By Dr. Samuel Brazys<\/p>\n
Renowned US economist Lawrence Summers adds his voice to the European \u201causterity\u201d vs. \u201cgrowth\u201d debate in a recent Financial Times piece<\/a> that is correct in recognizing that the sovereign situation in Greece is different from other Euro-crisis countries. \u00a0However his analysis largely ignores the household side of the equation in the other PIIGS, particularly\u00a0 in Ireland.\u00a0 Household indebtedness is the major issue here, and the surface hasn’t even been scratched. \u00a0The property market is still hugely distorted by NAMA and a 2009 estimate<\/a> by Ronan Lyons suggests that 1 in 5 private Irish homes is in negative equity, a ratio that has almost certainly increased over the past 3 years.\u00a0 As noted here<\/a>, \u201ca recent Ireland central bank report shows 70,911 mortgages are in arrears of more than 90 days. That\u2019s up from 62,970, or 8.1 per cent, in September.\u201d\u00a0 This is why the “austerity” vs. “growth” debate misses the point.\u00a0 Ireland cannot “save” or “spend” its way out of the crisis – there is a massive amount of household wealth that has to be wiped off the books.\u00a0 That most people realize this has implications for consumer confidence, spending, and ultimately, growth.\u00a0 The consequences of this underlying economic imbalance are currently being masked by the weak Euro, which fuels exports, but a day of reckoning awaits – through a continued short\/mid-term fall in nominal prices and wages, and\/or long-term inflation that will wipe out debt and wealth alike.\u00a0 Austerity is simply the course that brings on the former, while \u201cgrowth\u201d brings on the latter.\u00a0 The preference, and thus politics, depends on your net household savings.<\/p>\n","protected":false},"excerpt":{"rendered":" By Dr. Samuel Brazys Renowned US economist Lawrence Summers adds his voice to the European \u201causterity\u201d vs. \u201cgrowth\u201d debate in a recent Financial Times piece that is correct in recognizing that the sovereign situation in Greece is different from other … Continue reading