By Michael Hudson
When the financial bubble burst in September 2008, U.S. and European governments responded by shifting bank losses onto their own balance sheets. The pretense is that real growth cannot resume until the banks and speculators are “made whole.” To cover the cost of bailing out the banks, governments now are trying to run budget surpluses. This adds fiscal deflation to the debt deflation left in the bubble’s wake, shrinking the economy at large. Governments are raise taxes (or simply print new debt to swap for the financial sector’s bad loans and gambles) to reimburse financial institutions whose lending and outright gambling (not to mention the excursion into financial fraud) caused the crisis. Continue reading
