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Degrees of Magnitude: Economic Growth and Deficits

May 3, 2012

Great piece (once again), from economic guru, and jedi btw, Robert Reich on Marketplace yesterday (5-2-12).

Essentially Reich jumos into the mangrove swampland of the economic context. With Europe continuing to struggle, as a direct and indirect result of our recession (reminds me, PBS’ Frontline finished a great 2 part movie/piece on the meltdown. superb), Reich muddles through economic strife and subsequent austerity measures to ease the fall. Europe’s collective identity, as the EU now, is much different than our society, and current situation. Within the EU, there are still national identities that are all their own in one respect, while also a small part of the group collective as the EU. So, for instance, we see Greece’s cooked books and bloated currency, and how it affects both the EU and the nation in their own way. The EU has to sacrifice and have put up a lot of money, I’m thinking 500 billion more or less, in order that the EU currency isn’t brought down in value from Greece massive debts. That weighs on the collective nations that have to chip in, notably Germany and France, while Spain, Italy, and Portugal swim upstream with there own pervasive economic issues (e.g., 25% Unemployment in Spain). Two nights ago, Frontline’s comprehensive documentary on the econonomic recession covered the differences between Europe and us, especually the milieu of the F9er salesmen/women. Essentially, the F9ers were instruments on foot that pushed a variety of incredibly uncouth, deceit-laden deals,. The piece highlighted how JPMorgan negotiated a restructuring of public bond interest-rates with the small countryside municipal town of Cassini, Italy, outside Rome. The city council members that met the financial reps had no idea what they were getting into, and the arbitrage was in full swing. For indtance, in Cassini, the council was told their 5% interest-rates would go down to 1%, which sounded good to them. What wasn’t communicated clearly, and purposefully, was that the deal rested on and derived it’s value from various other actors that, if defaulted, would default on the Cassini deal. I want to sink my teeth into the documentary and the economy in general more later, especially the coded language and subtlties in the world of credit default swaps (CDS’) and collateral derivative obligations (CDOs). And the brilliance of Financial Times Editor/Bureau Chief of New York City, Gillian Tett.

And more on degrees of growth, deficits, their proportionality (compared to the overall econ), and the relationship b/t the sizes/rates of growth/contraction and surplus/deficits.

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