Shorter version: Europe created the euro. That helped Germany's economy by undervaluing its currency. Germany built up its manufacturing and exports at the expense of Portugal, Italy, Ireland, Germany and Spain. Those countries suffered from overvalued currencies and couldn't repay the interest on their government debt. Governments refinanced debt and slashed spending, which hurt their economies further. Now they're about to do it again.
One round of austerity hasn't worked in Europe and few people think another will work either.
Sound familiar? Here in the U.S., elites who've been fat and happy are desperate to keep the party going. That's where all this "debt crisis" crap is coming from. Our elites want to keep their taxes low, their CEOs rich, their banks enormous and their control of government intact, even as disaster looms.
Talking Points Memo gets it right by reporting the presidential candidates are ignoring the most important issue in America today.
(The European debt crisis) could easily force the United States back into recession and become the issue on which the 2012 elections turn. But the national political press has all but ignored it, and none of the GOP's Presidential hopefuls have been asked about it in any of their endless series of debates.
The European monetary union is on the verge of collapse. In the wake of 2008's global financial crisis, several countries on the Euro have amassed crushing debt burdens and seen their economies stall or buckle. And now the severity of their problems, combined with political paralysis in the union's more stable countries, threatens to bring the whole system down.That's not the way the elites frame it, though. According to them, it's a morality play in which the rich are virtuous and the poor deserving of their misery. That's why Greece was so wrong to borrow money, and why it can only redeem itself by taking the virtuous path of austerity. Paul Krugman nails it in the New York Times:
...a large part of it, it seems obvious, is the intense desire to see economics as a morality play of sin and punishment, where the sinners are, of course, workers and governments, not the bankers. Pain is not an unfortunate consequence of policies, it’s what is supposed to happen.We're hearing the same thing at the state level. According to the Walkers, the Christies and the Kasichs, governments have budget shortfalls because of the sloth of the bad workers. It's only by rewarding the virtuous rich people with tax cuts and giveaways that budgets can be balanced and jobs created.
How obsessive are these people? So obsessive that when the financial doom they predict fails to materialize, they consider this a bad thing: punishment must be administered, so what are the markets waiting for? Here’s Alan Greenspan a while back:
Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.
It's loony.
digby puts it nicely:
I think all these elites believe they are wealthy and secure due to their superior morality and work ethic. Therefore, it's important to make sure the plebes feel some pain for their excesses so they'll adopt the higher standards of their betters. Just as Michael Kinsley believes that Chris Christie's obesity reveals a slothful character, the Central Bankers are apparently all convinced that sovereign debt is due to the character flaws of slothful citizens who have failed to become wealthy. Neither belief is relevant to fiscal policy. Or even true.
