Saturday, February 05, 2011

Europe's debt Crisis in a nut shell for lazy ass conservative bloggers

"One of the problems is, the Liberal message is being seen in the UK, Spain, Ireland, Greece, California etc. Right now, the Liberal message is more social programs which means higher taxes."

My God. Do not be so lazy. For starters, understand the difference between Liberal and liberal. There is nothing liberal about the Liberal party of BC for example. They are conservative. Take the time to read up on what actually happened in Europe, the governments in power at the time, their policies ect. It beyond ludicrous to lump the UK, Spain, Ireland, Greece, California together.

Greece has always been an economic basket case. For Christ sake, it has defaulted 7 times in since 1945.

However, prior to the down turn, Spain, Ireland and UK were in fine fiscal shape. All had gross debt levels that were lower -- in the UK's case much lower, than they are here and Spain and Ireland were running surpluses. All 3 though had allowed huge real estate bubbles to inflate.

Once real estate bubbles started deflating all over the western world, the UK and Ireland pumped huge sums of money to prop up their banks and furthermore took responsibility for enormous private debts incurred by their banks. As a result, their debt to GDP ratios sky rocked. In the less than a year Ireland's debt to GDP ratio doubled!

At the same time as governments everywhere were busy saving their banker's bacon, government revenues collapsed and governments were saddled with higher bills for things like unemployment Insurance. Some European countries tired to make up for a huge drop in demand by introducing various fiscal stimulus and this inflated their budget deficits greater still. However, in no case was the fiscal stimlus package particularly large. Indeed, in many cases their was no fiscal stimulus at all. This was the case in Ireland. Not only was there no fiscal stimulus there, the Irish government also made deep cuts to social services and sharply raised taxes.

Needless to say, the kind of Hoover economics now being practiced by all of battered European economies -- with the notable exception of Iceland -- is not addressing the underlying problem, viz., a sharp decline in aggregate demand and an associated decline in government revenues. To further complicate matters is that a common currency has meant that Ireland, Spain, Portugal, and Greece have not been able to deflate their currency in attempt to become more competitive and short term interest rates are already at record lows. As such, many still expect the worst. For them, it is not a matter of if Greece and Ireland will default on their debt obligations, but when.

So could such a crisis happen here? Damn skippy it could. Canadian consumer debt, most it related to spike in housing costs, is every bit as high as American consumer debt was prior to the crash. And again the crisis in Europe and US was brought on by a private debt crisis, associated with various real estate booms, that in turn created a public debt crisis. As for our much lauded banking system, Spain's banks are no less conservative in their lending pratices than Canadian banks, but a real estate bubble in Spain inflated and burst nonetheless. And why has the cost of housing gone through the roof since 2006? Well, the dumb ass Conservative government decided pour fuel on an already red hot real estate market. In their first year in office the Harper government increased the mortgage amortization period from 25 to 40 years, allowed for 0 down mortgages, and reduced the down payment on secondary properties from 20% to 5%. Ever since the down turn, Jim Flaherty and idiots have been scrabbling to undo the damage their actions have done. The maximum amortization period will soon be reduced to 30 years, and already a 20% down payment is required on secondary properties and 5% on primary properties. The problem is it is too little too late. The best Flaherty and idiots can do is prevent further damage. For one thing, since 2006 Canadian mortgage and housing corporations liabilities have gone from 100 billion to 500 hundred billion. If the housing bubble bursts and Canadians start defaulting on their mortgages, the Canadian tax payer will be picking up the tab. The Canadian government guarantees all that debt.


WesternGrit said...

Bravo. Good post!

Anonymous said...

So much for taking the moral high ground I see. Same old same old.
I said..."TO BE SEEN" in.."STEPHEN HARPERS HIDDEN AGENDA", or..."IGGY, JUST VISITING". It was a political take on a situation making a political comment on your political blog. My god, get over yourself. There is a Conservative PM who is about to overtake Pearson in days served as He's prickly at best, secretive, seen as cold hearted and mean does he do it? Well, maybe its because of what Canadians read and see in the news every day from around the world. Maybe I'm wrong, maybe its not that, but, sooner or later you big brains have got to start looking for other reasons other then "con voters are stupid". I gave an opinion, a comment as to why the Libs cant gain ground, why bother with a blog if the comments that you disagree with are going to be skewered. You should be more progressive and less right wing.

Koby said...

My bad!

However, to claim that liberalism reigns supreme in the UK, Spain, Ireland, Greece, California, is simply dead wrong.

The UK, Spain, Ireland and Greece have all brought down draconian budgets. Programs are been lashed left and right. As for California, the US states are in bad way generally but things in California are made all the worse by the fact that their political system is stupid. You have both a state senate and an Assembly and a Governor. Throw in the wild world of propositions and a 60% requirement for any budget to pass and you have a recipe for grid lock worse than rush hour in LA.

As for Liberal messaging, it is mess because the party's platform is a mess and because the party still trumpets the success Pearson had bringing in universal social programs even though the party has long since abandoned the principle of universality.

Fred from BC said...

Koby said...

However, to claim that liberalism reigns supreme in the UK, Spain, Ireland, Greece, California, is simply dead wrong.

I see. So your claim is that they are all politically right-leaning, then? Conservatism is to blame for their economic woes?

Koby said...

No Fred. My claim is that the UK, Ireland, and Spain all let large real estate bubbles to inflate and that Ireland and UK let their banks go hold wild and now each is paying the consquences.

The acroymn PIGS makes it sounds that the reason the Irish Debt DOUBLED was because the Irish government gave each voter a spacious apartment in Dublin and gold plated Lamborghini. Of course the real reason the Irish are drowning in debt is that Irish government thought it would be wise to let Irish bankers play roulette.