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Not enough austerity and no money for stimulus

by Aaron McCormack on May 9, 2012

Let’s say it’s your own money. Would you lend it to France, or Greece, or Ireland, or the US for that matter?

Imagine the loan is for 10 years. What sort of interest rate would you expect on that loan, bearing in mind the risk of that country going bankrupt or devaluing their currency or having their parliament refuse to pay (as in the US congressional debt ceiling debate)?

What about the more insidious erosion of your money that you loaned to your government of choice?  Inflation that makes your interest rate look like a terrible return.  Do you think there is a risk that all the money printing and cash-for-trash schemes that central banks have put in place will slowly erode your money’s real value?

These are the real choices that “the markets” are making today. Of course, in the main, they ARE actually doing it with your money. Your investment plans, your pension fund, your structured savings.

The markets don’t particularly like the election results in France and Greece this past weekend.

But they didn’t particularly like the existing path that those countries were on before.

Greece struggling under the terms of a bailout that is mathematical fiction.

France engaging in “pretend austerity” – not enough to convince lenders that France would be able to contain the long-run deficit, but too much for French people to tolerate.

The EU and ECB continue to prop up the Eurozone with twigs and twine.

The people of Greece and France may have been judged to have voted against austerity, but in reality they are hastening the true austerity that will be coming to most western democracies soon.

It may take the form of deep cuts to services. Or higher tax levels across the board. Probably both.

In some countries it will come in the form of severe currency devaluation – making imports (food, white goods, energy, IT, raw materials, cars) more expensive. Think about living your life with everything you consume being 40% more expensive, but with your income unchanged. That is austerity.

Either way there is a reckoning to come. The waiter is on their way to our table with the bill, and we are going to have to pay it.

At the heart of the displeasure of voters in France and Greece is both a lack of acknowledgment that we have been dining in a restaurant beyond our means, as well as the feeling that the bill is not being shared equally.

In their view, the corporations and rich folks had the expensive dishes and fancy wines and now expect others to pick up the tab. This anger is particularly, and rightly,directed towards the financial services industry.

But this is the world that we have created with our own hands and with our own votes. We put the governments in place. We choose cheaper “big food” over local farmers. We live lifestyles that make us terribly unhealthy and expect someone else to pay all the health bills. We think that throwing money at education is a replacement for demanding that teachers and parents do their jobs well. We wage wars that were not needed or justified. We want an end to global warming but won’t tolerate what that means for prices at the pump.

If we really want to make changes we will have to pay the bill first. It will take sacrifice. Our countries can chose to change or the change will be forced upon us.

Not the “tinkering” change in France or Greece. Real change. It will come – ready or not.

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