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Comment by geezerjay | Hacker News Reader

> Europe decided to do austerity instead of Keynesian stimulus.

You are somehow assuming there was a choice to begin with.

There wasn't. If you don't have the cash, you don't get to spend it.

Do note that all EU nations that were subjected to a bailout agreement were forced to do so because they lost access to international money markets and were essentially cut off from receiving any loan. We're talking about half a dozen states that were borrowing themselves at levels close or beyond 100% GDP, and the international money markets raising available interest rates beyond 7% for 5y loans in response.

How do you get a loan when you're over 100% in debtand you're running a keynesian double-digit deficit?

You don't. You pick up your phone to call the IMF for help, and start to cut spending to avoid bankruptcy.

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> If you don't have the cash, you don't get to spend it.

That's true for people, but it's not true for governments, especially the U.S. government. During the economic crises, the Fed created money out of thin air and gave it to large banks with the idea that they could lend it out and assist businesses. This was called quantative easing, which is the modern form of "printing money", but it's very much the same idea.

The risk of that is that doing so devalues the currency everyone else is holding and risks increasing inflation. However, that didn't happen during the economic crises.

> That's true for people, but it's not true for governments, especially the U.S. government.

Actually, it's specially true for governments, and some people insist on being completely oblivious to that fact. Contrary to what you might believe, money markets do cut off access to credit to a nation that's over indebted and showing off unbalanced books. If that wasn't the case then no eurozone member would have required emergency loans from the IMF and even the EU and EACH just to cover their immediate expenses.

In addition governmentment who control the nation's currency may resort to ramping up inflation to print out extra cash but that doesn't mean they are getting free cashier or aren't empoverishing the whole nation. These magic money-making policies inflict the exact same damage than austerity has with the exception that it restricts access to imports.

The US is a very particular case as money markets somehow treat US debt as a very special case, one whose massive overspending has no impact on lender's perception.

"Restricts access to imports" is a really interesting way to put it - weakening a currency of course lowers imports and raises exports. Which can go a long way to fix a depressed economy.

Of course bond investors knew the EU did not intend to pursue monetary policy that would allow distressed economies to adjust. US debt is not a magic special case. Take a look at Japan.

> The US is a very particular case ...

I'm not sure if it's particularly special, just particularly large. It's the largest economy in the world, and even in times of relatively high debt-to-GDP, it's still far better off than many of the Euro-zone countries that were brought to the brink. China, for example, has a far higher debt-to-GDP than the US.

That said, one particular reason why the US may more resilient to inflation is the fact that the dollar is the worldwide reserve currency of choice. This helps with inflation, but can hurt by artificially increasing the value of the dollar hurting exports. So overall, it might not be a great policy, but in a debt crunch, it gives the government more leeway to print money without risking inflation.

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