A fascinating article at New Deal 2.0 details the steps we are taking towards a likely second Great Depression. At a time when economies are teetering on the edge of recovery and a second recession, governments are starting to make noises, particularly in Europe, about reducing deficits as a model for responsible financial health. Unfortunately, this is the exact opposite response governments should be taking as reducing a governmental deficit will naturally result in deflationary pressures on the private sector because the two are necessarily related.
Governments have two main ways to reduce deficits, increase taxes and reduce spending, both of which are deflationary. Doing either at a time when unemployment runs at 10% in most First world countries would result in huge burdens on the private sector. Governments are currently running large deficits because we just came out of one of the worst recessions the world has ever seen. Unfortunately, the bigger problem is that a huge portion of the government spending during those recessions actually resulted not in job creation but in an amazingly brazen transfer of wealth from the middle class to the wealthy through paying bondholders at par value and keeping the oligarchs in the big banks solvent.
Bailing out the banks instead of the common people was a monstrous mistake but not one that needs to be compounded now by cutting spending which will necessarily affect the very same classes of people negatively that the bank bailouts did through reduction of public services and increased unemployment. The fact that our elites are even considering this shows how little they understand of the situation. Or playing more cynical, how little concern they have for the plight of the middle and lower class.
What we need are statesmen and leaders who can clearly explain why the current budgets deficits are necessary and then begin to formulate plans to redirect stimulus not to the oligarchs in power but to the people most affected by the economic disaster. Instead, we have captured men and cronies in power who will continue to rape the middle class until they no longer can, either because there is no middle class left or because they have been deposed. Until the system is reformed and our political leaders once again serve the interests of the many instead of the power of the few, I don’t see how we aren’t in for dark days ahead.