Unrestrained Stimulus and Draconian Austerity: Two Sides Of The Same Coin

The Elite Financial Players Are Manipulating the Game So that They Get the Stimulus ... and the Little Guy Gets the Austerity

Liberal economists and financial wonks say [14] that we need to learn the lesson from the 1930s and stimulate more to unnecessarily avoid falling back into a very deep economic abyss.

Conservative economists and financial gurus say [15] that we need to tighten our belts and live within our means, or the tsunami of debt will wipe out our prosperity, and that of our children and grandchildren.

We've repeatedly noted that neither stimulus or austerity can ever work ... unless and until the basic problems with the economy are fixed [16].

But stimulus and austerity are not only insufficient on their own ... they are actually 2 sides of the same coin.

Specifically, the central banks' central bank warned in 2008 [17] that bailouts of the big banks would create sovereign debt crises. That is exactly what has happened.

Remember, it is not the people or Main Street who are getting bailed out ... it is the giant banks [18].

A study of 124 banking crises by the International Monetary Fund found [19] that propping up banks which are only pretending to be solvent often leads to austerity:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

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