Dominant Social Theme: It is very necessary to raise taxes and cut deficit spending to create a responsible recovery.
Free-Market Analysis: The Telegraph's Jeremy Warner, assistant editor, has written an interesting article about the IMF and its recent actions.
We are not so adept at reading certain tea leaves (the IMF's, for instance) as Warner seems to be. But he does make a case – and if correct, it would fit into some larger projections we've been making for years as well...
In an alternative, preferable universe the EU's southern PIGS would devalue in order to recover some level of economic vitality. But they cannot devalue. They are stitched to the euro and the European Central Bank that would have to devalue for all if it devalues for a few.
This means the "pain" cannot be extended to everyone – and thus the parties continue to bicker over who should suffer. Instead of a devaluation, what's being implemented is the usual package of IMF "reforms." Blood runs in the streets of Greece as a result.
The IMF and its Brussels allies have insisted on privatization, tax hikes and benefits reductions. The result approaches the intolerable and has done little to improve economies or raise employment.
These are not ordinary times. Sure, we'd like to see freer markets and the end of central banking entirely. But for now we'll settle for an end to the "austerity" that is driving so much violence in Europe.
The Greeks and others are hamstrung by this vicious regime, a regime that brings despair wherever it is applied. Look at Argentina in the early 2000s when the middle classes began to forage out of dumpsters....
Taxes ought to be cut, not raised. Benefits ought not to be rigorously attacked and the idea of a privatization program ought to be scrapped as well. This latter "remedy" is nothing but a planned assault by the powers-that-be that stand behind the IMF.
Of course, our point has long been that these same powers – a power elite that surely seeks world government – actively wants the chaos and misery that IMF solutions so often provide. Out of chaos ... order.
Warner writes, "Even as recently as a year ago, the IMF was still vigorously banging the drum for fiscal orthodoxy ... Countries should strive to get on top of their deficits, the IMF said, and those under severe market pressure had no option but to implement deficit reduction plans 'in full and without delay'."
He quotes the IMF's own World Economic Outlook (WEO), to buttress his case, citing IMF "fiscal multipliers" that had turned out to be larger than previously assumed, especially in circumstances "where synchronised fiscal adjustment is taking place across numerous economies".
Translation? "This is a pointy-headed way of saying that in the real world, deficit reduction is taking a lot more out of output than the IMF thought it would." (It is retarding growth, in other words.) Here's some more:
Cue Ed Balls, the shadow chancellor, and all the other usual suspects, to claim final vindication. ... If the IMF thinks fiscal consolidation is doing more harm than good, they ask, why on earth is the IMF forcing it on us? ...
The direction of travel is clear enough. The IMF is getting cold feet over the whole fiscal consolidation endeavour. As it happens, Olivier Blanchard, the IMF's chief economist, was never much in favour of it in the first place ...
What's right for one country may well be wrong for another. Furthermore, the effect of any consolidation on growth is going to be crucially influenced by the way in which it is done. Higher taxes and cuts in capital spending have repeatedly been shown to be much worse for output than cuts in entitlements and other forms of current spending ...
We can all guess why the IMF has got itself into such a colossal muddle over the eurozone crisis. Europeans are still the dominant force within the fund. Desperate for explanations, they've begun to wonder whether the fiscal medicine they've been applying is too harsh. Yet they still cannot bring themselves to admit the true explanation, the one that stares them in the face – it's the euro, stupid.
This last paragraph sums up the reality of the euro dilemma. Without a devaluation, the bleeding will likely continue. The IMF's strict program is only adding to the pain.
Warner wonders why the IMF (and Brussels) is so thickheaded. We think the answer is obvious. Those at the top seek a "closer" union and are counting on misery and a growing monetary emergency to expand the crisis. Our position has always been that in the era of what we call the Internet Reformation, those who seek to apply such cynical policies might end up with regrets.
For the first time in literally centuries, people are awakening to their manipulation and to the apparent goals of the power elite. The more misery inflicted, the more people seek answers to their painful situations.
We've often argued that the elites have a very delicate balancing act in the current environment. They cannot push as hard as in the past because doing so tends to drive the suffering masses to the Internet to discover the true nature of their plight.
If the IMF is beginning to pull back on its loony austerity policy, we figure the above analysis might have something to do with it.
Conclusion: And that's not such a bad thing ...
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