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Home Publications Blogs Beat the Press The Washington Post Gives Its Readers a False Lesson to Push Its Deficit Agenda

The Washington Post Gives Its Readers a False Lesson to Push Its Deficit Agenda

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Tuesday, 07 December 2010 16:48

In a news story the Post told readers:

"The fiscal crisis sweeping Europe, in which Ireland and Greece have already needed bailouts and Portugal, Spain, and Italy could come next, offers the United States a brutal lesson. By the time the bond market turns on a country - when investors demand higher interest rates or refuse to roll over debt at any price - policymakers have no good options left.

"When that day arrives, a government has little choice but to slash budgets or raise taxes if it wants to satisfy financial markets. But those actions make an already miserable economic situation worse and tend to be vastly unpopular, costing politicians their jobs. Just ask the Irish, who are in such a cycle now."

Actually this is not a story that the United States should ever face -- contrary to the Post's sanctimonious lesson for its readers. Unlike all the countries on its list, the United States has its own currency. This means that, in a worse case scenario, Congress could have the Fed buy government debt. This could create a problem of inflation, but it would not lead to a crisis of type that the article is describing.

The Post's misrepresentation here would be comparable to telling someone living in a steel high-rise that the fire in the straw house across the street shows what happens when you aren't careful with matches. While fire can also harm a steel high-rise, the nature of the risk is qualitatively different than the risk faced by someone living in a straw house. It is wrong to imply that the two risks are the same, as the Post asserts in this piece.

Comments (10)Add Comment
...
written by ted bundy, December 07, 2010 6:07
can't wait for izzatzo to tear your analogy apart

...like I tore apart all those beautiful young women
Don't Play With Stimulus Matches: Let Fires Start Themselves
written by izzatzo, December 07, 2010 6:29
The Post's misrepresentation here would be comparable to telling someone living in a steel high-rise that the fire in the straw house across the street shows what happens when you aren't careful with matches.


The misrepresentation is worse than that. Forget about the steel high-rise. Imagine one straw house cozy and warm with controlled heat coming from a safe fireplace, next to another straw house that's freezing cold because the fireplace is never lit.

The difference is the cold straw house is full of shivering Teabaggers who refuse to light the fire, on austerity grounds that striking matches under any conditions constitutes a wasteful stimulus that can never work to keep the fire lit.

The Teabagger fire must start on its own, and that can only happen by removing all uncertainty, regulation and debt with austerity conditions imposed to induce self ignition from supply side fuel for the fire - no matches allowed.

Meanwhile the house next door is deciding how to reverse the trickle and share its benefits with diehard deficit hawks so dedicated to their cause, they stare freezing through the windows at the warm house, waiting for it to explode in flames of inflation caused by the use of Socialist Stimulus Matches.
...
written by AndrewDover, December 07, 2010 6:32
Except that the Post did not "imply that the two risks are the same, as the Post asserts in this piece."

The article continues:

"But the United States is different in some fundamental ways. U.S. government debt has long been viewed as the safest port in any global storm, meaning that whenever the world economy looks shaky, money floods into Treasury bonds and makes it easier for Uncle Sam to maintain high debt levels.

And unlike Greece and Ireland, which use the euro, the United States has its own currency. Any flight by investors from the United States would cause the dollar to decline in value, acting like a pressure relief valve."
...
written by gravy, December 07, 2010 7:31
Except that the Post did not "imply that the two risks are the same, as the Post asserts in this piece."
The article says the risks are comparable and offer the US a "brutal lesson."

offers the United States a brutal lesson
According to fire insurance industry actuary tables....
written by diesel, December 07, 2010 7:59
If the history of the twentieth century is any indication, then the biggest risk to straw-house dwellers comes from lighters wielded by pimply teenagers sporting U.S. army uniforms and M-16 rifles.
Reply to Gravy., Low-rated comment [Show]
"By the time the bond market turns on a country - when investors demand higher interest rates or refuse to roll over debt at any price"
written by Paul, December 07, 2010 11:24
When, in the 200+ year history of the U.S., has the bond market ever "turned" on our country? Why hasn't this already happened?

Oh wait. I know the answer: bond investors want to be paid in full when their obligation comes due and since the U.S. can print all the dollars it needs to pay its obligations at any time, U.S. bond investors have no worries about being paid in full.
...
written by skeptonomist, December 08, 2010 8:53
As Dean has explained before, Ireland's troubles, as well as those of Iceland, the US and many other countries, come from government mistakes, but the mistakes were in regulation of banking and finance, not fiscal policy. Central banks, which have nothing to do with fiscal policy, also deserve considerable responsibility for the crisis and consequent deficits.

The next crash may also come from the same basic causes, as little has been done change things, at least in the US (banking will supposedly be severely restricted in Ireland).
bad analogy indeed
written by radjil, December 08, 2010 9:59
Wait a minute. On 9/11 office fires brought down three steel high-rise buildings at free fall speeds, right into their own footprints. Ummm, didn't they?
...
written by PeonInChief, December 08, 2010 10:27
The real lesson of Ireland and the United States is that it costs oodles of money to bail out irresponsible and incompetent bankers.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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