When the global financial crisis first developed in 2008, President
Obama and Secretary Geitner chose to follow a course which Franklin
Delano Roosevelt had first applied and which nearly all Presidents
after that had also used, which was to find ways to dump spectacular
amounts of money into the American economy. In the case of President
Obama, this is referred to as the Stimulus or the $700 billion
stimulus of early 2009. The Republicans have constantly ridiculed
Obama and the Stimulus for not having completely solved the
financial crisis in America.|
At the same time, most of the countries in Europe were also going through hard economic times. Nearly all of them chose a DIFFERENT approach than Obama and Geitner had tried in the United States. They tried AUSTERITY programs, to try to apply fiscal responsibility.
The two approaches are quite different. The approach America tried involved printing up massive amounts of money which did not actually have any real basis, just to be able to spread it around to get the public to feel that they were prosperous. But the downside was that the actual value of currency became diluted as a fixed amount of cash value was spread among a larger amount of currency. A second downside was that the National Debt got larger, at a time when it had already gotten far too large over the past thirty years of massive government over-spending. The approach that most of Europe tried was somewhat constricted by the fact that many countries shared the same currency, the Euro, so they could not easily be printing up enormous amounts of unbacked currency, so a stimulus approach was not particularly available to them. They generally tried an approach to greatly cut back on government expenditures in each country. Since most governments have grown to be huge in recent decades, the fact is that like in America, the government's spending represents a substantial amount of the Gross Domestic Product in nearly all modern countries. When the government cuts back spending, in order to try to apply Austerity measures, the long-term effects might be excellent but the short-term effects are generally devastating. Not only does a government have to lay off hundreds of thousands of government employees, but there are massive numbers of Contracts that the government had had with thousands of businesses, which necessarily get cancelled. This removes a substantial percentage of the cash flow within a country's economy. This almost certainly results in short-term Recession and extreme hardship for common people. The economies and the societies in many European countries have come apart in the past several years, including Iceland, Ireland, Greece, Portugal, Spain, Italy, Hungary and several others.
To summarize: The one approach which the United States tried beginning in 2008 has the necessary consequence of long-term problems regarding the National Debt, but which CAN have short-term effects of a perception of prosperity in the people (which then encourages them to feel they can buy more products and services and thereby drag the National Economy out of a Recession.) The other approach which most European countries tried beginning in 2008 focuses mostly on long-term financial stability (since National Debts do not significantly grow) but necessarily results in short-term hardship on millions of people.
Which is "correct"? No one really knows. Which approach is "best". No one really knows that either.
But as of early 2012 (April), the United States seems to be moving in the right direction of economic recovery and stability, while eleven European governments have been voted out of office in a negative response to all the Austerity approaches.
In an interesting turn of events, a number of European governments have begun to abandon Austerity Programs and several are now discussing possible Stimulus Programs instead! It is virtually an implicit admission that Obama and Geitner had been correct in creating the Stimulus Program of early 2009 et al. (Personally, I feel that the American Stimulus Programs DID do great good in avoiding the American economy entirely falling off a cliff, but I thought even then that $700 billion was probably not a big enough Stimulus to really get the American people into a more prosperous mood. At the time, I suspected that a Stimulus Program of maybe $3 trillion [four times as large] might have quickly convinced Americans that everything was fine and that they could again start buying everything, which would have quickly resulted in us rapidly recovering. But the Republican controlled House of Representatives would clearly not have agreed to a Stimulus so the $700 billion Stimulus had to do.)
This figures to be interesting in the coming months which lead up to the American Presidential election! Republicans have spent four years in insulting Obama regarding having created a huge Stimulus which they claim never had any effect. The likelihood that several European countries will create their own Stimulus Programs now, will clearly represent a confirmation that THEY now recognize that Obama had been right regarding the Stimulus Program in early 2009. Will that change the tenor of the American political elections?
The Republicans, and specifically Romney, have constantly centered most of their criticisms of Obama on supposedly having made stupid decisions, and specifically the Stimulus Programs. The fact that a number of governments in Europe seem about to adopt those same Stimumus Programs now, seems to give support for the validity and value of the Obama / Geitner Stimulus approach. It is certainly true that the American economy has not fully recovered, but once European governments start showing that THEY now understand what Obama and Geitner understood in 2009, that seems to take the legs out from under the central core of Republican criticisms of Obama, doesn't it?
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