It’s just a forecast. These clowns will be back in a few months with a new forecast. All they seem able to do is draw a straight line from today and get published verbatim. Easy money.

One of the graphs shows Ireland as being less than the average – maybe I am not reading this correctly? Figures seem to be up to 1996 only as well. Any clarification would be appreciated.

Same junk economics that failed to see anything but the ‘great moderation’ mere weeks before the global debt bubble burst. Really, the entire basis for economic modelling, from fallacious assumptions to nonsensical conclusions is rubbish. Not one of the massively resourced international economics research bodies had a clue what was coming & as for their forecasts, you’d be just as well flipping a coin.

Where is the research examining the monumental failure of economics thinking? The feral behaviour of a casino financial sector, vastly bigger than it needs to be for any productive purpose? Effective banking regulation? The huge derivative bets (cf failure of MF Global) pervading & still threatening the collapse of the entire system unless currency issuing authorities and/or taxpayers continue to bail them out?

Nope, not much (any?) ‘research’ happening there. Let’s just remind ourselves that governments (& citizens) would not be in any ‘sovereign’ debt crisis were it not for the behaviour, still ongoing, of the financial sector. And perhaps note who funds the bulk of this dubious ‘research’. (The ECB, mouthpiece of the banks, has just published another ‘study’ in similar vein, some pattern here?)

There were a small number of independent economists who +did+ forecast the bust correctly & had a sound, published, methodology for doing so. Notably those in the ‘post-Keynesian’ school like Prof Steve Keen & the MMT proponents. They are still being ignored, why is that?

At Sean. Look at Norway, Finland, Germany, Holland, Denmark, Sweden, Austria.

All of these countries are significantly further to the left than Ireland, all are firm believers in the State, and a backer of society.

Mike, Keen was not alone in forecasting the crash. In addition, he has not identified a credible solution.
http://mobile.bloomberg.com/news/2011-11-11/harvard-walkout-students-misunderstand-economy-commentary-by-amity-shlaes

Tim, Sweden to the left or right of Ireland.
http://articles.cnn.com/2011-06-14/opinion/frum.sweden_1_fredrik-reinfeldt-swedish-way-civil-servants?_s=PM%3AOPINION

Ireland as an example of Austrian Business Cycle Theory.
http://www.politics.ie/forum/economy/147072-ireland-proof-austrian-business-cycle-theory.html

Sean, Keen has offered a perfectly credible solution. The level of debt must be greatly reduced by combined monetary & fiscal operations. MMT has offered even more comprehensive solutions along the same principles. (They share the same correct understanding of the existing fiat monetary system operations. Orthodox economics thinking by contrast offers a fictional account of this. One should be asking why this is so too.)

What is absolutely certain is that the ratcheting up of the austerity contraction spiral – more of what has failed already – is the polar opposite of ‘credible’.

MMT proposes that the debt-free currency issuing ability of central banks needs to used to provide the needed counter cyclical stimulus. This should be done in two ways. Government debt – thus interest burden – can be reduced on a per capita basis, freeing up government spending. At the same time, additional money should be spent directly into the economy – a job guarantee scheme is a good way of doing this. Proceed with both these policies until the spending effect has stimulated private sector growth in employment to meet the increase in aggregate demand.

Doubtless you & all the others, sharing the same orthodox fallacies that caused & continue to deepen this race to depression era unemployment, will chime in with the now pseudo-religeous mantra – ‘can’t do that, it’ll cause inflation!’. But this, of course, is another theo-classical fallacy.

Consider, if we are to return to previous levels of employment & GDP, additional money has to get into the economy from somewhere. Just suppose that the private sector business CEOs all swallowed some magic beans which urged them to immediately, & in concert, borrow money to ramp up production & hire new workers off the dole queue. The magic beans are required because otherwise no-one in the private sector is going to take the risk of jumping in first & giving their competitors a clear advantage of waiting until the growth appears without such a risky big debt burden before sales have actually appeared. Or even worse, taking the risk that others don’t follow at all, growth in spending thus doesn’t appear, & they go bankrupt in their solo attempt to kick start the economy. But, anyway, let’s assume the presence of magic beans for now.

Now, orthodox thinking (as well as heterodox) says no inflation risk here. We’re just hiring back workers & getting back to the level of money/circulation etc. of where we were before the bust. So, we’re all agreed there’s no inflation risk where there are idle & available resources to be bought. Quite reasonable. Inflation occurs at the point of spending. By the act of trying to buy things that are somewhat scarce – the price gets bid up. But in this scenario, we know those resources aren’t scarce because they were there before the bust and there was no inflation. (Strictly, +excess+ inflation, not none, because there’s always +some+.)

But….just in case, to be sure, to be sure, some pesky inflation doesn’t arise in some unspecified +future+, should consumers get too spend happy, the inflation hyperventilators say, oh, that can’t happen because those loans our (magic bean consuming) CEOs took out will have to be repaid, thus removing that money from the economy +in the future+. (This is what repaying loans actually does – extinguishes money. Lending creates, repaying destroys, nothing much to do with ‘deposits’ or ‘reserves.) Reasonably then, on this basis, that unspecified future must be in the order of years, so note there’s a bit of time involved here.

So, we’ve established that everybody agrees there’s not short term inflation risk from restoring an economy back from recession. The key being that we know resources aren’t scarce, so ‘bidding up’ prices, in the aggregate, won’t happen. But the question of inflation in the medium term – years- may mean money needs to be extinguished.

Ok, let’s now consider the real world (of now) where there are no magic beans & our misnamed ‘job creators’ are, well, determinedly not doing even a smidge of job creation unless & until some solid aggregate demand appears. Who’s left to do the magic bean thing? There’s only one sector, eh? That’s right, the currency issuing authority, sovereign government! (Or Governments collectively in the Eurozone.) In the short term, money-in-the-economy-wise, bar some minor effect of debt interest, there’s no difference in government(s) substituting (ref magic bean land) the stimulation effect of spending money into the economy. To get money into consumers pockets to increase their spend on private sector goods & services. As the private sector sees demand rising, they will rehire workers to meet that demand. When that happens, government withdraws from the stimulus business as it’s services become no longer required. Same as effect as the magic bean inspired collective action of the business CEOs. Growth & employment return & the happy merry-go-round of spending-jobs-spending-jobs is restored.

Ah, but what about that debt-free money that was put into the economy, won’t thast cause inflation? Good question! Yes, it might, if we left it there +in the future+ to begin bidding up the price of things that might have become scarce when the economy is at capacity & near everyone’s employed. But that’s easy to fix. Just as a currency issuing government can print money to spend, it can also, well, un-print it, as required – it’s called ‘taxation’. Simple, just increase & target taxation to the sectors that are showing signs of inflation. Job done, we’re back near full employment (well, actually, ‘fuller’ than before is achievable this way) & our economy is humming along at near full capacity. Which is the same as saying we maximising our use of labour resources, & minimising waste. That’s what real prosperity means.

Of course, there is a catch. The banks don’t like it. They prefer to keep their private monopoly on money creation exclusively as debt in their favour, with interest, naturally. Which is why they like to have control over central banks, pretending ‘independence’, when central banks & their money +issuance+ powers are actually the property of sovereign governments. And, in turn, control over sovereign governments with a minimum of pesky ‘democracy’ getting in the way. Sound familiar? ‘Technocrats? My a&^%!

Stretching the public finance recovery beyond the current target would bring additional cost and lengthen the period of austerity. Slowing the pace increases the national debt and the interest bill. It also means a succession of austerity budgets going out to the end of the decade or even longer unless we get back to a strong rate of growth.

Even with this lower growth forecast, it is fair to assume that the worst is over. After this latest budget the deficit will have been reduced by about €25 billion since 2008 leaving about €8.5 billion to find in the next three budgets.

On the political front, the coalition will want austerity budgets finished with no later than 2014, at least a year out from the next general election.