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Mosler : There is a solution to euro crisis but catastrophic collapse more likely

Warren Mosler on eurozone slow crash…

…Can all this be avoided? Yes, and the remedy is both simple, immediate, and would quickly lead to unprecedented global prosperity.

All the euro zone has to do is have the ECB write the check, and announce immediate and annual distributions of 10% of GDP to member nations to pay down their outstanding debts, and at the same time impose national deficit ceilings sufficiently high to promote desired levels of aggregate demand. And the penalty for non compliance would be the withdrawal of ECB support. This would remove credit concerns, without increasing government spending, so there would be no inflationary impact.

And all the rest of the world has to do is recognize that federal taxes function to regulate aggregate demand, and not to fund expenditures per se. And then set taxation and/or government spending at levels that sustain desired aggregate demand.

They need to know the question is not whether longer term the budget deficit is sustainable- as it’s always nominally sustainable- but instead worry about sustaining aggregate demand at desired levels, both long term and short term.

But, unfortunately, I see the odds of a catastrophic collapse in aggregate demand as far higher than the odds of an awakening to a global understanding of actual monetary operations.

Posted in Money Systems.

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