Ants & Grasshoppers

"The Austerity Contagion"

Bill Bonner, writing at the "Daily Reckoning" site I've been enjoying lately, asks what will happen if all the world's grasshoppers start acting like ants:

An economy can go on like this - softly, gently destroying savings...quietly bankrupting the government - for many, many years. That could be what is coming now.

But wait. The US Senate refused to extend unemployment benefits. Even in the US, Republicans are talking about "austerity." Paul Krugman is hopping mad, referring to a coalition of the "heartless, the clueless and the confused" that is refusing to go along with his "spend, spend, spend" agenda. All of a sudden, the Americans seem to be catching the "austerity" bug, too. Uh oh ... this could be a disaster for everyone. If everyone saves, who will use their savings? Who will spend? Who will keep the wheels of commerce turning? Who will keep the lights on in the malls and the grills hot in the restaurants?

What will happen if all the grasshoppers suddenly become ants ... and all of them go on a rampage of financial prudence? Wouldn't it cause a new economic Dark Age for the whole world?

Part of his answer is that deleveraging -- working through the debt realistically instead of kicking it down the road -- is worth doing despite the cost.