Tags: Stiglitz | austerity | Greece | debt

Stiglitz: Austerity Has 'Failed Repeatedly'

By    |   Tuesday, 03 February 2015 01:10 PM

Greece's debt crisis points the inadequacy of austerity as the prescription for countries trying to free themselves from onerous debt burdens, says Nobel laureate economist Joseph Stiglitz of Columbia University.

Greece's economy is expected to show growth of 0.6 percent for 2014 after six straight years of contraction.

"Austerity ha[s] failed repeatedly, from its early use under U.S. President Herbert Hoover, which turned the stock-market crash into the Great Depression, to the IMF 'programs' imposed on East Asia and Latin America in recent decades," he writes in an article for Project Syndicate.

"And yet when Greece got into trouble, it was tried again."

So what is to be done for that nation?

"What is needed is not structural reform within Greece and Spain so much as structural reform of the eurozone's design and a fundamental rethinking of the policy frameworks that have resulted in the monetary union's spectacularly bad performance," Stiglitz notes.

"When companies go bankrupt, a debt-equity swap is a fair and efficient solution. The analogous approach for Greece is to convert its current bonds into GDP-linked bonds," Stiglitz says.

"If Greece does well, its creditors will receive more of their money. If it does not, they will get less. Both sides would then have a powerful incentive to pursue pro-growth policies."

Meanwhile, U.K. hedge fund heavyweight Crispin Odey, founder of Odey Asset Management, is worried about economic weakness throughout the world.

Major economies are on the precipice of a recession, he writes in a letter to shareholders obtained by the Daily Mail. "This down-cycle is likely to be remembered in 100 years, when we hope it won't be rated for 'How good it looks for its age!'"

And that, of course, is bad news for stocks. "Equity markets will get devastated," Odey notes, making this the best time to short equities since the 2008 financial crisis.

Turmoil in financial markets, including oil's plunge to 5 ½-year lows, and China's "faltering economy" will help spark the global downturn, he states. And Odey doesn't expect the European Central Bank's quantitative easing program to save the eurozone economy.
 

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Greece's debt crisis points the inadequacy of austerity as the prescription for countries trying to free themselves from onerous debt burdens, says Nobel laureate economist Joseph Stiglitz of Columbia University.
Stiglitz, austerity, Greece, debt
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2015-10-03
Tuesday, 03 February 2015 01:10 PM
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