[P2P-F] Fw: [gang8] Re: debt forgiveness or 20 years of surplus

Fri Jun 29 12:39:42 CEST 2012

----- Forwarded Message -----
From: D.J.Bezemer <d.j.bezemer at rug.nl>
To: Stephanie Kelton <stephanie.kelton at me.com> 
Cc: "gang8 at yahoogroups.com" <gang8 at yahoogroups.com>; Steve Keen <S.Keen at uws.edu.au>; randall wray <wrayr at umkc.edu> 
Sent: Friday, 29 June 2012, 10:37
Subject: [gang8] Re: debt forgiveness or 20 years of surplus

Of course I agree with Stephanie that growth in GDP would be the best solution to derease debt/GDP. 

I am writing from a European perspective where growth is strangled by austerity and countries cannot create money in their own currency - i.e. they are in an 'original sin' currency mismatch situation. They've borrewed in a currency they do not control. The ECB behaves like a foreign creditor to its own memebr countries, extracting the surplus in debt servicing.

I don't believe for a moment that 20 yrs of surplus would solve anything - that would be 20 years of recession, so rising debt/GDP ratios. But it illustrates the scope of the problem. What other solution than debt write offs (or change the rules of the game)? 

Dirk 
 On 28-06-12, Stephanie Kelton <stephanie.kelton at me.com> wrote: 
I don't follow. US Debt/GDP was near 125 percent after WWII. Around 40 percent by early 2000s. Don't need decades of surpluses to "pay off" numerator, just decent growth in denominator.  
>
>Sent from my iPad
>
>On Jun 28, 2012, at 8:06 AM, Dirk Bezemer <d.j.bezemer at rug.nl> wrote:
>
>> Here is a VERY good argument for debt forgiveness NOW:
>> 
>> "Indeed, the study says the budgets of most advanced economies, excluding interest payments, ³would need 20 consecutive years of surpluses exceeding 2 per cent of gross domestic product starting now  just to bring the debt-to-GDP ratio back to its pre-crisis level².
>> 
>> (with thanks to Michael for the link)
>> 
>> Remember, the only time the US ran a surplus for consecutive years was in recession years 1999-2000 following the Clinton public debt reduction (and by implication, private debt buildup) - and also in 1947-48, to be complete.
>> 
>> Dirk
>> 
>> 
>> ===============
>> 
>> 
>> 
>> Norma Cohen, ³Global economy is stuck in a vicious cycle, warns BIS,²
>> Financial Times, June 25, 2012.
>>  The global economy is experiencing a ³vicious cycle² in which the efforts
>> of governments, households, businesses and the financial sector to reduce
>> their debts are worsening each others¹ prospects, the Bank for International
>> Settlements has warned.
>> Stephen Cecchetti, chief economist of the BIS  often referred to as the
>> bank for central banks  said five years after the financial crisis engulfed
>> the global economy, the world appears no closer to finding a sustainable
>> economic model. Not until regulators get to grips with the banking system¹s
>> woes by forcing banks to recognise losses, take write-offs and raise capital
>> can the path to sustainable growth begin, he said. ³The revitalisation of
>> the banks and the moderation of the financial industry will end this
>> destructive interaction with the other sectors and clear the way for the
>> next steps  fiscal consolidation and the deleveraging of the private,
>> non-financial sector,² Mr Cecchetti said, unveiling the bank¹s 2012 annual
>> report. ³Only then can we return to a balanced growth path.²
>>   The report underscores the challenges facing governments, particularly in
>> advanced economies, as they struggle to contain spending and recoup revenue
>> lost as output collapses. Indeed, the study says the budgets of most
>> advanced economies, excluding interest payments, ³would need 20 consecutive
>> years of surpluses exceeding 2 per cent of gross domestic product  starting
>> now  just to bring the debt-to-GDP ratio back to its pre-crisis level².
>>   Moreover, monetary policy has been bearing the brunt of efforts to
>> adjust. These cannot go on forever and carry their own risks as economies
>> become dependent on ultra-low interest rates, the BIS says. ³There are very
>> clear limits to what central banks can do,² Mr Cecchetti said, summing up
>> the annual report. ³They cannot repair balance sheets. They cannot increase
>> productivity. And they cannot put policy on a sustainable path.²
>>   Every additional year that policy makers fail to get to grips with
>> long-term fiscal consolidation makes the recovery period even longer, he
>> warned.
>>   While the risks are greatest for developed economies  especially Europe
>> the BIS notes that risks are rising for emerging economies, particularly
>> those that have experienced rapid growth through exports to more
>> industrialised neighbours. These include Russia, India and Thailand.
>> 
>> -- 
>> Dirk J Bezemer
>> 
>> Associate Professor,
>> Faculty of Economics&  Business
>> University of Groningen
>> www.rug.nl/staff/d.j.bezemer
>> 
>> documentary (8 min): youtube.com/watch?v=9JD6uuiiZPY&feature=relmfu
>> interview (10 min) : ineteconomics.org/video/interviews?page=3
>> presentation (26 min): youtube.com/watch?v=qvBuK8yQxbY
>> 
>> 
>> 
>> 
>

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