As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.
Let's think about that opening paragraph for just a moment.
1.) Everyone wants to "tighten their belts."
2.) Ireland tried that two years ago.
3.) Two years later "the once thriving nation is struggling, with no sign of a rapid turnaround in sight."
In other words:
"belt tightening" does not lead to "expansion."
"But maybe if we do it, it will be different."
Well, the Baltics also tried it:
Much like Spain, Ireland and the UK, the Baltic states were badly hit by the bursting of a credit bubble in 2008 that sent their economies into freefall and their budget deficits soaring.I realize there are people out there who are unconcerned with facts; they will continue to say Washington needs to "stop spending". These people are fools.While others cushioned the impact with stimulus spending, the Baltic trio plunged straight into austerity. As a result, they suffered the deepest recessions in the European Union last year, with Latvia’s economy shrinking by 18 per cent.
Again, let's review the GDP equation.
C+I+X+G=GDP
Consumer Spending
plus
Investment
plus
Net Exports
plus
Government Spending
equals
GDP
According to the CBO, government spending accounts for about 20% of the US economy.
Ladies and gentlemen, this really isn't that hard.
