European leaders are expected to release a plan this weekend to address their growing sovereign debt crisis, but German officials on Monday put a damper on hopes for a quick fix. What should be done about the crisis, and how vulnerable is the U.S. economy?

Dan McCrum, U.S. investment correspondent for the Financial Times
James Galbraith, Lloyd M. Bentsen Jr. chair in government / business relations and professor of government at the University of Texas at Austin's Lyndon B. Johnson School of Public Affairs
Michael Mandel, chief economic strategist at the Progressive Policy Institute, a centrist Democratic think tank, and former chief economist for BusinessWeek

  • Hugh

    So if countries shouldn’t make cuts to Govt. in a recession because it de-stimulates an economy (like Pres. Hoover did) but don’t want to make cuts during good times (a la Pres. Bush & VP Cheney “deficits don’t matter), when does Govt. act to stay solvent?  Will civilization ever find the right middle?

    Or is the lesson that positive cash flow through a rising economy, and the plateau they reach for a period of time thereafter, the only times countries achieve successful economies and standards of living?

    • Hoover actually grew government spending. FDR’s campaign slammed Hoover for expanding welfare programs, raising the national debt and raising taxes… The FDR campaign actually accused Hoover of turning the US into a socialist state. Check the data and you’ll see it does not match the popular narrative. In comparison to Hoover, FDR was almost a fiscal conservative.

  • rjasonsmart

    Why can’t investments from nations flush with capital, like Brazil and China help stabilize the situation in Greek, Spain and Italy.  Seems like the benefits of world economic stability would be worth the outlay of cash.

    • Nuno Elder

      The media is currently in love with Brazil…have you seen the favelas….Brazil couldn’t do anything.  Have you looked at real poverty in China?

    • George

      because for example greece has signed the agreement that says they are not allowed to borrow from anyone else besides IMF,and the European banks.By chance??i dont think so… is all well planned so that the debt ,that actually is not existent money ,take existance by making the greek citizens give money to the banks,so that hte shareholders will not lose.who arrranged all this?the banks.with the help of their servants in politics.thats the reality of this system.the answer?for greece to default and refuse to pay the loans for weapons that they never needed.USA has always for example kept a tension between greece and turkey in order to sell guns to both.Germany also gave to greece loans so that greece could buy german submarines that were never actually delivered.and they costed 10 times more.because the germans bribed greek officials to sign the agreements.what else you need to know?ask me.

      • Awe

        Not to mention “siemens” a well known German company that achieved colossal earnings by bribing Greek politicians so as close deals with major Greek state companies etc.!

  • Steve

    I understand that any potential solutions rely heavily on Germany, but isn’t Germany also poorly situated to provide help to other countries?  I believe its debt to GDP ratio is about 80%, which, I would think, makes it hard for it to “loan” money to other “bankrupt” countries.

  • Bob576

    Nobel prize winning economist & columnist Paul Krugman has said Spain did not run large deficits and Italy has only run them recently. But your economic correspondent implied both are and have been by saying this is northern europe vs. deficit running “southern europe”.  

    Who’s right, and are such generalizations making things worse?  This has real policy implications: I know the owner of a medium size Spanish business that is growing and has positive cash flow, and their bank just cut their credit line. It makes no sense whatsoever…

    • Nuno Elder

      Paul Krugman is an ideologue.

    • Computerguy

      All you have to do is look up the statistics! The facts will corroborate what Galbraith said. But, as is the case too ofte, people want to believe what they want to believe in spite of the facts!

  • Kamit

    What is the impact of high crude prices on the European crisis. Brent Crude has been above $100 a barrel for the last 6 months.

  • Sam

    Karl Marx more or less predicted that this is what happens to a Capitalist economy as competition develops and capital accumulates wealth. He predicted that these debt crises were more or less inevitable in the long term. Has the fear of anything too “Red” prevented Capitalist economists from recognizing serious structural critiques of Capitalism?

  • $2870056

    Cooperation seems to be the antithesis of economic competitiveness.  Isn’t that the crux of the problem?

    Being “neighbors” versus being “winners-or-losers.”

    • No it’s not. Economic transactions are by their very nature cooperative. I give you something you want and you give me something I want. For some reason, governments have started seeing their Balance of Payment (Trade Deficit/Surplus and Capital Account Deficit/Surplus) as a score which they must make higher. But ultimately, trade is beneficial for the individuals involved. National aggregates have very little meaning except when it comes to predicting capital flows. A fine occupation for academic economists, but not a useful measure of well-being.

  • Wheatspear

    “Shock of Gray” sheds light on one aspect of this subject: the impact of an aging population in certain European countries (the book focuses on Spain but names others as similar).

  • Stellaa

    Investment in Greece?  Yes, there was lots of investment: airports, bridges, metro all built by German companies. 

    Thank you Mr.  Galbraith.  They knew and they made the loans.  

  • Promytheus

    The speaker talking about the dismantling of institutions which were already sub-par is right on. Source: personal experience.

  • Jay Tucker

    What’s  been missing, and
    is still is missing, is just how to get the economy going. I submit that this
    is a mechanical problem. A stalled engine cannot be started by putting more gas
    into an already full tank. You must inject some gas into the firing cylinders,
    and crank the engine. In economic terms that is supplying welfare. It’s giving
    money to those that most need it.  I am
    talking of those that cannot afford to bank it long term.  I am talking of those that are part of the
    stalled economic system. Those that are out of funds. Some spending power now
    would effectively prime the pump for more economic growth tomorrow. If we fail
    to do this, then we shall further isolate the lower classes until that mass of
    humanity decides that it is not getting a fair shake in life. We have seen it
    before, Watts, Arab Spring,  others I
    cannot remember.  It would be far better and
    cheaper that we undertake the responsibility to cater to ALL of American
    Citizens now.  That can only be done with
    a fair income tax redistribution system. We all must foot the bill.
    Regards Jay Tucker.

    • The economy is not a car. The economy is an ecosystem. It is infinitely complex and introducing foxes because the rabbits we introduced have run amok is not going to solve the rabbit problem. It’s just going to create a fox problem.

  • David Huck

    in a slight detour I am wondering if you see declining net available energy (what is left over after you account for the btus needed to get it out… As wide a lifecycle analysis as possible) as a reason for our current economic problems and the failure of Keynesian demand stimulus

  • Barlow

    the show ended with the speaker saying “I don’t believe this is a demand shortfall recession…” I’d like hear that thought completed.

    • Computerguy

      I was shocked by his statement! Up to that point I just regarded him as a centrist/mildly conservative democrat. However, in spite of overwhelming evidence to the contrary he ends the program with such an outrageously stupid (sorry for such strong language) comment.  So many people stick to what they feel the world should be rather than what it actually is without a shred of evidence to support their side. He also mentioned that he doesn’t understand why people are advocating solutions that were applied in the 1930 to our situation now since this is not the 1930’s. Another stupid comment. He also said that there is debate about what actually happened during the 1930’s depression. There is NO debate amoung the economists of standing; just among a few who are trying to muddy the water. He gives new meaning to the phrase: “Don’t confuse me with the facts”.

      • There is in fact debate among serious economists as to what happened during the great depression. In fact there are enough mainstream explanations of the depression and the recovery that I am not sure which one you are referring to as being the obviously real one. If you tell us what you mean perhaps we can discuss it.

  • Nuno Elder

    unfortunately politcs is broken….completely….

    during good times you’re supposed to save $…in tough times, you’re suppose to go into debt

    unfortunately  the government spends spends no matter what

    what has happened is we have borrowed to provide a higher standard of living than we can afford (in general)

    it’s unsustainable….something has to give

    I think inflation is the only way out

  • The framing of the problem by one of the guests as arising from Europe’s trade deficit is absurd. When a foreigner sells a good or service in Europe, they receive Euros in return and that transaction is recorded in the Trade Account with a negative sign in front of it. Why? Because that’s the convention. So now we have a foreigner who is holding Euros. Now, he has to do something with those Euros. (It works the exact same way as with Dollars and the US in place of Euros and Europe so pardon me if I accidentally switch…) What can he do?

    1) Keep them under his mattress, frame them as works of art, set them on fire or use them as toilet paper. Those things are economically equivalent. Effectively, we have given that foreigner little pieces of paper which are inherently worthless to us (we can keep printing them for close to nothing after all) and he has given us something in return. Unfortunately, most foreigners are not Scrooge McDuck who will accept any piece of paper as long as you print the requisite government seals on them. So let’s set this aside.

    2) Buy European cars, go to Europe and stay at European hotels, buy European food: Buy goods and services. If that is the case, we give that foreigner something of value and he returns the Euros. We then write down this transaction in the Trade Account with a + sign in front of it. Why? Because that’s the convention. That’s what Mr. Obama and many other people wish was happening. But since there are more numbers with a minus in front than numbers with a plus in front, we have a Trade Deficit, so foreigners are not doing that with all their Euros.

    3) They go to Europe and pay people to build a factory, purchase stock or lend money to a company. We then go to the Capital Account and write down the number of Euros. That’s wonderful. They hire workers they build infrastructure, they pay taxes, the whole shebang! Why would we not be happy about that? Oh yes… Now some Chinese businessman owns Ford… Who cares? I’ve never met the owners of Ford. I never will. I don’t even who who they are. They might as well be Chinese, Korean or even Martian. It doesn’t make any difference to any of us. In fact the current owners of Ford will be better off because somebody with a lot of money is bidding up their stock price!

    4) Lend it to the government. Now we see what the gentleman was getting at. This is where the link is. But the only reason the foreigner can lend this money to a government is because the government wants to borrow it. If the government chose not to borrow that money, the foreigner would have to satisfy himself with one of the above. Furthermore, because now there are more people who want to borrow from the government, that means the government can get lower interest rates which in the long run means it has to pay back less. How could that not be a good thing? But more importantly, it doesn’t really matter to whom you owe money. Sure, if it’s your mom or your brother, they might give you a pass. But how many of you would find it acceptable if you put your savings in government bonds and the government decided not to pay? Ultimately, if the fiscal deficit is unsustainable, it’s unsustainable no matter from whom the government borrowed. And that’s the problem in Europe. Countries like Greece borrowed more money than they could ever hope to pay back. And now they won’t be able to pay it back. The fact that it’s Chinese, Russians and Saudis that they owe the money to might make for some different politics, but it doesn’t change the nature of the crisis.

    The problem is unsustainable debt, not trade deficits.

    • Rich W

      Paragraph #4 doesn’t make sense.  Don’t you mean, “Furthermore, because now there are more people who want to (lend to) the government, that means the government can get lower interest rates…..”?  Otherwise, I like your argument.

  • Warrack

    The bankers are attempting a worldwide coup d’etat.
    That is what is really going on.

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