" Entirely Self-Made " Crisis; I Love My Family But ...

Courtesy of Mish.

As debt that cannot possibly ever be paid back spirals out of control, it is amusing (as well as saddening) to watch widely-read economists propose still more of the same policies that have failed time and time again.

Today's silliness comes from Ambrose Evans-Pritchard at the Telegraph.

Pritchard's headline title Merkel's day of reckoning as taxpayer haircut on Greece looms makes perfect sense as does his opening gambit.

We are at last nearing the awful moment when the curtain is ripped away. Greece’s economy has contracted 7pc over the last year. Public debt will spiral to 190pc of GDP in 2013. Leaving aside the Gothic horror of youth unemployment at 58pc, Greece’s debt trajectory is simply out of control.

I have no quibbles with that paragraph, or for that matter, many paragraphs that follow. Unfortunately, Pritchard concludes with Monetartist claptrap, as to how things ought to be.

Fiscal policy is too tight. Monetary policy is too tight. Regulatory policy is also too tight since it is forcing banks to raise capital buffers even as the slump deepens.

Professor Paul de Grauwe from the London School of Economics said the deepening crisis is "entirely self-made" and "very dangerous" as passions fly. Angela Merkel had to slip into Portugal last week almost secretly to outwit demonstrators and avoid a "national sovereignty" march. One of her diplomats was assaulted by a mob in Greece.

It would have been so much easier for Euroland, for the Project, for North-South comity, if the ECB had let rip a long time ago with quantitative easing to cushion the blow from fiscal tightening, but that is to suppose a different Europe existed.

"Entirely Self-Made" Crisis

The crisis most certainly is "Entirely Self-Made", just not in the manner de Grauwe and Pritchard state.

The sad thing is Pritchard knows full well the euro was doomed from the start. He was one of the original eurosceptics, predicting accurately the euro could not survive.

Now, in spite of all the numerous structural flaws of the euro, somehow we are to believe things would be "much easier for Euroland if the ECB had let rip a long time ago with quantitative easing".

What a crock. If QE worked and fiscal stimulus worked, Japan would not have debt-to-GDP ratio of 230%. Japan's national debt bow exceeds a quadrillion yen!

A quadrillion is a number with 15 zeros. 1,000,000,000,000,000. Can that ever be paid back? How?

Ivory Tower Economists in Academic Wonderland
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