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The only thing that cures economic depression is the depression itself – let’s get it over with

by Aaron McCormack on January 16, 2012

The seemingly unending debt crisis rolls on.  Most prominently in the case of European governments (some of whom are protecting banks) but also slowly and inexorably for many families, companies and local/national government institutions across the developed world.

Governments in Europe are finding it impossible to cure sluggish economic performance and depression without making the debt crisis worse.  And because debt is a root cause, not a symptom, debt issues will always trump attempts to cure economies by other slights of hand.

Those slights of hand include stimulus packages, confidence-boosting speeches, bank guarantees, European summits and so-called deals, austerity, bailout, ECB bond-buybacks and all the other circus acts that we have witnessed over the past three years.

But in reality we have created an artificial view of our real societal prosperity for as much as twenty years.  That not only gives us a rude awakening when it comes to a jolting stop, but we find that the fall to our real level of wealth is much further than we feared.

We find that our society makes promises to itself that it cannot keep in terms of education, health, social safety-nets and defence.  We find that corporations who thought they had sustainable business models did not – and they have to cut jobs to balance the books at least in the short term.  We find individual people struggling in the pincers of corporate and government austerity – most of them blameless even if there are some who are fully accountable for their poor choices.

This is not a simple recession – it is more of a great correction that comes at the end of a long period of being blind to the choices we were making.

The irony is that, in continuing to treat symptoms, we prolong the life of the core disease – which is debt.

In dealing with that debt we can either quickly and effectively let the free market act on it (separating the fools and charlatans and poor decisions makers from their money) or we can allow a slow and agonising process of deleveraging take place.

It really is time for the EU to take its rightful medicine.  That will likely start with a Greek default as soon as March.

The only thing that can cure the recession is to let the recession sort the wheat from the chaff.  To pick the winners and losers and to do so quickly.  It seems a little “unfair” to some as it will have very severe short-term consequences for some folks who least deserve it.  But the alternative of protecting jackass banks and the “financialisation” of our world is much worse, even if it feels like a way to escape the inevitable pain by dragging this out.

The debt will have to be paid.  It will take a special sort of leadership in Europe and the USA to persuade citizens that the harsh medicine is the right and fair medicine, but it is what needs to be done.

Ireland and the Irish continue with the choice of clinging to the slowly sinking Euro-ship, or striking out now and at least having a shot at defining their own future.   That could include attempting to drive through a more aggressive federalizing of the European project (effectively making the Germans pay the bill) as Declan Ganley recently has talked about.  But much as it may be the right thing it can’t work right now.

I’m afraid it is time to encourage the chips fall, and deal with it as best we can.


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