[quote=SK in CV][quote=Allan from Fallbrook][quote=SK in CV][quote=livinincali]
The point is that when you cut spending, stop bailouts and let the debt liquidate you get to a stable economy that can grow again. [/quote]

Good luck with that.[/quote]

SK: Except there is a valid point in there, especially regarding certain countries within the Eurozone.

Greece, Portugal and Spain are different from Germany, France and, to a certain extent, Italy.

Continuing to pile debt onto Greece is nonsensical. This is a not a vibrant, growth-oriented economy with any hope of repaying said debt. Greece is the terminal endpoint of a failed model: The Euro social contract implodes when faced with this sort of calculus and we’re well beyond Keynesian “pump priming” now.

At the rate the Eurozone is going, we’ll have a dominant Germany surrounded by what will amount to servile, vassal states. And we all know how well THAT has worked out in the past.

As I said, this is terra incognita. The one comparison between the US and the Eurozone that does hold, however, is this: Our respective political classes have utterly failed us.[/quote]

The problem I have with the statement isn’t that it can’t be the right thing to do. It’s that in a time of falling (or insufficient) public spending, cutting government spending will never lead to economic growth. Might piling on additional debt and increasing spending be the right thing to do in Greece? Probably not. With the current level of debt, the Greek economy is probably irreparable. But will cutting spending fix it and lead to economic stability? Not a chance.[/quote]

SK: Hence my point that Greece is not Germany and, most importantly, will never be.

So, here then is the burning question: What IS the right answer? I think we both know it and I think the politicians in the Eurozone know it, too. But no one wants to bell that particular cat. The fact is, the Euro was a bad idea from the jump. Attempting to assert homogeneity in a grouping of countries that diverse was D.O.A. However, notionality and aspirational thinking carried the day and a “close your eyes and think happy thoughts” attitude took over.

As to Keynesianism versus the alternatives: We are in uncharted territory and repeatedly chanting the established orthodoxy (a la Krugman) is NOT the solution, either. Given the massive amounts of debt overhang present, I think Keynes himself would be tossing for a different solution than the one being flogged now by his acolytes.

I realize comparing businesses to countries can be odious, but this is more balance sheet driven, than profit and loss. Working back into a pro-growth environment will require spending down said debt, and adding more debt on top certainly cannot help.