I did one of these back in August, and I sort of liked it, so here's a follow-up. You'll note that one question here is a repeat, since I never saw an answer. Hey, economists! Someone have an estimate for this?
1. I'm not sure whether this is a question for economists, IR specialists, political economy types, or what, but I've been wondering about it for a while now: what, if anything, should the US (and Barack Obama in particular) have been doing for the last three years about the various problems in Europe? Is the general sense that the Obama administration is handling it well, or badly? Or is there simply nothing for the US to do (which seems highly unlikely to me, but again, I'm not an expert on it). I've seen very, very little reporting about what the US is doing, should be doing, could be doing.
2. Speaking of Europe, here's a more directly economic question...just how important have Europe's problems been for the US economy? I'm definitely not trying to excuse Barack Obama's performance here (see question #1 above), just wondering how much of the failure of the recovery to gain momentum is a result of Italy and Greece and the rest of it.
3. And here's the repeat question: I've seen estimates of how much state budget contraction has hurt the economy. Those seem to be based on direct effects. What about indirect effects? There sure are a lot of teachers, cops, firefighters, and prison guards who must have been very worried about their jobs over the last year and therefore didn't spend a lot of money; do we know what that does to the economy?
Wednesday, September 14, 2011
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1) I don't think there is very much Obama can do. The Fed is still running swap lines with the ECB an other European financial institutions that are having trouble borrowing dollars to fun liabilities. Beyond that, there isn't very much US fiscal authorities could do.
ReplyDelete2) It seems that the main effect on the US economy has just been through panic in equity markets, which may hurt confidence, but shouldn't have a huge impact on our real economy. Demand for our goods may be lower due to problems inter real economies of the eurozone periphery, but they're relatively minor compare to the impact of our own fiscal and consumer contraction.
3) I haven't seen any research on the indirect effects of state and local austerity, but I suspect your intuition that it could have not insignificant effects is accurate.
Through the IMF, I think the Treasury department has been doing a lot. The above mentioned swap lines (through the fed) also are important. Direct effects are through money market funds, but those have been slightly better regulated than before.
ReplyDeleteAnd if you think German taxpayers are mad about bailing out greeks, you should as the Republicans their views.
In terms of your #3 question, it is magnified is a worse way. If you are public employee in say, California, Arizona or Nevada -- yes -- you are worried about being laid off. If one in Texas, Virgnia, or New England -- not so much.
Obama, Bernanke and Geithner seem to be devaluing the dollar, and that will tend to hurt the Euros, who are desperate to grow exports. A race to the bottom can't help anybody, I'd say. Inflation is slow-killing the UK, and their real growth seems negative, depending on who's counting.
ReplyDeleteThe current euro project is dead, it just needs the coroner's report. Obama and company need to get right with that, because the Germans are NOT going to go along with much more foolishness. Once the PIIGS default and drop out of the euro, we'll have a round of bank failures over there. That's what the US must get ready to face. There will be a snap election in the UK shortly thereafter, and a sort of bloodless revolution. But it has to happen. Cameron and Sarkozy are toast. Absolute toast. Unclear as to what follows, as the bankster class is in full control of all wings in both locales (sounds familiar, eh?)
My initial reaction was that the tolerable level of PIIG brinksmanship (for the rich Euro countries) is pretty much an internal matter. Then I reflected that a US President has the world's biggest bully pulpit, which could have been used these past two years to strongly encourage the PIIGs to develop a sense of urgency about getting their fiscal house in order NOW; that they can afford to wait no longer.
ReplyDeleteFrom there I considered the specific Administration in question, and concluded that no, no, there probably wasn't really anything this US President could have done.
(semi-offtopic)
ReplyDeletePIIGS is an unfortunate-sounding acronym. It stands for Portugal, Ireland, Italy, Greece, Spain. Some people had suggested that there should be another G (for Great Britain) in there, but after Cameron's reforms nobody is suggesting it anymore.
The other states are also different. Spain and Ireland didn't look bad before the crisis and could get out of trouble first. Portugal looked weaker before, but is willing to reform. Italy is deep in debt and has an inefficient bureaucracy, but has a strong economy. Finally, Greece - it's in deep deeper deepest trouble regardless which way you look at it.
I think what the European governments are asking themselves right now is not whether Greece deserves to be saved or not, it's whether it's possible to save the other states if Greece goes insolvent.
Some people had suggested that there should be another G (for Great Britain) in there, but after Cameron's reforms nobody is suggesting it anymore.
ReplyDelete.
Oh, they're still suggesting it, and many in the UK are doing the suggesting.
Cameron's "reform" budget was less than 1% different than that which his "opposition" Labour had produced before government swapped. Cameron's "Conservatives" jacked VAT 2%, and enacted other taxes and fees, and the IMF for one has responded by pressuring him to go a more supply side route. It seems the IMF doesn't agree that tax increases are the way to go, as the economy is in the tank, and the spending binge is yet underway. They're still well underway on their debt death ride, and are running deficits as bad as Obama's.
Osborne and King are still murdering sterling with QE, and inflicting inflation on all, and real economic growth is negative.
Worst of all, and what puts them right in with the PIIGGS... their external debt to GDP ratio is nearly 400%. That's about twice any other European nation, including all the PIIGGS save Ireland, and it's FOUR TIMES the US ratio.
The banks in Londonistan are gonna start dropping like flies, when those PIIGGS start failing, because they have external bills to pay, and depend on the other PIIGGS paying them.
French banks are in bad shape as well, but I suspect they'll muddle through this, as will the Germans. But in the UK, look for a revolution, if only political, because it's coming. Cameron is a formless blob. In less than 5 years, nobody will ever knew this simpleton ever existed. He is every bit as incompetent as Obama.
In principle, there's a lot the US could do to help Europe. All we have to do is put some money on the table. Suppose Obama offered to lend a lot of money to Greece, perhaps through the IMF. How would it play politically in the US? I have no idea.
ReplyDeleteThe 1% contraction in the British budget mentioned above (vis-a-vis) the Labour baseline is a big deal, not something to wave your hands at. I also disagree that the Bank of England is making a mistake by engaging in QE. I have plenty of issues with the transmission mechanism for QE (shoveling money through the banks rather than pushing it into the system more directly), but any approximation of a Taylor Rule still suggests theat monetary authorities in Britain, the US and the eurozone should be aggressively pushing to lower real interest rates. If people were concerned about inflation and the solvency of Britain, they wouldn't be lending them money at negative real interest rates.
ReplyDelete