The title of the blog is a little misleading but was too good not to use. I get to that five-year forecast (2010-2015) later in the blog but the first part is material that sets the scene. Yes, I am writing about deficits and debts … again! But new nuances come out in the public debate which need to be addressed. The conservative assault on government support for their economies at present is multi-dimensioned and is being pushed along by two main journalistic approaches. The manic Fox new-type approach which I realise is influential but is so patent and ridiculous that I don’t care to comment on it often. Then we have the approach adopted by journalists in so-called credible media outlets such as the UK Guardian. They dress their deficit terrorism up in arguments that the middle classes, who think they are far above Fox new rabble intellectually, will find convincing. But when you bring both approaches down to basics – rubbish = rubbish.

When I read the financial and economic news every day I sense a global madness has emerged. Global political processes are becoming distorted by the types of debates that the conservative media companies and the mainstream economists are driving. Every day a new whacko proposition is suggested or entertained by governments. Old hatreds are also resurfacing as our economies labour on (or not labour to be more accurate!) in the face of a major private spending collapse accompanied by inadequate government fiscal responses. The collateral damage of the deficit terrorism is increasing and spreading and still the major political parties in most countries slug it out as to which one will deliver the most fiscal austerity. Would someone please put something in the water supply so that we can refocus this debate onto what is important. That was the plan in the late 1960s to chill everyone out and distinguish the meaningful from the nonsense. Something has to restore our sense of priorities. The longer this madness goes on the worse it is going to get. There is no sensible solution that will come from following the present path.

I am now back in my normal office after a few days experimenting with a mobile office by the sea. Back in Newcastle I am still only a couple of minutes from the beach but somehow it was different being holed up in a little cabin. Anyway, on the way back down the coast this morning I was bemoaning the idiocy of the human race … again. Or rather cursing the vicarious way the elites exploit the lack of understanding in the community about economic matters to further their own ends. That is a better way of constructing the dilemma. Even some good intentioned souls are proposing “solutions” to non-problems which will worsen the actual problem. Other devious characters are continuing to reinvent themselves in the public sphere – presumably to get access to more personal largesse. Then whole blocks of nations are imposing penury on their citizens to make the “markets” happy while another national government has actually forgotten it is a currency-issuing government. All in a day’s work!

Its been a big weekend for hyperbole which in this context is a polite term for outright hysterical lies. Today’s blog reviews a few of the choice selections from a weekend’s reading. It amazes me how people can even mis-represent their own research when they know the audience hasn’t even read it in detail. It also is interesting to follow the way the media commentators are trying to out-do each other in use of superlatives – how much catastrophic can a catastrophy get – sort of thing. The analogies, the adjectives … are all designed to transport uninformed readers into a particular ideological space where the conservative forces can garner more of the national pie than otherwise might be the case. Anyway, that is what today’s blog is about.

Today I have been reading all the documentation surrounding the proposals issued by the Bank of International Settlements to reform the regulatory system for international banking. These considerations then took me to an interesting paper from Deutsche Bank where they refute (albeit unintentionally) much of the media hysteria about exploding government bond yields and bond markets “closing governments down” because their deficits are “ballooning out of control”. In fact, the DB Report shows categorically that within the new regulatory framework that the BIS (and hence the Australian Prudential Regulation Authority will introduce), there is scope for larger budget deficits. In terms of the state of the Australian labour market and the very slow growth that the world economy will experience in the coming years, a further stimulus package is necessary. The DB Report implies that the bond markets would welcome it. Curious?

What do you do when you read strongly worded opinion pieces in national media outlets from people who hold themselves out to the public as experts in the area of interest and which reveal the writers are deliberately choosing to mislead their readers and/or haven’t a clue about the subject matter they are pontificating about? Answer: you write a blog and allow your frustrations to emanate into the ether! That’s what! Usually, mainstream economics commentators and macroeconomic textbooks hold out the analogy that the government budget is just like a household budget. So eventually the government has to pay the piper if they consume beyond its means and that means we all end up paying. Today, we had a new analogy enter the fray – the fiscal stimulus is like a box of chocolates. Yummy at first then you get fat! Lets proceed.

On Friday (February 12, 2010) as Eurostats released the flash estimates of fourth quarter GDP for the EU (see below), the IMF released a new staff position note entitled – Rethinking Macroeconomic Policy. The bad news is the Europe is looking more like a region that is heading for a double dip recession. The even worse news is that that cretins at the IMF are claiming they know why they messed up in the past and how to address their failure. Stay tuned for a modified version of the same. The fact is that the IMF Report reveals they are as ignorant as ever of the workings of the modern monetary economy. So this revisionist exercise doesn’t signal a major paradigm stage.

Tonight’s blog title L’horreur Economique is taken from one of my favourite (though depressing) books by a French writer (Viviane Forrester). I will discuss the book a bit at the end of the blog. But I was thinking about it (and re-reading it) today when I reflected on the US President’s most recent Radio address on the reining in budget deficits. We – collectively – have allowed the most grotesque set of lies, half-truths and irrelevancies to become the centrepiece of the public debate on the economy. The crisis exposed the lack of credibility that mainstream economics has and should have dispatched the ideas to the rubbish bin forever. Instead, as unemployment and poverty rates continues to rise the mainstream ideas are now taking centre-stage again. And the policies that result will be to our collective misfortune. It really is “L’horreur economique”.

The news that the Democrats lost their long-held and iconic Massachusetts Senate seat has had the news services in apoplexy this week. One gets the impression from listening to the mainstream media, which is becoming more right-wing by the day, that the US President is on his last legs. The so-called progressive reaction seems to be that the “reform” agenda now has to be scaled back and a fiscal consolidation is required to steady nerves. While it is hard to actually see a progressive reform agenda in any country anyway, the more immediate danger is that the fiscal support that has been keeping our economies afloat all around the World will be withdrawn. The share markets are back, Goldman have record profits … so the crisis is over … That message dominates the business news. That the progressive side has not been able to take overwhelming command of the public debate, given the scale of the crisis and the fact that the neo-liberals/neo-cons etc have all been caught red-handed, is a stunning reflection of its obsequious and disorganised organisation. We need something very different to happen if things are not to revert to where they were.

I am going to start a public campaign to help our friends in the financial markets. I would like all caring citizens to start donating comics and other light material and send it to the business houses so that the workers can actually read something productive during there time in the offices rather than the usual stuff that circulates. Unfortunately the usual so-called analysis spreads out into the wider research world – which means I read it too. Today we consider a classic case of manipulation to make a case. A denial of the empirical reality, a spurious claim to an historical relationship, and an assertion of an authority – the “bond markets” – that ultimately doesn’t exist. Classic propaganda but some lessons to learn as well.

As one dead-end traps the mainstream deficit terrorists’ relentless “hyperinflation is coming”, “the deficits are large and unsustainable” campaign another road is opened. New ways are found of pushing the same boring message. I read several papers and article today that all try to come up with a new tack – a new way of scaring the bjesus out of us and steer our minds towards what they assert is misguided government policy. They actually just don’t like any government claim on real resources because they think there is less for them then. Even when they don’t want to create jobs for the unemployed they resent government employing these people because it would just be a “waste of resources”. Its got worse as I read on. I tell you keeping up with all this stuff is surely going to be “a hard road till I die”.

Today I am travelling to the Baltic States of Estonia and Latvian, both of which are mired in a very deep recession bordering on depression. What you see in these economies is a demonstration of right-wing neo-liberal ideology at its crudest … and the damage it causes … at its magnified worst. Both economies are an indictment of the economics profession and the multi-lateral agencies like the IMF and the European governments. It is hard to come to terms with national governments who could easily enjoy currency sovereignty – voluntarily choosing to do otherwise for ideological reasons and then using what policy space they have left to inflict harsh pro-cyclical cutbacks on the economies they are meant to be nurturing. It is surreal at best and sometime in the future there will be retrospective consensus that this era we are living in was dominated by cruel and tyrannical policy makers.

What do you do when your government is selling you out? Get the titular head (president) to intervene. That is what seems to be happening in Iceland at the moment. While the president is being accused of being an old political hack who longs to be back in the limelight, the more accurate interpretation is that he is reflecting the mood of the population which have been abandoned by a government intent on big-noting itself on the world stage by pushing for EMU admission. The sources of the problems in Iceland mirror those that have been at work globally to undermine the stability of the financial system and plunge real economies into deep recession – a religious belief in the efficacy of unregulated markets and the efficiency of entrepreneurial zeal. Both beliefs are now in shatters along with many economies not the least being Iceland. It is time that Iceland invoked its status as a modern monetary economy whose government has sovereign status in its own currency and started showing leadership to advance public purpose.

Welcome to 2010. Today, in the overcast summer that we are enduring here, in between other things I am finishing off, I was in my office reading about how mainstream economics actually saved us from a major depression over the last 2 years. Far from having to hang their heads in shame, the article indicated we had all embraced Keynes and glory be the day. I also read a counter to that which outlined what further needed to be done. I concluded neither writer really had grasped what has been going on and both would benefit from exposure to modern monetary theory. Not a lot has changed overnight. Happy new year!

The year and the decade are rapidly closing out (early evening Thursday AEST). It is been an incredible year to be an economist with some of the swings in aggregates not seen before in most of our lifetimes. The degree to which nation’s have gone backwards has been staggering. For a researcher like me it has opened up so many new lines of enquiry. I always worry that my major research angle – the study of unemployment – gives me a job as long as there are others without them. But someone has to keep the topic at the top of the agenda and that is what I have devoted my academic and public career to doing. I have also been staggered this year by the sheer audacity of the mainstream economists who went to ground when the crisis emerged because their theories were shamefully wrong – but who are now popping up again – in all their arrogance – leading the charge of the deficit terrorists and undermining the capacity of governments to fight the crisis effectively. They should have just stayed in their slime. Anyway, my final post for the year has some sad things to say … and then …