The current headline at a June 29 New York Times story by Peter Eavis, also appearing on the front page of today's print edition, is "Loads of Debt: A Global Ailment With Few Cures."
But the last portion of the story's web address is "... trillions-spent-but-crises-like-greeces-persist.html." That's because the original headline, the one used at the Times's Twitter account — was "Trillions Spent But Crises Like Greece Persist." Of course without admitting it, Eavis's writeup is an ode to the worldwide failure of Keynesian economics — a term which naturally never appears in any form — and the closed minds of those who don't understand why shoveling vast sums of money created out of thin air into the financial system is only marginally helpful in the short-term, and serious harmful over the long-term.
Here are excerpts from Eavis's hand-wringing exercise. The final excerpted paragraph is particularly galling (bolds and numbered tags are mine):
There are some problems that not even $10 trillion can solve.
That gargantuan sum of money is what central banks around the world have spent in recent years as they have tried to stimulate their economies and fight financial crises. The tidal wave of cheap money has played a huge role in generating growth in many countries, cutting unemployment and preventing panic. [1]
But it has not been able to do away with days like Monday, when fear again coursed through global financial markets. The main causes of the steep declines in stock and bond markets were announcements out of Greece and Puerto Rico.
And in China, the precipitous declines in its stock market were also a sobering reminder that stubborn problems lurked in the global economy.
Stifling debt loads, for instance, continue to weigh on governments around the world. ... And economists say that central banks and their whirring printing presses can do only so much to alleviate the burden. [2]
... The return of nervous selling on stock markets raises important questions about the health of the global economy. As central banks like the Federal Reserve and the European Central Bank have printed trillions of dollars and euros, markets in stocks and bonds, as well as other types of assets, have responded optimistically, sometimes reaching highs that were unthinkable seven years ago in the depths of the financial crisis.
Still, when everything is going well, it is easy to forget that there are limits to the power of the central banks, analysts say.
... Many countries are now in a position where their governments and companies live in fear of an increase in interest rates.
... Countries with high-seeming debt totals are not necessarily fragile. The United States government borrowed heavily after the financial crisis. But as the economy recovered, the debt proved to be manageable — and some economists contend that it helped stoke the economic comeback. [3]
Notes:
[1] — "Spent" is not the word one uses to describe hitting the "enter" key on a computer, creating money out of thin air and then injecting it into the financial system in an ongoing bailout of governments which refuse to live within their means.
Throwing money into the system doesn't generate meaningful economic growth. People engaging in productive and innovative economic activity generate growth. Quantitative easing and deficit spending may generate more consumer consumption in the short-term, which may lead to a bit of a pickup in production, but the increase won't be significant or sustained unless producers believe that the consumption increase will be long-lasting.
A study by a Cambridge-educated (UK) economist at the African Development bank, one of many reaching similar conclusions, showed the following (bolds are mine):
No significant effect of QE on GDP growth is found for the major economies, except for the UK where GDP growth would have been as much as 0.7 percentage points lower if the BOE had not implemented its unconventional monetary policies. Despite the failure of stimulating economic activities as a whole, our simulation results suggest that the unconventional monetary policies to some extent have a positive influence on industrial production in the USA, the UK, and Japan.
In addition, our analysis found that QE contributes to a reduction in unemployment in the USA and Japan, and a rise in inflation expectations in the USA, the UK, and Euro area. However, evidence of the QE’s effect on house prices, stock prices, consumer confidence, and exchange rates is mixed and thus inconclusive. It does seem monetary policy alone is not enough, without some structural reforms and other policy measures.
And there's the rub: Quantative easing enables governments to avoid looking at "structural reforms and other policy measures" as the long as the money created out of thin air keeps flowing. That's how you get to having $10 trillion out there and no meaningful results — and it's still not enough. No amount will ever be enough without fundamenal reforms.
So trillions of dollars in funny money and more trillions in government deficits in general have perhaps added a few tenths of a point to annual GDP growth. How anyone can possibly think that tradeoff is worth it is beyond me.
[2] — The "whirring printing presses" only add to the burden while putting off the day of reckoning, But as Greece is seeing, the day of reckoning does indeed arrive.
[3] — So the U.S. government's debt is "manageable" — as long as interest rates stay artificially low. But what if they don't?
Look at the schedule of U.S. debt as of the end of last fiscal year, from the Government Accountability Office's most recent annual report to the Treasury:
The $1.4 trillion in Treasury bills all mature in less than a year. If interest rates were to increase by 2 percentage points to a level which would still be well below levels seen historically, the government would have to pay out an additional $28 billion annually.
For the sake of simplicity, if we assume that the $8.16 trillion in Treasury notes (which have maturities ranging from 1-10 years) mature evenly over 10 years, a 2 percentage-point increase in interest rates would lead to an increase in interest costs of $16 billion in the first year ($0.8 blllion times 2 percent, rounded), $32 billion the next year, $48 billion in the third year, etc. until they reach $163 billion in Year 10.
So in ten years, the government would be paying out over $190 billion more in interest ($28 billion plus $163 billion) — and that assumes no increases in the amount of debt the government is carrying.
That of course is not what the Congressional Office projects. It instead predicts that debt held by the public will be $21.6 trillion in 2025, meaning that the annual increase in the government's interest burden, if rates go up by just 2 percentage points, could easily top $300 billion by that time — and note that I didn't even try to include the effect of rate increases on Treasury bonds and TIPS in the calculations.
But that's okay. Peter Eavis at the New York Times says it's "manageable."
No it's not. Also, as seen earlier, quantiative easing did not "stoke the economic comeback."
Additionally, calling what we've had to endure during the six years since the recession officially ended six years ago a "comeback" is an insult to readers' intelligence. The economic policies of President Obama (whose name, as usual, does not appear in a story about economic problems) and trillions quantitative easing have given us the worst recovery since World War II, by miles, with household incomes which are still well below where they were in 2007. There is no way Peter Eavis would be writing about a "comeback" if we were seeing similar results during a Republican or conservative presidential administration.
Cross-posted at BizzyBlog.com.
