I would think a sudden and large upward shift in the inflation rate would shift the problems from sovereigns to banks, as banks have long term assets and short term obligations, such a shift would mean an erosion of net assets. Am I correct?
On March 18 2014 06:42 Nyxisto wrote: Yeah but Montana and California share the same currency. If those two can make it work I guess Germany and Greece can. In my opinion the problem lies more within the lack of coordination on fiscal policy than with the currency. I feel like we're trapped in some prisoners dilemma situation, because every country within the EU is acting solely in own national interest. I think we need a lot more European integration to get rid of that.
Montana and California possess a federal government... And thus fiscal transfert.
On March 18 2014 06:40 WhiteDog wrote: What both of you don't seem to understand is that, sure you can wait for the problem to fix itself, or push for inflationary policies, or by pushing germany's inner demand, but you will not fix the structural problem that the euro has. What if tomorrow, everything is fixed and a new exogene shock arrive and touch some european countries and not all of them equally ? The same problem will rise again, because the core problem is not the debt, not the crisis, not the lack of competitivity of the most competitive economy of the planet (europe) but the core problem is the lack of fiscal transfert within the european union (as the theory of optimum currency area stated 50 years ago).
One thing at a time. The same shock could happen without this being fixed, and then guess where Europe is. Fixing the long term problems is a noble goal, but don't put the cart in front of the horse.
If we can't fix the problem now that we are in deep shit, we will never fix it when the sun will rise high.
On March 18 2014 05:16 WhiteDog wrote: There are three solutions out of the euro crisis. The first is to make a federation out of the current euro zone and permit fiscal transfert from germany to greece, the second is to give up with the euro. The third is to continue like we are now and let people in unemployment.
People who think there are other solutions, are either lying or ignorant on the subject. The subject is not Greece, it is the whole eurozone that is in bad shape.
On March 18 2014 05:10 lord_nibbler wrote:
On March 18 2014 02:45 aksfjh wrote: And it's not like Greece was going to Russian mafia banks for this money, it was the reputable banks of Germany, France, Spain, et al that loaned them the money. These renowned banks reinforced the behavior, and then the Germans, French, and English back them up as if they were "bamboozled" while the Greek people suffer for taking the gifts that were given to them by those banks.
What kind of naive world view is this? You seriously distinguish between good and bad money lenders? And where were you taught this? Of all places you are actually from the US?
Money was created precisely for the attribute of being neutral. The difference between a bank and a loan shark is therefore by design not a moral one. The difference is simply the means to enforce the dept payback. One does it through governments and their armies, the other does it with local brutes.
Also, all that the bank did with Greece was their job! We the people of this world set up a monetary system in which the big bank's purpose is to lend money to countries. As much as you might detest 'banksters' for their greed and irresponsibility you have to realize that they all just fulfill their jobs. We set them up to do that and blaming them afterwards is hypocritical.
We set a banking system up and then we blame Greeks for using it. The euro was created with the idea in mind that it would permit all countries within the euro to get loan at the same interest rate as germany and france. And when Greece, before this money, decide to do everything it can to endebt itself, retards from all over the world blame them for it. A banking system is supposed to evaluate risks and manage them. If a country, or a familly, is not able to pay their credit, then both the bank and the credited are responsible. In our modern world, sadly, only the credited is judged responsible, while the creditor only accumulate wealth and ask others to pay when shit is raining.
Ideally, all of the Eurozone would participate in inflationary activity, with Germany leading the charge. This means massive government programs that target portions of the population that save the least (usually the poor). Depending on how you want to go about this, you either fund the programs with taxes on those that save the most (usually the rich) or have the ECB buy up most of the newly issued government debt to pay for the program. As long as you can keep most of the money from escaping the Eurozone (as in, don't import a lot from the US or China), this should spark inflation and help spur the periphery economies.
You'll not only be hitting the rich though, a lot of people have money saved up trough pension funds and they get hit as well. In The Netherlands for example we have €1 trillion in our pension funds and there are quite a few who already don't have the buffers required by the DNB (Dutch central bank).
With an increase in activity, you could easily find the excess money to save the purchasing power of those pension funds by taxation. But it is a good argument, and a really interesting view on the question : part of the problem is also that the southern europe is "less old" (not very young tho) than the northern europe. Germany needs to protect its pension funds a lot, since it is a very old country with a low natality.
On March 18 2014 06:58 Crushinator wrote: I would think a sudden and large upward shift in the inflation rate would shift the problems from sovereigns to banks, as banks have long term assets and short term obligations, such a shift would mean an erosion of net assets. Am I correct?
Correct, it's one of the reasons for the current low interest rates. It increases their profitability and that way they can increase their solvency to fulfill the Basel 3 requirements.
On March 18 2014 06:42 Nyxisto wrote: Yeah but Montana and California share the same currency. If those two can make it work I guess Germany and Greece can. In my opinion the problem lies more within the lack of coordination on fiscal policy than with the currency. I feel like we're trapped in some prisoners dilemma situation, because every country within the EU is acting solely in own national interest. I think we need a lot more European integration to get rid of that.
Montana and California possess a federal government... And thus fiscal transfert.
On March 18 2014 06:40 WhiteDog wrote: What both of you don't seem to understand is that, sure you can wait for the problem to fix itself, or push for inflationary policies, or by pushing germany's inner demand, but you will not fix the structural problem that the euro has. What if tomorrow, everything is fixed and a new exogene shock arrive and touch some european countries and not all of them equally ? The same problem will rise again, because the core problem is not the debt, not the crisis, not the lack of competitivity of the most competitive economy of the planet (europe) but the core problem is the lack of fiscal transfert within the european union (as the theory of optimum currency area stated 50 years ago).
One thing at a time. The same shock could happen without this being fixed, and then guess where Europe is. Fixing the long term problems is a noble goal, but don't put the cart in front of the horse.
If we can't fix the problem now that we are in deep shit, we will never fix it when the sun will rise high.
On March 18 2014 05:16 WhiteDog wrote: There are three solutions out of the euro crisis. The first is to make a federation out of the current euro zone and permit fiscal transfert from germany to greece, the second is to give up with the euro. The third is to continue like we are now and let people in unemployment.
People who think there are other solutions, are either lying or ignorant on the subject. The subject is not Greece, it is the whole eurozone that is in bad shape.
On March 18 2014 05:10 lord_nibbler wrote:
On March 18 2014 02:45 aksfjh wrote: And it's not like Greece was going to Russian mafia banks for this money, it was the reputable banks of Germany, France, Spain, et al that loaned them the money. These renowned banks reinforced the behavior, and then the Germans, French, and English back them up as if they were "bamboozled" while the Greek people suffer for taking the gifts that were given to them by those banks.
What kind of naive world view is this? You seriously distinguish between good and bad money lenders? And where were you taught this? Of all places you are actually from the US?
Money was created precisely for the attribute of being neutral. The difference between a bank and a loan shark is therefore by design not a moral one. The difference is simply the means to enforce the dept payback. One does it through governments and their armies, the other does it with local brutes.
Also, all that the bank did with Greece was their job! We the people of this world set up a monetary system in which the big bank's purpose is to lend money to countries. As much as you might detest 'banksters' for their greed and irresponsibility you have to realize that they all just fulfill their jobs. We set them up to do that and blaming them afterwards is hypocritical.
We set a banking system up and then we blame Greeks for using it. The euro was created with the idea in mind that it would permit all countries within the euro to get loan at the same interest rate as germany and france. And when Greece, before this money, decide to do everything it can to endebt itself, retards from all over the world blame them for it. A banking system is supposed to evaluate risks and manage them. If a country, or a familly, is not able to pay their credit, then both the bank and the credited are responsible. In our modern world, sadly, only the credited is judged responsible, while the creditor only accumulate wealth and ask others to pay when shit is raining.
Ideally, all of the Eurozone would participate in inflationary activity, with Germany leading the charge. This means massive government programs that target portions of the population that save the least (usually the poor). Depending on how you want to go about this, you either fund the programs with taxes on those that save the most (usually the rich) or have the ECB buy up most of the newly issued government debt to pay for the program. As long as you can keep most of the money from escaping the Eurozone (as in, don't import a lot from the US or China), this should spark inflation and help spur the periphery economies.
You'll not only be hitting the rich though, a lot of people have money saved up trough pension funds and they get hit as well. In The Netherlands for example we have €1 trillion in our pension funds and there are quite a few who already don't have the buffers required by the DNB (Dutch central bank).
With an increase in activity, you could easily find the excess money to save the purchasing power of those pension funds by taxation. But it is a good argument, and a really interesting view on the question : part of the problem is also that the southern europe is "less old" (not very young tho) than the northern europe. Germany needs to protect its pension funds a lot, since it is a very old country with a low natality.
Will the increased taxation be enough though I am not so sure about that. Another thing to keep in mind is that pension funds have a lot of money in safe bonds and have those decrease in value when inflation and interest rates rise. In theory the stocks should make up for it by making the opposite movement and increasing and value but those are already at an all time high in the US for example so how much can they still rise?
I'll use NL again as an example since it's my home country.
On March 18 2014 06:58 Crushinator wrote: I would think a sudden and large upward shift in the inflation rate would shift the problems from sovereigns to banks, as banks have long term assets and short term obligations, such a shift would mean an erosion of net assets. Am I correct?
Generally financial institutions that hold papers with fixed interest rates face an erosion of net assets when inflation is higher than expected. Note that if the bank offers its depositors fixed return rates, their obligations also fall in "real" terms. I'm not sure how asset maturity enters this specific equation.
On March 18 2014 06:58 Crushinator wrote: I would think a sudden and large upward shift in the inflation rate would shift the problems from sovereigns to banks, as banks have long term assets and short term obligations, such a shift would mean an erosion of net assets. Am I correct?
Generally financial institutions that hold papers with fixed interest rates face an erosion of net assets when inflation is higher than expected. Note that if the bank offers its depositors fixed return rates, their obligations also fall in "real" terms. I'm not sure how asset maturity enters this specific equation.
From my understanding: Assets with a greater duration (average maturity) are more sensitive to changes in interest rates since the payments are more distant in time, and therefore more senstive to the discount rate that must reflect the time value of money. So even though the obligations fall in real terms, the greater fall for the assets will still cause problems. Banks do of course try to limit their exposure to these kinds of risks but I highly doubt banks have immunized themselves from the inflation shocks of the magnitude discussed in this thread.
On March 17 2014 08:30 Nyxisto wrote: Greece is still in really bad shape. I personally think they'll need a really big haircut or they'll never get out of the debt - austerity circle. It's pretty unbelievable that over the last 6 years nearly 30% of their economy just vanished.
On what was most of that part of their economy build on?
Fake numbers and debt.
That's too harsh.
A lot of money was lent to the Greek economy on the basis that Greece, as part of the Eurozone, would grow relatively quickly and catch up to its richer peers. That means a growing ability for Greeks to repay the debt (so sustainable lending) and a higher rate of return for lenders. Unfortunately, not enough of the lending went to productive use and so Greece turned out to not have the ability to repay that everyone thought going in.
Greeks weren't doing "fake" things, they just weren't doing things efficiently enough to repay the debts. The answer, of course, is to write off those debts but European lenders are too reluctant - too many debt write-offs and the banks will fail. So Greece and other peripheral countries are stuck in a sort of national debtor's prison.
Why Europe doesn't bite the bullet and deal with the debt is beyond me. No one seems to be benefiting, even German growth isn't very good.
How would you deal with it?
I think they need more debt relief across the board and whatever ECB / national support it takes to make it happen.
A graph the demonstrates part of the problem with the Euro. German wages aren't growing, which is making it impossible for the other nations to compete, especially under austerity undermining investment.
They have been increasing the last 4 years although it fell.again a bit and they've agreed to a minimum wage as well. Your graph also includes years in which Germany had a vey low growth rate which is why the wages didn't increase at that time
A graph the demonstrates part of the problem with the Euro. German wages aren't growing, which is making it impossible for the other nations to compete, especially under austerity undermining investment.
That and more. Germany is the free rider of europe.
On March 25 2014 02:01 RvB wrote: They have been increasing the last 4 years although it fell.again a bit and they've agreed to a minimum wage as well. Your graph also includes years in which Germany had a vey low growth rate which is why the wages didn't increase at that time
France has had similar overall growth, yet much stronger wage growth. Germany is treating wages like the peripheries are, despite its strong current account position, along with inflation and overall solvency.
Austerity for everyone else, but a strong social safety net to compensate for low wages for Germans. Germany is trading short term growth for a long term problem: a lack of internal demand to soak up its cheap production. It is the China of Europe.
On March 25 2014 02:57 RvB wrote: France is even worse actually lol I had no idea. The minimum wage is a significant change though and should have a significant impact.
I don't know about that. I was led to believe that Germany's suggestive minimum wage system actually worked out pretty well for providing living wages, due to cultural concerns or something. Granted, I took that anecdote with a grain of salt when I read it, and I'd imagine things have been getting worse with the continued downward economic pressure.
On March 25 2014 02:57 RvB wrote: France is even worse actually lol I had no idea. The minimum wage is a significant change though and should have a significant impact.
I don't know about that. I was led to believe that Germany's suggestive minimum wage system actually worked out pretty well for providing living wages, due to cultural concerns or something. Granted, I took that anecdote with a grain of salt when I read it, and I'd imagine things have been getting worse with the continued downward economic pressure.
And you read that in The Economist ? lol A low wage is a low wage, that's all. The german were just the first to start with hard-discount detail retailers, like Lidl, and everything you need to live a life with the minimum.
Now everybody is doing it, it's called competitive disinflation.
On March 25 2014 02:57 RvB wrote: France is even worse actually lol I had no idea. The minimum wage is a significant change though and should have a significant impact.
I don't know about that. I was led to believe that Germany's suggestive minimum wage system actually worked out pretty well for providing living wages, due to cultural concerns or something. Granted, I took that anecdote with a grain of salt when I read it, and I'd imagine things have been getting worse with the continued downward economic pressure.
And you read that in The Economist ? lol
I read it from one of the Germans here. Like I said, I didn't really take it seriously, but I didn't necessarily follow up on it much either.
Found an article about it on Reuters. I am right wing economically but stuff like this is just wrong imo.
Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts.
One out of five jobs is a now a "mini-job," earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.
"Regular full-time jobs are being split up into mini-jobs," said Holger Bonin of the Mannheim-based ZEW think tank.
And there is little to stop employers paying "mini-jobbers" low hourly wages given they know the government will top them up and there is no legal minimum wage.
Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts.
One out of five jobs is a now a "mini-job," earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.
"Regular full-time jobs are being split up into mini-jobs," said Holger Bonin of the Mannheim-based ZEW think tank.
And there is little to stop employers paying "mini-jobbers" low hourly wages given they know the government will top them up and there is no legal minimum wage.
Yes I also read something similar, where Germany has basically a split labor market following their 2005 reforms. There are people in regular jobs and there are 1/3rd of all new employees that are basically temporary workers that get no benefits and live pay check to pay check.
EPT
![[image loading]](http://graphics8.nytimes.com/images/2014/03/24/opinion/032414krugman3/032414krugman3-blog480.png)
Like I said, I didn't really take it seriously, but I didn't necessarily follow up on it much either.
