{"id":822571,"date":"2013-04-23T20:25:21","date_gmt":"2013-04-23T14:55:21","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=822571"},"modified":"2013-04-23T20:26:54","modified_gmt":"2013-04-23T14:56:54","slug":"bye-bye-austerity","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2013\/04\/23\/bye-bye-austerity\/","title":{"rendered":"Bye Bye Austerity?"},"content":{"rendered":"

\"20110627<\/a><\/p>\n

In 2010, a pair of Harvard economists published a paper, “Growth in a Time of Debt” that\u00a0concluded that countries with a debt exceeding 90% of their annual GDP experienced slower growth than their thriftier peers.\u00a0It was a statistic to which pro-austerity policymakers could cling and Germany, with a “never again” attitude towards\u00a0Weimar Republic era hyperinflation<\/a>, got much of Europe to sign-off on austerity to obtain bail-out funds.<\/p>\n

However, biggest problem with austerity is that it can potentially kick-off a deflationary spiral that might actually increase\u00a0indebtedness. And the latest euro-zone stat<\/a> is proof of that:\u00a0In the euro area the government debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012. Besides, how is growth going to come about if both the public and<\/em> private sectors contract at the same time?<\/p>\n

\"eurozone<\/a>The latest manufacturing PMI numbers are showing that the slow-down has now spread to the “core” Euro-zone economies. “The renewed decline in Germany will also raise\u00a0fears that the region\u2019s largest growth engine has\u00a0moved into reverse, thereby acting as a drag on the\u00a0region at the same time as particularly steep\u00a0downturns persist in France, Italy and Spain.”<\/p>\n

Bill Gross, of PIMCO fame, who had once warned that UK debt levels were too high, leaving gilts “resting on a bed of nitroglycerine” has recently changed his tune: “The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity<\/a> in the short term, is the way to produce real growth. It is not. You’ve got to spend money.”<\/p>\n

And last week,\u00a0Reinhart and Rogoff\u2019s most famous finding has been debunked <\/a>by a 28-year-old student. Earlier this month, Thomas Herndon, a graduate in the economics department at Amherst College in Massachusetts, found that they had made fundamental mathematical errors in the study \u2013 and all because of a flubbed Excel spreadsheet.<\/p>\n

Will Europe’s policy makers change their stance and resort to a looser monetary policy and ease up on the austerity principle? Markets in europe (London +1.88%, Germany +2.23%, France +3.14%) started rallying as soon as the dismal PMI numbers came in – at least they seem to believe that the liquidity spigot is soon going to be let loose.<\/p>\n

Related articles<\/h6>\n