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Response to Tansy_Gold (Original post)

Tue May 22, 2012, 09:24 AM

89. Spurring growth will be a huge task

http://www.presseurop.eu/en/content/article/2026681-spurring-growth-will-be-huge-task

In 1990 Sweden suffered a severe financial crisis provoked by the bursting of a housing bubble, which was sorted out to some extent by creating a “bad bank” for each entity in difficulty. The government took swift action to rescue troubled banks, whose losses came to 12 percent of GDP. After the financial crisis came a recession that saw real growth (adjusted for inflation) fall by four percent. It would be another four years before the Swedish economy returned to pre-crisis GDP.

History teaches that prosperity cannot be had without a financial system that works normally (generating credit to households and businesses), and that the mere fact of stabilising the financial system is no guarantee of prosperity. What is needed is a rescue plan for the real economy to boost production and create jobs that is at least as intense in its goals as the bailout.

This has been forgotten in Europe over the past two years, with results obvious to everyone: the risk premiums of countries in trouble have not dropped, nor have those states cut their deficits as expected. Almost all of them have increased the public debt and have seen rises in unemployment, in the impoverishment of the middle classes, and in business mortality.

The G-8 Summit at Camp Davis is now trying to stave off total collapse and generate support for banks and for citizens too. Is the intellectual climate of our times truly changing, shifting from austerity to growth? That's what the final communiqué of the meeting says. It is time to escape the Minsky moment (named after the economist of the same name) in which debtors cannot pay, creditors do not want to pay, and everyone is trying to write off the debt at the same time.

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