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If cutting government spending works...

Aunt Spiker

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Why do countries who take IMF bailouts end up worse then when they started?
IMF bailouts is not a form of decreased government spending.

It is merely a loan which must be paid back - and it comes with stipulations and regulations that the receiving country has to abide by. . . which are purely focused on government spending, NOT on the prosperity and good living of the people.
The Greek government has promised to slash and then freeze public-sector wages, raise sin taxes, increase value-added taxes, impose a new levy on businesses, cut pension payments and raise retirement ages for some public-sector workers. The steps are expected to save the state €30 billion through 2013. Unions have vowed strikes to protest the deal.
This is part of Greece's agreement for the bailout (which is funded by other members of the EU - other countries) - they're cutting/freezing wages, raising taxes (sin, vat) - levying businesses, cutting pension funds and making people work longer.

yeah - they save money. *clap*
But in the process of doing so they screw individuals over.

People will only have less money to spend - which will hinder their economic growth.

And - usually bailouts are a last-ditch effort. . .
"We have no other choices and no time," Greek Prime Minister George Papandreou said in a televised speech on Sunday. He vowed that his government won't "allow the country to become bankrupt."
The ideal time for economic intervention is BEFORE the **** hits the fan - not AFTER.

BEFORE - not AFTER.

Government's don't seem to understand this - and even though we've had centuries of experience in how to run an economy and govern - they seem oblivious to facts and historical precedent and just doomed to repeat it.

Key in prevention, other than the very ignored 'don't borrow money - don't live outside your means' is to NOT take any loan that you have to pay back if you are not certain that you can recoup that money - and pay it back BEFORE it's due or spirals out of control.
 
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obvious Child

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IMF bailouts is not a form of decreased government spending.

It is merely a loan which must be paid back - and it come with stipulations and regulations that the receiving country has to abide by.
One of which is always severe cuts to government spending. While there are plenty of other posion pills in the medicine kit the IMF hands out, large government spending cuts is one of the main ones. If government spending cuts were so beneficial, why do IMF recipients generally end up significant worse then when they started?
 

Aunt Spiker

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One of which is always severe cuts to government spending. While there are plenty of other posion pills in the medicine kit the IMF hands out, large government spending cuts is one of the main ones. If government spending cuts were so beneficial, why do IMF recipients generally end up significant worse then when they started?
Cutting is GREAT when it's done *right*
Cutting = spending less on supplies for the office, technology upgrades, nipping petty cash, travel expenses, curbing the purchase of various things that's are essential.

Cut your non-essentials back and are just more careful WITH your budget - and you'll fair better.
(apply this to your home - if money is so tight you're living off of continuous loans and credit-card purchases then what you should do is let go of some non-essentials - like tv or electricity usage. NOT to just borrow more money and then hack into your kid's piggy bank)

So look at the types of 'government spending' that Greece cut:
Wages (people's pay for working)
Pension (for retirees)
Retirement age (thus - age for receiving said pensions)

This is hurtful because it will reduce people's spending money which they depend on - people will be forced to cut back on their living expenses.
If the government is raising taxes AND cutting people's wages then people will have less money *to* spend.

A government cannot sustain itself without economic fluidity.

It's not so much HOW MUCH you try to cut - or raise - it's WHAT you cut or raise and WHERE you get money from.

If a country is taking such big loans it's because they're making bad decisions - and have been for a very long time.
We're a stellar example.

If these bad decisions at the core (government spending, budgeting, programs, efforts, decisions) aren't addressed the problem will hang around - get worse - maybe improve every now and then - but overall it won't ever really *go away*

Like I said - the time to take action is before things fall apart.
It'll take a very long time for a country to recover when they've gone past that point of no return (this is our situation).
And in the process the economy hurts - which continues to hinder recovery.

Their only true hope is to bring in tourism or increase production and capitalize on exports.

But when you're a small, limited country like Greece you don't have very many options - which is why a tight budget and safety precautions is SO important.
 
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PeteEU

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Why do countries who take IMF bailouts end up worse then when they started?
Actually that is not entirely true.

Those countries that often take IMF bailouts often have a history of political instability.

Take Argentina. They took an IMF bailout after decades of political instability, dictatorships and so on, and so far have kept a stable democracy. They are now much better off than they were (over all) before the bail-out. Granted the social injustice in the country has increased considerably (more poor, bigger income inequality and so on) but the over all economy is better and more stable.
 

obvious Child

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Actually that is not entirely true.
One country hardly proves I'm wrong.

Take Argentina. They took an IMF bailout after decades of political instability, dictatorships and so on, and so far have kept a stable democracy. They are now much better off than they were (over all) before the bail-out. Granted the social injustice in the country has increased considerably (more poor, bigger income inequality and so on) but the over all economy is better and more stable.
Uh, you're looking at Argentina now rather then Argentina after the bailout. Poverty shot to the sky after the bailout. Furthermore, the Argentina government went back to large social spending. Are you honestly arguing that the IMF years were good?
 

Aunt Spiker

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Exactly - look - if your country goes into debt like that and your people end up WORSE OFF then it FAILED. . . it did not WORK right.

The point of a government is to govern and protect the rights of the people - not just screw them over, take all their money, and flush them down the crapper when the pot is full.
 

DrunkenAsparagus

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For once I agree with Pete. The countries are already in bad shape. It's like blaming chemotherapy for the death of a cancer patient.
 

samsmart

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Cutting is GREAT when it's done *right*
Cutting = spending less on supplies for the office, technology upgrades, nipping petty cash, travel expenses, curbing the purchase of various things that's are essential.

Cut your non-essentials back and are just more careful WITH your budget - and you'll fair better.
(apply this to your home - if money is so tight you're living off of continuous loans and credit-card purchases then what you should do is let go of some non-essentials - like tv or electricity usage. NOT to just borrow more money and then hack into your kid's piggy bank)

So look at the types of 'government spending' that Greece cut:
Wages (people's pay for working)
Pension (for retirees)
Retirement age (thus - age for receiving said pensions)

This is hurtful because it will reduce people's spending money which they depend on - people will be forced to cut back on their living expenses.
If the government is raising taxes AND cutting people's wages then people will have less money *to* spend.

A government cannot sustain itself without economic fluidity.

It's not so much HOW MUCH you try to cut - or raise - it's WHAT you cut or raise and WHERE you get money from.

If a country is taking such big loans it's because they're making bad decisions - and have been for a very long time.
We're a stellar example.

If these bad decisions at the core (government spending, budgeting, programs, efforts, decisions) aren't addressed the problem will hang around - get worse - maybe improve every now and then - but overall it won't ever really *go away*

Like I said - the time to take action is before things fall apart.
It'll take a very long time for a country to recover when they've gone past that point of no return (this is our situation).
And in the process the economy hurts - which continues to hinder recovery.

Their only true hope is to bring in tourism or increase production and capitalize on exports.

But when you're a small, limited country like Greece you don't have very many options - which is why a tight budget and safety precautions is SO important.
This is probably the post I agree with the most. Government spending isn't good or bad in and of itself. It's how the government uses it's tax revenue that's the most important factor.
 

obvious Child

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Exactly - look - if your country goes into debt like that and your people end up WORSE OFF then it FAILED. . . it did not WORK right.

The point of a government is to govern and protect the rights of the people - not just screw them over, take all their money, and flush them down the crapper when the pot is full.
Perhaps so, but IMF tended to result in declines in revenue as the economic activity related to the government spending dropped. With increasingly large amounts of debt to finance and with less revenue as a function related to the spending, IMF receipients got double shafted. Triple actually. My subtle point is bascially to point out the mantra of "cutting spending always works" is piss.
 

Harry Guerrilla

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One of which is always severe cuts to government spending. While there are plenty of other posion pills in the medicine kit the IMF hands out, large government spending cuts is one of the main ones. If government spending cuts were so beneficial, why do IMF recipients generally end up significant worse then when they started?
The people managing the various governments have poor budgetary skills.
From what I understand, a lot end up right back where they were.
 

Harry Guerrilla

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Actually that is not entirely true.

Those countries that often take IMF bailouts often have a history of political instability.

Take Argentina. They took an IMF bailout after decades of political instability, dictatorships and so on, and so far have kept a stable democracy. They are now much better off than they were (over all) before the bail-out. Granted the social injustice in the country has increased considerably (more poor, bigger income inequality and so on) but the over all economy is better and more stable.
I don't think Argentina is done.
I think they could, eventually, head right back into the crapper, especially with the corruption of the Kirchner's.
 

obvious Child

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The people managing the various governments have poor budgetary skills.
From what I understand, a lot end up right back where they were.
Perhaps so, but some of that can be attributed to the speed of which the IMF wanted its stipulations enacted. Poland engaged in a very different path then the average IMF and they are doing well. The IMF was pretty stupid. Viewing all economic crisies as the same is basically like a doctor who's only drug prescribed to all of his patients is Tylenol.
 

Harry Guerrilla

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Perhaps so, but some of that can be attributed to the speed of which the IMF wanted its stipulations enacted. Poland engaged in a very different path then the average IMF and they are doing well. The IMF was pretty stupid. Viewing all economic crisies as the same is basically like a doctor who's only drug prescribed to all of his patients is Tylenol.
Poland was and is still an emerging market.
They had/have a lot of potential and not as much brain drain, like Argentina.

From what I understand, Argentina has experienced a lot of people leaving for sunnier shores like Spain and the rest of the EU.

I agree that they should view each country, on a case by case basis though.
 

obvious Child

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Poland was and is still an emerging market.
True, but in many ways, so was Argentina. And Argentina was never crippled by the state planning of the USSR satellite system.

They had/have a lot of potential and not as much brain drain, like Argentina.
But on the flip side, Poland never had the raw material reserves that Argentina does.
 

Harry Guerrilla

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True, but in many ways, so was Argentina. And Argentina was never crippled by the state planning of the USSR satellite system.
You have to remember Argentina was one of the most prosperous states in the world prior to their collapse.
I think they were the 8th largest at one point.

Poland on the other hand, was nearly 3rd world, with tons of potential energy.
So to speak.

But on the flip side, Poland never had the raw material reserves that Argentina does.
That is true.
 

PeteEU

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I don't think Argentina is done.
I think they could, eventually, head right back into the crapper, especially with the corruption of the Kirchner's.
That is another matter, but the fact is that the IMF bailout worked so far in Argentina.. remember it is a decade or so ago now.
 

PeteEU

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Poland was and is still an emerging market.
They had/have a lot of potential and not as much brain drain, like Argentina.
Poland has 15+% unemployment and has had it for a decade. Their brain-drain is far larger than it was/is in Argentina since Poles are free to roam the EU, where as Argentinian's need permission (and to go across the Atlantic ocean) to enter the EU.

From what I understand, Argentina has experienced a lot of people leaving for sunnier shores like Spain and the rest of the EU.
Yes, and many have returned. It is not a "brain-drain" as in the educated masses (doctors and so on), but often the lower middle-class and lower who were very hard hit by the IMF bailout and Argentinian crash. Many of the Argentinian's who came to Spain were bricklayers, electricians and that kind of person. My own electrician is from Argentina :)
 

Aunt Spiker

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Yeah - if you're ****ed and you act WAAAY to little WAAAY to late no amount of cutting-spending is going to help - of course.

Taking in an IMF loan, hiking taxes on people, and snipping people's paychecks is *not* going to help - it's going to hurt . . . and these are the things that Greece and other countries have done as part of their IMF (and other) loan-deals.

Cutting spending does work when it's done preemptively - Greece should have taken slow steps in a new direction maybe 10 or 15 years ago, or more.
 

Kushinator

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For once I agree with Pete. The countries are already in bad shape. It's like blaming chemotherapy for the death of a cancer patient.
Part of the issue with these countries is the level of corruption within their governments. In that regard, cutting government spending is a necessary poison pill.
 

phattonez

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Cutting spending doesn't mean much if you take on a lot more debt in the process. Although the burden of government will be lessened for a while, people know it will increase again when those loans have to be paid.
 

Harry Guerrilla

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You got a link for that?

That really doesn't sound right.
My timing was a bit off, my bad :doh

"Argentina increased in prosperity and prominence between 1880 and 1929, while emerging as one of the ten richest countries in the world, benefiting from an agricultural export-led economy, as well as British and French investment. Driven by immigration and decreasing mortality, the Argentine population grew fivefold and the economy by 15-fold.[17] Conservative interests dominated Argentine politics through non-democratic means until, in 1912, President Roque Sáenz Peña enacted universal male suffrage and the secret ballot."

Argentina - Wikipedia, the free encyclopedia
 
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