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New World Order Will Come Apart, Says Big-Time Keynesian

Written by Gary North on April 18, 2012

The New World Order’s poster child is the European Union. It was rammed down voter’s throats. So was the euro.

It was the model for the North American Union, which is quietly being constructed under the radar of the voters.

Now it is in the process of disintegration. The defenders of the New World Order are beside themselves with despair. The “grand experiment” is turning out as badly as critics had warned.

Paul Krugman, the Nobel Prize-winning Keynesian, says that Europe is committing suicide. By this, he means that the European Union is at risk. Let’s hope so!

Here is his lament.

Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe’s counterpart to the Fed, came to the Continent’s rescue. It offered Europe’s banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.

The ECB is as willing to print fiat money as the Federal Reserve System is. Krugman likes that. But it was not enough to save the debt-ridden PIIGS.

The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

But they didn’t. Instead, they doubled down on their failed policies and ideas. And it’s getting harder and harder to believe that anything will get them to change course.

What are these terrible ideas? This: to cut government spending. Krugman hates that idea.

Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.

Spain’s banks funded a housing bubble. How? With money from northern European banks. Why? Because interest rates were set too low by northern banks. Now they are rising.

The German bankers want austerity, meaning honest, market-driven rates and reduced government spending. Krugman is outraged.

This is, not to mince words, just insane. Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression. And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

What is his recommendation? Abandoning the euro. That would let national central banks inflate. To head this off, the ECB must inflate. The EU needs more deficits. In short, it needs more of the same dumb policies that caused the crisis.

So if European leaders really wanted to save the euro they would be looking for an alternative course. And the shape of such an alternative is actually fairly clear. The Continent needs more expansionary monetary policies, in the form of a willingness — an announced willingness — on the part of the European Central Bank to accept somewhat higher inflation; it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it. Even with such policies, the peripheral nations would face years of hard times. But at least there would be some hope of recovery.

It’s not happening, he says. “What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.”

Keynesianism is dying.Its proponents watch in horror as bad Keynesian policies have pushed Europe to the edge. They call for more. They want governments to kick the can. They want more deficits and larger deficits. They want more of the same. They will get it. And Europe will go over the edge, as Austrian economists have predicted.


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7 thoughts on “New World Order Will Come Apart, Says Big-Time Keynesian

  1. John Stewart says:

    It seems Europe is a lot smarter than the Progressive idiots in this Country. If our days of GIMME ploitics is not squashed quickly ADIOS.

  2. SteveHow says:

    Every one here seems to think they are smarter and have a better plan than Europe elites. Paul Krugman is a small man but believes he can sway the thinking of the Nation with his brilliant writing from his desk at the dying New York Times. People who continue to read anything this jerk writes is just as wrong and misguided as he is and should be ignored completely. When we start acting like these people don't exist is when our rights start coming back and our country begins to heal.

  3. Imagine playing the game of Monopoly where the players can change the rules as they go and the banker can hand out money to any player deemed necessary; you would want out of the game pronto!

    Economies are an equation with rules of play. Rather than allowing companies to go out of business, they keep trying to prop them up to continue their unneeded services & products. Now entire nations are propped up and wallowing in the rot.

    A successful economy is too big for government meddling. It is like a freight train going over mountains where the Engineer is adding power to go uphill and the Brakeman is applying brakes on the portion of the train that is going downhill.

    Government needs to get out of the way and let Large and Small Businesses do their thing. Also, Government needs to get their hands out of our pockets. Government needs to remember that it is We the People who are in charge of the Government.

  4. Bruce D. says:

    I do not take kindly to censorship. If you sensor me or delay my comment you are not a sincere person and I will sweep your newsletter.

  5. Waaah!

  6. madmemere says:

    Why is it supposedly "intelligent people", somehow, learn "nothing" from history and just keep repeating the same mistakes, expecting the outcome to, somehow, be different??

  7. Ann Wilson Kingsley says:

    The New World Order appears to be collapsing in some ways, but is growing by leaps and bounds in others. Obama has demonstrated very well what the NWO is after. If Romney wins the 2012 election, then Republicans will just go back to sleep, and Romney will finish passing all of the NWO agenda. Republicans are completely blind about their own.