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More on Self-Sufficiency
The item on this blog's last posting dealing with self-sufficiency really said that we might be looking forward to an era of austerity in the foreseeable future. This will definitely happen in Europe, and because of our worldwide banking ties, it could spread to our country.
Many European economies (Greece, Italy, Portugal, etc.) are struggling because of a decrease in their gross national product resulting from (among other things) their inability to sell their products or resources outside of their borders. Traditionally, countries in such a fix devalue their currency, making their exports less expensive. This creates jobs and the resultant consumer spending and domestic debt reduction which salaries make possible. In Europe today, however, this is not possible. Greece, for example, cannot by itself devalue the Euro. They are stuck with it. The only way, then, to make their exports less expensive is go the route of austerity, which means less money for workers and fewer benefits, making Greek exports competitive and helping their economy. In fact, European bankers are insisting on such austerity if they are to participate in "bailing out" Greece.
In the United States, if devaluing our currency doesn't work, and the Federal Reserve's present monetary policy amounts to that, the only alternative is asking Americans to adopt more self-sufficient measures, which translate as austerity. Our present unemployment rate, in effect, accomplishes that. Should the present rate of unemployment become a permanent fixture in our economy, it will become an "institutional" or strategic tool to promote austerity. If that happens, an expanded government "safety net" will be needed, funded by tax increases, to catch those whose lives are already "austere" and will have to reduce their standard of living even further.
There was no Euro in the late twenties and the thirties in Europe. Countries could devalue their currency, as Germany did drastically during the Weimar Republic. But it didn't work. At that time, economies were on "the gold standard," and if currency reforms were based on fiction, rather than on the yellow metal, they failed. The resultant austerity in Germany laid the groundwork for the success of Adolf Hitler in gaining political support. Monetary policy is a complex matter, something about which learned economists often disagree, but it can have a great, and often not fully understood, effect on history.