Austere Europe?

Supposedly, countries around Europe are tightening their belts.  Gone are the days of reckless spending, they say.  The Tories are ruthlessly slashing services after taking power:

Chancellor of the Exchequer George Osborne announced today a 25 percent cut in spending over the next four years, excluding overseas aid and the National Health Service. The move will depress revenue essential for growth, Blanchflower said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

“These are absolutely draconian spending cuts,” said Blanchflower…

Business Week

And although less severe, the proposed German spending cuts put them on the defensive as they contradict Keynesian doctrine:

Reducing the budget deficit by 10 billion euros ($12 billion) per year “won’t put a brake on the world’s economic growth,” Merkel said, relating what she told Obama yesterday. Germans are more likely to spend money if they feel the government “is taking precautions” to ensure solid finances, she said.

Bloomberg

You might understandably get the impression that European countries are taking aggressive measures to balance their budgets.  But here, you’d be completely wrong.  In fact, all of these countries – and virtually all countries – are continuing to slip farther into debt.

That’s right, the Tories’ “draconian cuts” still won’t balance their budget.  They will still spend more than they take in.  Apparently, draconian cuts only means we need to make sure that we don’t spend too much more than we make, or else we won’t be able to borrow the money that we need to spend – or something like that.

Here, we must seemingly ask, “why?”  If the world’s economic problem is debt (consumer debt, sovereign debt, corporate debt), then why shouldn’t the solution be to pay off our debts?

The answers are grim.  The debt, you see, is never actually intended to be paid off – we are intended to be debtors in perpetuity.  In our strange world that we’ve created for ourselves, it’s not even clear that it could be paid off mathematically (where do you think the money comes from to pay the interest?), but it certainly isn’t going to be.  No one actually believes any longer that the US will repay $13,000,000,000,000 anyway.

Right now, no one cares either.  As long as we keep making our minimum payments, and borrowing more each year.