As a result of the financial crisis that peaked in 2008, banks have loaded down the economy with debt--debt achieved through fraudulent "exotic" instruments called derivatives. The banks hope to extract even more wealth for themselves by promoting austerity on the people who are already paying for the profligacy of the banks through taxpayer bailouts.
The government could afford to create jobs through deficit spending just as it could afford to use trillions of dollars to bail out the banks beyond even TARP. Once jobs are available, then the population could afford to buy the goods and services which keep the economy running. There is no need for austerity programs as the government can afford to spend wherever it chooses to spend including on job creation, on Social Security, on Medicare and on Medicaid. The capture of the government by the financial sector creates a false need for austerity.
Michael Hudson tells the whole story here. (Thanks to robertmc1 for the link):
America's Deceptive 2012 Fiscal Cliff --Part 1
By Michael Hudson - New Economic Perspectives
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. . .And the September 2008 financial crisis provided an opportunity for the U.S. and European governments to create new debt for bank bailouts. This turned out to be as expensive as waging a war. It was indeed a financial war. Banks already had captured the regulatory agencies to engage in reckless lending and a wave of fraud and corruption not seen since the 1920s. And now they were holding economies hostage to a break in the chain of payments if they were not bailed out for their speculative gambles, junk mortgages and fraudulent loan packaging.
Their first victory was to disable the ability – or at least the willingness – of the Treasury, Federal Reserve and Comptroller of the Currency to regulate the financial sector. Goldman Sachs, Citicorp and their fellow Wall Street giants hold veto power the appointment of key administrators at these agencies. They used this beachhead to weed out nominees who might not favor their interests, preferring ideological deregulators in the stripe of Alan Greenspan and Tim Geithner. As John Kenneth Galbraith quipped, a precondition for obtaining a central bank post is tunnel vision when it comes to understanding that governments can create their credit as readily as banks can. What is necessary is for one’s political loyalties to lie with the banks.
In the post-2008 financial wreckage it took only a series of computer keystrokes for the U.S. Government to create $13 trillion in debt to save banks from suffering losses on their reckless real estate loans (which computer models pretended would make banks so rich that they could pay their managers enormous salaries, bonuses and stock options), insurance bets gone bad (underpricing risk to win business to pay their managers enormous salaries and bonuses), arbitrage gambles and outright fraud (to give the illusion of earnings justifying enormous salaries, bonuses and stock options). The $800 billion Troubled Asset Relief Program (TARP) and $2 trillion of Federal Reserve “cash for trash” swaps enabled the banks to continue their remuneration of executives and bondholders with hardly a hiccup – while incomes and wealth plunged for the remaining 99% of Americans.
A new term, Casino Capitalism, was coined to describe the transformation that finance capitalism was undergoing in the post-1980 era of deregulation that opened the gates for banks to do what governments hitherto did in time of war: create money and new public debt simply by “printing it” – in this case, electronically on their computer keyboards.
Read the entire essay here