# "Austerity is bad for business" Ellen Brown, Asia Times



## onq (10 Aug 2011)

*Bad                                for business*
By Ellen Brown                                

_"It used to be that when the chairman of                                the United States Federal Reserve spoke, the                                market listened; but the chairman has lost his                                mystique. Now when the market speaks, politicians                                listen. Hopefully they heard what the market just                                said: government cutbacks are bad for business.                                The government needs to spend more, not less.                                Fortunately, there are viable ways to do this                                while still balancing the budget."

"The                                markets were supposed to rebound after the United                                States debt ceiling agreement was reached last                                Monday. But even before downgrade of the US debt                                rating, the market apparently understood what                                politicians didn't: that the debt deal was a death                                deal for the economy. Reducing government spending                                by US$2.2 trillion over a decade, as congress                                agreed to do, will kill any hopes of economic recovery.                                We're looking at a double-dip recession"

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*"The problem is a shrinking money                                supply

*"The markets are not reacting to a                                "debt crisis". They do not look at charts 10 years                                out. They look at present indicators of jobs and                                sales, which have turned persistently negative.                                Jobs and sales are both dependent on "demand,"                                which means getting money into the pockets of                                consumers; and the money supply today has shrunk."_

_-----------------------

*"Creative ways to a                                balanced budget

*If congress must maintain its debt                                ceiling, there are other ways to balance the                                budget and avoid a growing debt. *Ron Paul has                                brought a creative bill that would eliminate the                                $1.7 trillion deficit simply by having the Fed                                tear up its federal securities.* No creditors would                                be harmed, since the money was generated with a                                computer keystroke in the first place. The                                government would just be canceling a debt to                                itself and saving the interest."_

_-----------------------_

"..._having the Fed                                tear up its federal securities"_

America's solution may not be our solution, but the fact remains.

If we cut any more money from the economy, we will enter a deflationary spiral.

What the professionals associated with the building industry are experiencing now, other sectors of the professions and the wider economy may soon experience if the government proceeds with its proposed austerity measures.

_-----------------------_

"..._having the Fed                                tear up its federal securities"_

This is a form of debt forgiveness.

I met with one of my bank managers the other day, agreeing our schedule of payments for the next year in advance and mentioned _debt forgiveness_ as possibly being one end of this road we're on, with all countries and banks acting together. I pointed out that the alternatives were either war and a war economy OR default.

He didn't blink.

"Selling debt forgiveness to the banks would not be easy," he said.

"Is there a better idea at the present time?" I asked.

"I can't see any," he said.

_-----------------------_

The economy will fail if we seriously reduce expenditure.
The current levels of debt are unsustainable.

We need to balance the books sustainably.
We also need to address the debt.

Logical rebuttals only please.
No straw man arguments.

ONQ.


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## Chris (11 Aug 2011)

onq said:


> "It used to be that when the chairman of                                the United States Federal Reserve spoke, the                                market listened; but the chairman has lost his                                mystique. Now when the market speaks, politicians                                listen. Hopefully they heard what the market just                                said: government cutbacks are bad for business.                                The government needs to spend more, not less.                                Fortunately, there are viable ways to do this                                while still balancing the budget."


The market does still listen, just watch the currency markets and US stock indices at the very time that Bernanke is about to speak. The reactions are immediate. So this is a blatant lie. 
And why would anyone pay attention to Bernanke in the first place. He has literally got every prediction wrong. Just to give you an idea how wrong he was take a look at this youtube clip: http://www.youtube.com/watch?v=9QpD64GUoXw
No attention should be paid to anything this man has to say. Or better yet, whatever his prediction, take the exact opposite view.



onq said:


> "The                                markets were supposed to rebound after the United                                States debt ceiling agreement was reached last                                Monday. But even before downgrade of the US debt                                rating, the market apparently understood what                                politicians didn't: that the debt deal was a death                                deal for the economy. Reducing government spending                                by US$2.2 trillion over a decade, as congress                                agreed to do, will kill any hopes of economic recovery.                                We're looking at a double-dip recession"


The markets are down because they understand that the US government is not actually cutting anything. It is a blatant lie that the US is actually going to cut spending. What the debt ceiling agreement does is rather than increase spending by €10tr it will increase it by €8tr. The vast majority of the "cuts" will come in years 9 and 10. The reduced spending increase for the next 2 years is going to be less than 1% (combined) of the projected deficit.
Calling this spending cuts is like the reverse analogy of an employer telling an employee that he is getting a pay rise from €40000 to €35000, because the employer had initially intended to cut the pay to €30000.
There are no cuts and that is why the market reacted. The other reason for the market reaction is that there has been a temporary halt to money printing by the FED, which completely exposes how totally and utterly phony the "recovery" is.



onq said:


> *"The problem is a shrinking money                                supply
> 
> *"The markets are not reacting to a                                "debt crisis". They do not look at charts 10 years                                out. They look at present indicators of jobs and                                sales, which have turned persistently negative.                                Jobs and sales are both dependent on "demand,"                                which means getting money into the pockets of                                consumers; and the money supply today has shrunk."


This contradicts her point that she thinks that markets are reacting to spending "cuts". The reduction in spending increases is coming in years 9 and 10, which is very far out, and by this argument would not be what markets are reacting to. She also gets it completely wrong with sales and jobs being dependent on demand. They are completely dependent on *production*. Before you can spend you have to earn the money to spend. That means you have to produce something *first*. Demand for goods is infinite, what is finite is the ability to service those demands, and for this you have to first produce. This is typical Keynesian nonsense that puts the cart before the horse and then decides that the horse is completely irrelevant.



onq said:


> *"Creative ways to a                                balanced budget
> 
> *If congress must maintain its debt                                ceiling, there are other ways to balance the                                budget and avoid a growing debt. *Ron Paul has                                brought a creative bill that would eliminate the                                $1.7 trillion deficit simply by having the Fed                                tear up its federal securities.* No creditors would                                be harmed, since the money was generated with a                                computer keystroke in the first place. The                                government would just be canceling a debt to                                itself and saving the interest."[/I]


I am flabbergasted that Ms. Brown actually agrees with something that Ron Paul suggested. Ron Paul is a libertarian free market advocate who correctly suggests that the Fed should be disbanded. This certainly would go a long way towards solving the problems of the US.




onq said:


> "..._having the Fed                                tear up its federal securities"_
> 
> America's solution may not be our solution, but the fact remains.
> 
> ...


I really do not know how many more times it has to be pointed out to you that this is not true. But maybe you can provide some historical examples where the cutting of government spending resulted in a worsening economy. 
Here are some facts from history. After the war of independence the US slashed even the meager spending of the day which resulted in one of the longest and most sustained periods of growth. The exact same happened after the civil war. Then in the depression of 1921 government slashed spending by 50% in 18 months and the economy boomed. In 1946 after WWII the US also slashed all spending and the economy again boomed almost immediately.
Now let's look at the Keynesian track record of avoiding spending cuts at all costs. The best example is the great depression. From 1929 to 1946 the US government introduced ever increasing stimulus packages and spending increases. It was not until this spending was stopped after WWII that the economy recovered. Even FDR's secretary of the treasury understood this:
""We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. 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."
Japan is an even more recent example of endless government stimulus programs, bailouts, low interest rates, roads and bridges to nowhere, and their economy has gone nowhere in 20 years! Japan did exactly what Ms. Brown would suggest, and it has totally and utterly failed.



onq said:


> "..._having the Fed                                tear up its federal securities"_
> 
> This is a form of debt forgiveness.
> 
> ...


Pay off the debt or default is the best solution. If I saw debt forgiveness I would neither invest in such a bank or do business with such a bank, as I would be the one paying for the forgiveness (note, I have no debts). But this does highlight how futile the situation is for our banks and that they should have been wound down years ago.
Why on earth would there be war over debt default?



onq said:


> The economy will fail if we seriously reduce expenditure.
> The current levels of debt are unsustainable.
> 
> We need to balance the books sustainably.
> We also need to address the debt.


Less government expenditure means more money left in the economy which increases the investment appeal of the economy. Doing otherwise will destroy the economy. The budget needs to be balanced two years ago, not 10 years from now.

Before you spend too much time listening to an economic illiterate like Ellen Brown I suggest you take a look at some articles commenting on her total misunderstandings:
http://garynorth.com/public/4993.cfm
http://www.garynorth.com/public/department141.cfm

Gary North actually said it best in this comment: "To say that this is economically erroneous does not do justice to how wrong it is."

I am also very surprised that you on the one hand have pointed to monetarism for being a cause of the crisis, and then look to a monetarist on steroids for economic opinion.


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## onq (11 Aug 2011)

I'm not sure where you got your facts about the Recession and I don't have time to go into it in my customary detail now - oddly enough I am up to my eyes this week.

Permit me therefore to quote from this piece

http://answers.yahoo.com/question/index?qid=20110804185258AA268Qi

_"While we're recalling history here, let's look at 1937, when it looked  like the U.S. economy was finally about to emerge from the Great Depression  and what happened? Unemployment exploded, production, profits, and  wages, all of which had returned to their 1929 pre-Depression levels,  sank.

What happened? The government, in its desire to avoid _ _deficit spending at all costs, cut significantly back on spending. The Works Progress Administration and the Public Works Administration,  which had together so successfully moved consumer demand up during the  early Depression, saw their budgets significantly cut. PWA projects were  halted.
As a result, unemployment increased, manufacturing output sank, leading  to more layoffs, leading to even fewer consumers with money to spend."

_
One thing I will take issue with you on - and even re-reading your answer I'm not sure if you're being ironic or straight._




			She also gets it completely wrong with sales and jobs being dependent on demand. They are completely dependent on *production*. Before you can spend you have to earn the money to spend. That means you have to produce something *first*. Demand for goods is infinite, what is finite is the ability to service those demands, and for this you have to first produce.
		
Click to expand...

_Am I reading you correctly?

You think sales and jobs are dependant on production?

ONQ.


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## Chris (11 Aug 2011)

onq said:


> I'm not sure where you got your facts about the Recession and I don't have time to go into it in my customary detail now - oddly enough I am up to my eyes this week.
> 
> Permit me therefore to quote from this piece
> 
> ...


You are sourcing a random person's opinion from yahoo answers, that is not a credible source. During the Hoover and FDR years government spending *never* went down. In fact, while Hoover increased spending relatively moderately, FDR went on a total spending binge. Take a look at this chart to prove the above wrong:
http://www.usgovernmentspending.com...chart=F0-total&stack=1&size=m&title=&state=US

I also highly recommend following book for true facts about the New Deal: http://www.amazon.co.uk/gp/product/1416592377/ref=ox_sc_sfl_title_9?ie=UTF8&m=A3P5ROKL5A1OLE



onq said:


> One thing I will take issue with you on - and even re-reading your answer I'm not sure if you're being ironic or straight._
> 
> _Am I reading you correctly?
> 
> ...



Yes, that is exactly what I am saying. It is a total economic fallacy to say that demand for products is the reason for economic activity and growth. As I already said, people have infinite demand for stuff, but they cannot service that demand infinitely. In order to satisfy a demand you first have to earn the money, and you do so by doing some work, i.e. producing something.

Let's bring this down to the simplest form of economic example, i.e. a Crusoe example. Imagine a man ship wrecked on an island. His demands for everything from water, food, shelter, a TV and other luxuries are huge. In order to satisfy those demands he first has to put in the work to either produce them himself, or produce something that he can use to exchange with the locals. Production always comes first, then comes consumption.

I can see how this seems confusing, as politicians and media are fully doused in the Keynesian theory that all you have to do in a recession is to boost demand by any means necessary. The problem is that Keynesian theory has been tried and tested and failed every single time!


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## onq (15 Aug 2011)

Thanks for responding and giving me something to mull over this week Chris


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