Monday, June 11, 2012

Krugman on Spanish bank bailouts and "sado-monetarism"

Krugman is less "shrill" than rueful in Another Bank Bailout New York Times 06/10/2012. Well, okay, he's "shrill", too:

What’s striking, however, is that even as European leaders were putting together this rescue, they were signaling strongly that they have no intention of changing the policies that have left almost a quarter of Spain’s workers — and more than half its young people — jobless. ...

Whatever the deep roots of this paralysis, it’s becoming increasingly clear that it will take utter catastrophe to get any real policy action that goes beyond bank bailouts. But don’t despair: at the rate things are going, especially in Europe, utter catastrophe may be just around the corner.
Krugman there makes the very important point that Occupy protesters have been making with with slogans like, "Banks got bailed out, we got sold out". And he notes:

Spanish banks did indeed need a bailout. Spain was clearly on the edge of a “doom loop” — a well-understood process in which concern about banks’ solvency forces the banks to sell assets, which drives down the prices of those assets, which makes people even more worried about solvency. Governments can stop such doom loops with an infusion of cash; in this case, however, the Spanish government’s own solvency is in question, so the cash had to come from a broader European fund.
He's adopted "sado-monetarism" as his word for central banks ignoring obvious major unemployment problems. I heard it the first time in his Netroots Nation presentation on Saturday.

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