Paying off the bandits

We haven't heard from the deficit hawks for a while--but they're still out there.  What will they choose to plunder?  Probably not the interest on the national debt or the military-industrial complex--the Predators do have a long tradition of class solidarity, after all.  Social Security and Medicare are much more likely targets.

Instead of looking for more ways to slash the living standards of Americans, we need further massive stimulus--which of course, won't stimulate much when the moneychangers are rushing in to pull the money back to their coffers.

Anyway--watch how this phenomenon plays out in places like Spain.

The Spanish Crisis Is Deficit Hawk Terrorism In Action 

Marshall Auerback | Jan. 8, 2010, 2:26 PM

Speaking of President Obama, Karl Rove writes, “After a year of living in his fiscal fantasy world, Americans realize they have a record deficit-setting, budget-busting spender on their hands.” Well, given his history with former President Bush, it certainly takes one to know one. 

But it is hard to understand how the concept of “budget busting” applies to a government which, as a sovereign issuer of its own currency, can always create dollars to spend. 

There is, in other words, no budget to “bust”. A national “budget” is merely an account of national spending priorities, and does not represent an external constraint in the manner of a household budget. 

A Deficit Spending Limit Disaster 

What do commentators such as Mr. Rove really think would have happened if there had been tight fiscal rules in place preventing any (or only some) discretionary response in net spending? Consider a real world example. In December, Spanish unemployment rose to 19.3% (the highest in more than a decade), capping a year that saw the nation’s jobless rate soar to double the Euro- zone average. According to the Merco Press, the number of people registering for unemployment benefits increased by 54,657, or 1.41 percentage points from November to 3.92 million. From a year earlier, unemployment climbed by 25%; youth unemployment is now 40 per cent. The only good piece of news this year was that the number of jobs destroyed in 2009 was 200,000 less than in 2008. That’s the sort of statistic which, in the US would likely prompt grave warnings about the need to pursue “exit strategies”. 

Spain, like the other countries within the European Union (EU), has other problems, because the nation has voluntarily decided to accede the so-called “Stability and Growth Pact” (SGP), which arbitrarily limits national government deficit spending to 3% of GDP, whilst limiting overall public debt as a percentage to GDP of 60% (even though there is no economic theory in evidence to justify these arbitrary figures) more