The Trader has covered the subject of the Great Spanish Denial over the past year. With the crisis and austerity hitting the Iberian Peninsula, we can’t but wonder what the “Elite” has been doing while the SPanish economy has totally imploded? More from NYT.
As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrongFrom left, José Viñals of the International Monetary Fund; Jaime Caruana, chief executive of the Bank for International Settlements; and Rodrigo Rato, until last month the head of Bankia.
The optimism of Spanish central bankers who went on to top jobs at the International Monetary Fundechoes the attitudes of officials in the United States who misjudged the force of a housing collapse several years ago that crippled banks and the economy. And it underscores the complications that can arise when government officials take watchdog roles at international agencies that pass judgment on the policies they once directed.
Guest post by Azizonomics.
Many Keynesians really hate the concept of liquidationism. I’m trying to grasp why.
Paul Krugman wrote:
One discouraging feature of the current economic crisis is the way many economists and economic commentators — apparently ignorant of what went on over the last 75 years or so of macroeconomic debate — have been reinventing old fallacies, imagining that they were coming up with profound insights.
The Bank for International Settlements has decided to throw everything we’ve learned from 80 years of hard thought about macroeconomics out the window, and to embrace full-frontal liquidationism. The BIS is now advocating a position indistinguishable from that of Schumpeter in the 1930s, opposing any monetary expansion because that would leave “the work of depressions undone”.
Andrew Mellon summed up liquidationism as so:
The government must keep its hands off and let the slump liquidate itself. Liquidate labor, liquidate stocks, liquidate the farmes, liquidate real estate. When the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. A panic is not altogether a bad thing. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.
As our readers know, we gave Berlusconi a maximum of two years before he would be back. With austerity hitting Europe, Italians are not as fond of Super Mario as they used to be. Is this opening up for Berlusconi for aproper come back, this time having enjoyed the time off, while the rest have been struggling. From Bloomberg.
When Mario Monti was appointed — not elected — prime minister of Italy in November, most Italians saw him as a welcome respite from the flamboyant, bankrupt leadership of Silvio Berlusconi. With the economy headed for collapse, technocratic leadership and a break from politics as usual were exactly what they wanted. So they thought.