetical (and absolutely unprovable) correlation between money supply, public deficits and economic crisis. The excess credits granted by an unbridled financial system (as in Spain and Ireland) are thus much more responsible for the European implosion than the disproportionate indebtedness of the Greek government.

In fact, private debts are a much more reliable indicator than public deficits in the exercise of forecasting financial crises. Didn't the debts of the American private sector reach an absolute record at 310% of the GDP of this country in 2008, whereas they were only at 240% of the GDP in 1929? At the same time, US public deficits were only 40% of GDP (at the start of the Great Depression) and just 85% in 2011…

The public debts of the European periphery themselves were at insignificant levels during the 2008 debacle: less than 40% of its GDP for Spain, around 20% for Ireland, and only 45 % for France !

In fact, Spain and Ireland – stigmatized since 2010 for the scale of their public deficits – were much better students than Germany because they respected the Stability Pact much more scrupulously before the implosion of their sovereign debts. . Hadn't they reduced their ratios since 60 and 42%? However, today they are the absolute counter-example, for not having known or been able to contain their private debts.

It is now easy to predict that the European setbacks will be condemned to continue and to sink from the top of the 1500 billion euros of rotten and insolvent debts still registered on the balance sheets of the banks of the EU. It is also imperative to realize that the European private (particularly financial) sector is not going through a simple and stupid liquidity crisis.

No: it is facing a genuine solvency crisis! Under such conditions, the one and only way to remedy this evil and to recover the stricken economies of the Union consists in forcing the shareholders of the banks as well as the holders of State bonds of these nations to collect losses.

To do this, the essential prerequisite is to split the major banks because it is indisputable that giant financial establishments are seriously harming the real economy. As a gigantic banking system almost always turns out to be a sign of an unhealthy economy, bank profits should be permanently contained by their supervisory state to 1% of its GDP.

The ratio and importance of the banking world versus the rest of the business sectors is therefore the symptom par excellence of an economy adrift and on the verge of financial implosion. Moreover, the bulimia of the financial system is always and inevitably realized at the expense of the traditional economy and on the backs of employees.

If it is true that it is the balance sheets of companies that absorb the debts, it is always and systematically their employees and their workers who suffer the consequences via a reduction in their income. In fact, the risks and other bets contacted by companies sometimes result in an inflation of their profits, alas always to the detriment of the wages and the purchasing power of their employees.

The only way to clean up our economies therefore consists of a drastic reduction in the share of the banking and financial system in our GDP. It may not be a voluntary step on their part, but the fact is that the hypertrophy of the banks always degenerates into a Ponzi scheme, and therefore into instability and life-threatening danger for the "True" economy.

The fiery debates for or against austerity thus miss the point, because the public debts of the peripheral European nations did not come from nothing. Banks and the broader financial system have been relieved while citizens have to tighten their belts.

In a way, austerity and expansionary policy are two sides of the same coin, neither of which will work as long as a situation persists where profits are called to be privatized while losses are eternally socialized.

Splendors and Miseries of Liberalism [Pin]