Argentina

Government Spending Claims Two More Victims

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Recently, two more countries have felt the bite of Keynesianism. Today, the credit ratings agency Fitch downgraded Japan's economy and the AP reported that the Argentinian economy is likely to decline sharply. While Japan and Argentina might be different kinds of economies performing differently in different markets, their recent bad news can be attributed in part to a fondness for government spending.

Japan's explosion in government spending is in part a response to the March 2011 tsunami caused by a once-a-millennium earthquake that released energy equivalent to 600 million times that released by the Little Boy bomb and knocked the globe a few degrees off its axis. The Japanese government spent a huge amount of money on reconstruction, and the Prime Minister, Yoshihiko Noda, has pledged 20 trillion yen ($259 billion) more on reconstruction — money that has to be borrowed. Even before the tsunami, Japan had a worrying debt to GDP ratio. Japan has the world's highest debt to GDP ratio, 211%. This figure is more staggering when you consider that in 2002 the debt to GDP ratio was 151.7%. Long before last year's tsunami Japan was developing a taste for expansive government. The only reason why Japan is able to last with this level of debt is that most of the country's debt is held domestically. 

In Argentina the future is looking grim. The Argentine government has engaged in government spending on welfare programs and industry subsidies that were only made possible after President Kirchner refused to pay back lenders in full. A low rainfall and the devaluing of the Brazilian currency have not helped the economic situation in Argentina, but it is unlikely that even without these unforeseen circumstances that Argentina would have been able to insulate itself from the consequences of its overspending, especially with major economies in recession.

Of course Japan and Argentina are not the first economies to face diminished growth or downgrades. The U.S. and France have both been downgraded, and the U.K recently entered a double-dip recession. However, more and more economies are seeing the consequences of fiscal and monetary expansion. It would be nice to think that governments might learn from the current situation and not repeat the mistakes that contributed to the current crisis. Events in Europe in particular do not seem to be offering any indication that we might be able to look forward to such a future.

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  1. Things like Tsunamis happen. And they are really expensive. Just maybe it is a good idea not to borrow every buck you can when those things are not happening so you can borrow money when they do. Just a thought.

    1. Even then, that’s only if you believe governments should be responsible for reconstruction in such events.

      1. Even without reconstruction, they still cost a fortune in lost economic activity. And the government has to rebuild a lot of infrastructure and that isn’t cheap.

        So yeah, it is going to cost you a lot even if you don’t rebuild everyone’s house.

        1. Yeah, that’s how it would play out in any case. I was just theorizing.

      2. just award halliburton the no-bid reconstruction contract go golfing. jeesch

        1. You mean Japan’s world famous oil extraction and development industry was badly damaged by the tsunami? I hadn’t heard.

          1. my bad. make that the booschburton contract. thx

  2. I’m eagerly awaiting the immense drop in Red China’s economy. Let’s see the leftists brag and bitch as the object of their fetish trips over itself and suffocates painfully.

    1. they’ll still blame it on Bush.

    2. Never happen. They have trains.

      1. Great. All the easier to ship the population to concentration camps once the shit truly hits the fan. California’s government will just have to get by with trucks and local mass graves.

        1. California’s government will just have to get by with trucks and local mass graves.

          That’s locally harvested soil amendments for the community organic gardens. Transported in sustainable vehicles, i.e. oxcarts.

    3. I was watching MSNBC last week (please, don’t ask) and one of the talking heads was wailing about how austerity was unnecessary because look at Japan and their deficit spending.

      Will eagerly retraction, correction, whatever they feel is appropriate.

      1. how’s that ol austerity working-out in the EU there einstein?

        1. Already covered. It’s fauxsterity, my squawking retarded little friend.

  3. Don’t you guys know?
    The most effective way to create wealth is to destroy it!

    1. broken currency fallacy

  4. The Japan tsunami didn’t knock the globe a few degrees off its axis. It knocked it off by a few inches:

    http://www.space.com/11115-jap…..-days.html

    1. A shift of a few degrees would have been quite the experience…

      1. Meh. We all know the government has spaceships ready to save the populaiton if something like that happens.

        1. Meh. We all know the government has spaceships ready to save the populaiton themselves if something like that happens.

      2. I knew “degrees” couldn’t have been right.

  5. A lot of Japans high debt might be domestically held, but even with a society which has high levels of honesty and trust amongst its citizens (which Japan does), there are limits. Does anyone seriously think that getting to something like 500% or 1000% debt levels will still work, even if it is all held by loyal Japanese citizens ?

    1. Another limit is that, if you are counting on your grandchildren to pay off the debt, you have to have enough grandchildren. The Japanese aren’t.

      1. If the population hits zero, they dont have to pay it back either.

    2. What I wonder about is what would happen if interest rates went to, say, 5%? They would have to use over 10% of their GDP just to pay the interest on the national debt.

    3. Eventually, that debt will be wiped off the books with a swipe of the pen. The Japanese might as well consider it a voluntary tax at this point.

  6. In the Americas, Argentina has had the highest growth rate for the last 10 years.

    You say it is because they had a lot of government spending?

    And you say they weathered a global economic downturn without the slightest bit of recession?

    But now, some unnamed people are predicting economic growth of only 2.5-3% for the year?

    When was the last time America had a growth rate, for a whole year, of “only” 2.5-3 percent?

    1. Kirchner also has a case of Chavismo:

      She seized a Spanish-owned oil company this spring. She has nationalized the banks. Plus she has a penchant for throwing people in jail for telling the truth about the Argentine inflation rate.

      1. They renounced sovereign debt in 2002, essentially defaulting on most of it. Most of the “growth” they’ve seen in the past decade was in resource industries. With inflation spiking, they’re losing capital quickly, and with the debt default, no one is going to invest there. It’s probably going to get ugly very quick.

        1. Plus the economy crashed 57% between 1999 – 2002 (due to forced conversion of foreign currency accounts to Argentine currency leading to a run on the banks.)

          Once you go down 57%, there is a lot of room to go ‘up’.

          1. Notice Josh didnt start his calculation at 1998.

            Cherry-picking data, Josh?

      2. Kirchner is corrupt. Yet another Latin American authoritarian, just with a dress and tits.

        1. Hugo Chavez in a …

          Oh, that’s already taken.

          1. Hilary Clinton in a dress.

            1. joe from lowell in lipstick

              1. Tony at a drag show.

  7. Eventually all the countries will be downgraded, then once again we will have the highest rating of them all. Something to shoot for.

  8. Argentina has also been stealing (uh nationalizing) oil companies, which is not inspiring confidence among other companies.

  9. Heritage and CATO rank Argentina behind nominally Communist countries China and Vietnam in economic freedom. I’m thinking their future isn’t that bright.

    1. But….teh Kochtopuzz!!1!!

  10. This is nothing compared to the destruction from Austerrorism in Europe. Charity is a rarity under austerity, and we owe it to posterity to have the temerity to say so.

    1. Austerrorism in Europe
      Great name for musical.

      1. It’s Springtime For Merkel and Germany…

    2. As has been extensively demonstrated on this blog, European austerity is a myth.

    3. All a country like France needs is more public servant jobs, infrastructure spending and debt increases, because France lacks all of these things…

    4. Jesse Jackson is so proud of you! You may get to start writing his speeches if you keep up the rhymes.

    5. Cool story, bro.

    6. YEAH! Fuck those greedy people for wanting to save their money when times get a little rough. If you ain’t donatin’ you must be hatin’ cuz the poor are waitin’ and you ain’t relatin’.

    7. Cool story, bro.

    8. Fuck off Mary.

    9. I LOVE THIS TROLL

    10. What? The Austrians are at it again?!

  11. I don’t consider Japan or Argentina “victims”. They are both democracies. The populations of both countries are getting what they asked for – good and hard.

    1. Victims, like as in victims of suicide.

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