The latest economic news from the UK and the US is hardly inspiring. Further, detailed examination of the sectoral balances in the OECD nations reveals a massive drop in private demand since 2007. The mirror image of that spending collapse has been the increase in public deficits via the automatic stabilisers (discretionary stimulus packages aside). These swings are just signs that economies are adjusting back to more normal relations (private saving, public deficits). The sharpness of the swings reflects the atypical period that preceded the crisis where growth was fuelled by private debt in the face of fiscal contraction. It will take some years for the adjustment to be completed and the danger is that ideological attacks on the fiscal deficits will derail the process. But when the sectoral balances return to more normal levels in relation to GDP then guess what? We will still have budget deficits and we all better get used to it.

Today I reflect on my weekend of media reading. Within the never ending media assault on budget deficits which is now being regularly elevated to “the fiscal crisis of the state” I read a few stories which actually took a different tack. One said that several national leaders were going to prioritise jobs over the wishes of the financial markets while the other said that the so-called “debt moralists” (aka deficit terrorists) are not on sound economic grounds. Amidst the continual conservative onslaught at present, both articles reflect some movement at the station!

Yesterday, the British government announced that they had actually recorded a deficit in January which is rare given they normally get a big revenue boost in that month. The reaction to the news has been hysterical and calls to invoke fiscal austerity measures in the lead up to their national election are gathering pace. You can imagine that these calls are suggesting exactly the opposite of what I think the British government should be doing. Given that they risk locking a generation of their youth into a lifetime of disadvantage, job creation programs are required now which will require further stimulus. That is the only responsible course of action. The bond markets disagree. But if the governments around the world really represented the interests of their citizens they would use their capacities to render all these vandals irrelevant. Most people, however, do not understand what that capacity is and how the government could use it. Anyway, now to the news …

Last week (February 10, 2010), the ever-louder irrational rantings of Niall Ferguson about debt got another airing in the Financial Times in his article – A Greek crisis is coming to America. My two word reaction – which might be better than writing a whole blog was – Oh really! But the article demonstrates how desperate conservative academic commentary is becoming. The inflated self-importance of these characters quite obviously craves for ever increasing attention. However, not only does Ferguson demonstrate a poor attention to detail; a confusion about which monetary system is which; and a denial of history – but he also discloses such a vivid imagination that he might productively turn his hand to writing children’s fairy tales. Except then he would have to lighten up a bit or the kid’s would be having nightmares. As for the rest of us, we should be getting the lifeboats out if he is right. For me, I am staying on dry land except in the mornings when I chase those waves!

In this recent blog – Who is in charge? – I outlined the case that all the so-called “financing” arrangements that government deploy which are held out to us as being required to allow them to spend are in fact voluntary and reflect deep-seated ideological anti-government positions. I wanted to make the point that it is governments not amorphous “bond markets” that ultimately in command of the destiny of their nations and that citizens are being grossly mislead by lies and half-truths into believing that governments have to introduce harsh austerity packages to appease the markets because if they do not the latter will “close them down”. I continue with that theme today and address some issues raised in the comments that accompanied that blog.

Today started off as a usual Sunday – a long-ride on my bike interrupted by two punctures (why do they come in waves). Anyway, then some other things like a visit to the community garden where I have a plot. Then it was down to work and as I read news stories and academic articles I was continually confronted with the tide of hysteria surrounding the impending sovereign defaults (as we are led to believe). My principle conclusion was that these journalists etc have a pretty good job. They get paid for knowing nothing about the topics they purport to be experts about and instead just make stuff up and intersperse it with some mainstream economic ideology taken straight from Mankiw’s macroeconomic textbook. It would be an easy way to make a living. Get the text book out … turn to the chapter on debt this week (last week inflation) and start of with some “large” numbers which are “without precedent” and you are done. Easy pie! Problem is that it influences the readers who do not know these commentators are charlatans.

Today I have been thinking how extraordinarily stupid human beings are. The so-called Club Med Eurozone nations are being fast tracked into a crisis by a pernicious concoction of corrupt and lazy ratings agencies, Northern European truculence, and a ridiculous monetary system that provides no fiscal support within what is really a federal system. And as the ailing governments boldly and stupidly declare a willingness to play ball with the Brussels-Frankfurt consensus bullies there are signs that social order is beginning to break down. Then I read that an American city is turning its lights off at night to save money. Then I read some goon telling everyone to short US bonds because there will be a debt meltdown. And all of this stuff stems from unnecessary constructions and constraints that we have placed on systems that should be geared to advancing general welfare.

Person the life-boats! Get the hard hats out! Strife and pestilence is coming! I am wondering what all these loons – the deficit terrorists – who are now elevating a simple endogenous fiscal balance into a national emergency – will say in a few years when growth returns, unemployment falls, people start rebuilding their savings and most importantly their children do not go into slave camps making widgets to send back to the previous generation to pay for the fiscal balances and … the sky stays firmly above our heads although it does rain occasionally down on us to help farmers grow vegetables. What will these hysterical idiots say then? Today, the budget deficit has become the latest WMD. A seek and destroy mission is required. Bring out the military and attack treasury offices everywhere. Rally patriots the hour of calling is nigh?

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”.

Three happenings in the last 24 hours confirm to me that neo-liberalism is alive and well in the US and the rest of the World. The first of those happenings is the almost grotesque statements coming out of the EMU about Greece. The second is the 70/30 vote supporting the re-appointment of Ben Bernanke as the US central bank boss; and the third is the US President’s State of the Union speech. I wonder how the millions of unemployed around the World would feel about any of those happenings?

Today a relatively short blog buts lots of different colour graphs. I have been going through the updated IMF growth forecasts released on January 26 and doing some projections of what this might mean for the capacity of this growth to reduce the unemployment rate. Like any projection exercise you have to make assumptions. And it seems that there is still quite a bit of dispute about whether we are going to recover fairly steadily or keep skidding along the bottom in 2010 with tepid growth in 2011. The IMF are the most optimistic around at the moment and as you will see, even this level of optimism doesn’t paint a very good labour market picture.

Today is a national holiday in Australia (more about which later). In the lead up to the US President’s State of the Union speech tomorrow came news that he was planning to freeze public spending from next year to get the budget back on track. I wondered what track that might be. Governments all around the world are now being pressured by conservative lobbies to engage in a renewed period of fiscal austerity even though the respective labour markets are disaster zones. History has a habit of repeating itself. The US government did exactly this in 1937 and the unemployment worsened. Japan did it in 1997 with the same outcome. The UK government is likely to do it in 2010 with totally predictable results – their economy will falter. What the US government is now in danger of repeating is taking its economy down the fast track to a double-dip recession. It is plain stupidity and the “freeze” doesn’t reflect the reality they are in.

Today I delve into the world of financial advice by E-mail. There are a growing number of subscription lists that people are exhorted to join to receive the latest in analysis from so-called experts. Most of it would qualify as spam. They seem to follow a formula – stir the emotions, offer great deals (which appear to be the motive – to make money), and spread dangerous half-truths and total fallacies. I get a lot of E-mails myself from readers asking me to comment on some of the claims that they have been reading in these “products”. So today I thought I would meet those requests by focusing on a particular newsletter that is broadly representative of the genre. My advice is to avoid wasting your time on these lists and read billy blog instead!