Austerity is wrong – Default is correct:
Austerity is the wrong medicine:
Debt levels have to come down, but falling debt levels mean a contracting economy and more unemployment. That is the major issue and the rest is detail.
The central planners are totally incompetent of understanding what to do. That means we should be wary of whatever actions they may decide to take. Their austerity and lowering interest rates is the wrong medicine to curing debt problems; they prolong recession and eventually turn the economy into a depression.
The better medicine comprises; cut budget deficits indefinitely, lower taxes; apply simple tax system 10 – 20% for everyone, no discounts, no subsidies, and no minimum wages, instead base salaries on merit and performance. Fewer rules downsize bureaucracy and make life simpler for citizens, supporting business and entrepreneurship in the process. Guarantying conditions for governments to act within and not beyond their means.
Balancing state income from taxes with expenditure should be written in the constitution, enhanced with the obligation to create surpluses for unforeseen calamities. The global fiat currency system has proven itself a failure and is fraudulent.
A real monetary reform is needed. Money with intrinsic value is required to regain monetary confidence. These measures will solve the financial crisis. And if the world wants to stay with democracy, only the taxpayers are allowed to vote, to ensure politicians don’t buy votes by empty promises that created the deficits in the first place.
“We have tried spending money. We are spending more than we have ever spent before and it does not work. …We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot.”
This wisdom is not from today, it was stated in May 1939 by President Roosevelt’s Treasury Secretary, Henry Morgenthau.
“Austrian”: The mutt offspring of “Austrian” and “austerity” meaning a person of the Austrian school of thought who is in favour of cutting deficits during this global recession.
Any money that isn’t earned without the sweat of honest labour is stimulus. Money seems to play a destructive role in history. There are no examples – none, where stimulus produced genuine prosperity. Instead, when a nation runs into easy cash, it soon is spending more than it can afford; result more problems. During economic decline, mediocre governments classically bounce back and forth between “stimulus” and “austerity.”
Left-leaning politicians favour “Stimulus”, which seldom creates more than a form of welfare spending. Appreciated in hard times, but it is extremely expensive and does little for the economy as a whole. While the deficit worries increase. Then comes the “austerity,” often favoured by conservative politicians.
“Austerity” usually means spending cuts and tax hikes. But, it does not take long before politicians, bureaucrats, public employees and corporate cronies all agree that they don’t actually want to cut spending. Usually, they take some unpleasant cuts in education, welfare programs and services – the only programs that actually do some good and are important in a recession, actually being the only government’s expenditure that does not land in the pockets of politicians, bureaucrats, public employees and corporate cronies.
Take an example from Margret Thatcher (Prime Minister of the U.K. from 1979 to 1990) who today is remembered for her sweeping reorganisation of government, in which public employees, subsidies and state-run businesses were slashed or discarded. She crushed the influence of public unions in the face of widespread strikes. Thatcher studied conservative scholars, read and implemented Friedrich Hayek’s The Road to Serfdom.
Ronald Reagan President of the US from 1981 – 1989, had much the same strategy: tax cuts and spending cuts. During his presidency, the top US income tax rate fell from 70% to 28%. His attempt to reduce spending was thrashed by the left leaning Democrat-controlled Congress.
Spending reductions should focus on the waste, theft and graft – the politicians, bureaucrats, public employees and corporate cronies – not on the public services, which are governments’ primary reason for existence.
This requires a change of political mood, which change is sensed when the terms “stimulus” and “austerity” disappear from discussion.
Politicians start to talk about “national greatness,” as Vladimir Putin did in 2000 when he introduced Russia’s amazing 13% flat income tax. In the explosive recovery that followed, the Russian government’s income tax revenues soared. In 2001, the first year of the new tax system, income tax revenues increased by an astonishing 46%! This had nothing to do with oil prices, which finished that year at $19.33 per barrel. In 2002, income tax revenues increased another 40%, and crude oil finished the year at $29.42. By 2007, income tax revenues were 624% higher than they were in 2000, and Russia was once again a major world power.
The History of austerity and stimulus:
The first financial crisis came during the Roman Empire around the beginning of this era, when Caesar Augustus (63BC-14AD) tried to solve it, with more stimuli. Neither paper money nor the printing press had yet been invented.
So, Augustus increased the money supply in the only way he could; he ordered slaves in the silver mines in Spain and France to work around the clock! This extra money did not bring prosperity; it caused price inflation. In a period of about three decades, Rome’s consumer price index almost doubled. Then, when output from the mines couldn’t be increased further, Augustus’s great nephew, Nero (37AD- 68AD) who ruled from 54 to 68 as the fifth and last Roman Emperor, found a new source of stimulus; he reduced the silver content of the coins. This source of stimulus proved ineffective but permanent. By the time barbarians took over, the silver denarius contained almost no silver at all. Of course, Rome itself was played out too.
Another early and dramatic example of stimulus-in-action came in Spain in the 16th century. The conquistadors increased their supply of money in the time-honoured fashion – by stealing it. Galleons brought treasures from the Americas increasing the Spanish money supply substantially and fatally. The Spaniards had so many stimuli that they laid down their tools. Why should they work? They could buy everything.
The discovery of a whole mountain of silver in the middle of the 16th century insured a supply of stimulus that would last for nearly a century.
Results were predictable. Inflation. In the “price revolution” from 1540 to 1640 the cost of living went up throughout Europe. In England, for which exist the most reliable data, prices went up 700%. And Spain, though it covered 40% of its state budget with this easy cash, still defaulted on its debts about once every 15-20 years, from 1557 for the next 10 decades. Spain, like the Roman Empire, welcomed stimulus; but it never recovered from it.
During this period, Spain was the wealthiest and most powerful state in Europe, with a world empire stretching from California and Peru in the west to the Philippines in the east – not to mention Portugal and most of Italy and the Netherlands. By the early 17th century, native Spaniards were fleeing to the Americas to escape crushing taxes.
As an observer in early 17th century in Madrid said:
“The galleons left on the 28th of last month; I am assured that in addition to the persons who sailed for business reasons, more than 6,000 Spaniards have passed over to America for the simple reason that they couldn’t live in Spain.”
Four hundred years later, Spain remains a nice place for a sunny vacation, to spend money but not to earn it. It again belongs to the group of countries that are close to sovereign default.
The only forthright solution; austerity and tax reduction:
There is only one clear-cut solution, which authorities don’t use: Don’t throw taxpayers’ money to resolve the debt crisis that only creates more debt. Investigate what really brought this mess, and analyse the situation thoroughly to come up with the adequate solution, which is austerity and tax reduction.
Stimulus packages invite corruption. Like in Japan – almost three decades in recession – they built in the 90s bridges to nowhere because the local politician wanted to create work for his electorate.
The same mistakes are made now in the west! There is plenty around to learn from.
But if people are put in charge that created the mess, don’t expect workable solutions, like Einstein once wrote,
“Never expect the people who caused a problem to solve it.”
In short: The economy needs to be restructured, not revived by more debt.
Historical facts sourced from ‘The History of Money’.
When the Spanish Galleons in the 16th century came back from the discovered New World with cargoes full of gold and silver coins, they thought to have hit the jackpot with their bonanza. Iberia then had plenty of money, so they neglected their agriculture and their factories there was no need anymore to produce anything, because they had loads to spend. Consequently, prices went up. And when the stream of gold stopped coming, the Spaniards turned broke, and went into decline during the following four centuries.
After entering the European Economic Union in the 80s, the EU subsidised Spain to bring them up to European economic level. The Socialist under PM Philippe Gonzalez spent the money on infrastructure and buildings, but too little or none on development for innovative technologies to diversify their industries.
Gonzales has built his own villa next to the estate of the Moroccan King’s Palace at the Atlantic seaside, for at the time over €4 million. Euro’s that weren’t his.
In Spain construction activity took 17% of GDP in 2004, under the socialists in power again, they thought the trees would grow into the sky. When the time was still good no correction or diversification was considered. People bought houses with 110% of the purchases price in mortgages, only a signature was required, no questions asked.
Politicians, Mayors and their Counsellors of towns, villages and cities corrupted the system in their hunt to laundering black money into construction projects, through rings of officials in collaboration with the Mafia. That created a swindle with construction-licences to built hundreds of thousands illegal houses on protected rural estates, demolishing the countryside and with it the precious unique natural sceneries.
But still years later the country is in a desolate state of affairs. Numbers of politicians, promoters, developers are in jail or out on bail even notaries and lawyers amongst them. Resulting in 22% or about 5 million jobless, and still rising. With about 2,5 million houses for sale, from which the majority not even finished. Abandoned construction sites with idle cranes aplenty. No money no ideas left, PM Zapatero left office and was replaced by Mariano Rajoy from the people’s party on the right of the political spectrum.
No improvement as promised, continuing corruption on an even greater scale.
Since the late 1970s, Spain turned every 10 years in a construction crisis. Tourism, and building houses are the main sources of income for the country. Every ten years there is a surplus of hotel accommodation, and houses. The not finished millions of homes, due to the 2008 housing crisis, were ten years later largely unsold. Nevertheless, since 2015, thousands of new building projects have started. The cheap money and readily available loans are again the motivation to build new urbanisations with hundreds of homes on a large scale. Now that the market is in retraction, it is awaiting the next collapse. Enough banks went bankrupt because of the abundance of their financed building projects, but that’s past time, now it’s different! Or, maybe not?
But now reality has arrived, the ship of state is sinking; you’d expect people would put on their life jackets and start to think what to do now. Forget it, they look to their government for free money, on which Central Banks are spending away $1 billion per hour. And the PIIGS, as most of all the other nations the US included, are flat broke.
Meanwhile, Central Banks keep the free money flowing. According to recent accounting, $15 trillion for subsidies, bailouts, and boondoggles. The banks in Spain are creaking like old furniture, but for how long? Wait, what will happen when many more auto loans, mortgages, etc. are in default.
The central planners still don’t have the right idea what really must be done. Every politician suggests the usual remedies — more education, retraining and infrastructure investment. But there is no evidence that any of these would make the job picture better. The cure for this depression is a depression. It reduces asset prices, consumer prices, and interest rates. This makes it possible for investors and business people to redirect their efforts on projects that will work and put the unemployed at work.
By now it must be clear that stimulus packages for the economy, didn’t work. Any money that isn’t earned without the sweat of honest labour is stimulus.
Easy money plays a destructive role. There are no examples, where stimulus produced genuine prosperity. Instead, it soon is spending more than it can afford; creating more problems. The cycle of “stimulus” and “austerity” eventually leads to more spending and higher taxes. It never worked. So what’s the solution? Less spending with lower taxes.
Letting the rich pay, doesn’t work either. It doesn’t matter anymore, not until the entire system collapses. And that’s why this collapse is inevitable.
The rate of marginal tax goes higher and higher. The tax base narrows and tax collection declines. Government debts soar, until, sooner or later, the interest rate soars because lenders realize there is no way they will ever get their money back. Then civil unrest will be unavoidable.
When will all this be over? Who knows? But the odds are, not any time soon. By the time it will be out of control and Governments have fleeced the last taxpayer, the end is near. A change for the better can follow.
Who are the criminals that control our Money?
This video tells how the mortgage scam really works.
A 400.000 mortgage loan growth instantly to 4 million, and further!
The owner of the house when in default, has already paid in full, but he doesn’t know it.
Listen to this clear explanation by an insider expert, how the scam is executed.
Secrets Banks DON’T Want YOU to Know: The Truth About Your Home Mortgage