Friday, November 11, 2011

European Debt Crisis: Truth and Lies

Krugman has another article, this time dispelling some of the falsehoods that have been flying around over the European debt crisis. This is a great article because, like many Americans, I haven't been paying as much attention to Europe as I have to America, or even Greece specifically. As Krugman shows, when we don't know the truth, there are those who are very willing to feed us lies.

One of the things about the European debt crisis that I wasn't aware of was how austerity measures can be detrimental to recovery and really have nothing to do with economic growth and getting out of the crisis. In fact, interest rates are a better indication, and Europe is struggling against staggering interest rates on its phenomenal loans.

One of the things that Krugman points out is that America is actually in a better position to help itself, if it can get the politics in line with what needs to be done, because America trades in and prints its own money. That gives us more flexibility in our response to debt and therefore keeps our interest rates low. Thankfully, that means we are able to pay off our debts to countries like China at interest rates we can actually afford.

But Krugman warns at the end of the article that America is by no means safe from financial distress, and that we have our own unique set of problems to work out. His opinion is that the ideologues that have been talking about nothing but cutting spending are walking a very fine line of financial ruin. He points out that following this view blindly could very well lead us into collapse.

The truth is, we can't cut our spending so far that we can pay off debt and get our "fiscal house in order" like Republicans constantly say. It's not reasonable, responsible, and only disastrously possible. We have to come up with new, innovative solutions, such as raising taxes on the wealthy, closing loopholes, generating demand by giving consumers more of their money back, and safeguarding against future economic calamities. In order for us to get out of this financial crisis, we need to listen to and follow experts and people who know something about international economics and financial systems. I happen to think Krugman is a good person to listen to.

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