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Although this thread does not function under the same strict guidelines as the USPMT, it is still a general practice on TL to provide a source with an explanation on why it is relevant and what purpose it adds to the discussion. Failure to do so will result in a mod action. |
Greece has been saying loud and clear that they're not for continuing with the program since they consider it a failure and that they are serious about this, not merely bluffing. And EU now says that they must petition for a continuation of the program before any further talks happen.
They are either extremely stupid/silly or preparing to make an example of Greece to other members. I'd be really happy with this if I were Le Pen / UKIP / other anti-EU party.
Relevant:
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On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts.
Well theoretically on some sort of macro scale, you're right: money has value relative to its scarcity. Sure, I'll agree with that. But dude, you're missing a point here. Those relative values are pretty much fixed at this point. Inflation in countries with functional economies is like <5%. So in terms of trends going on in the time scale of decades, that is a big deal. I get that by making changes to the amount of money in the market system, Federal banks exert control over the value of money. Generally though they are changing things like bumping up interest rates by a tenth of a percent every once in a while, which is NOT a big deal.
I get the sense that the Euronext 100 stock market exists in an entirely different world from daily business operations, with only a tenuous connection to reality. That's no good.
http://money.cnn.com/data/world_markets/europe/
European Stock Market Overview
[rest of post redacted due to threats]
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I'm not sure I follow you. Inflation at 0 is very different from inflation at 5% : just think about it, inflation at 5% in the euro zone right now would just end the debt crisis in ten or so years give or take. Also, I don't know what a functionnal economy is for you : do you believe an economy at 1 % inflation or at -4 % inflation is "functionnal" ? In economic theory, the best inflation target is between 2 and 4 % : in this regard, no european economy is functionnal (and the rampant unemployment perfectly shows that).
What you don't seem to understand is that it is not greece the problem, as there will always be inequalities and desequilibrium in a common currency area (think about Mississipi and Maryland). Greece is not more the problem than germany btw (germany is, in many account, the dark sheep of the eurozone, as it has really different economic cycle and financial infrastructure in contrast to the rest of the euro zone).
Federal bank can change the amount of money through a ton of things : only the last 30 years the central bank remused their action by lowering target interest rates, but they can monetize the debt, which is a STRONG way to create inflation (sadly, we're in an age of impotence, so the central banks refuse to do that, cherrish their so called independance, and resort to quantitative easing when the situation is too difficult).
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On February 17 2015 08:37 WhiteDog wrote:
I'm not sure I follow you. Inflation at 0 is very different from inflation at 5% : just think about it, inflation at 5% in the euro zone right now would just end the debt crisis in ten or so years give or take. And your point about Greece in the eurozone is also shortsighted. Also, I don't know what a functionnal economy is for you : do you believe an economy at 1 % inflation or at -4 % inflation is "functionnal" ? In economic theory, the best inflation target is between 2 and 4 % : in this regard, no european economy is functionnal (and the rampant unemployment perfectly shows that).
Yeah, I'd say that any value of inflation between -2% & +4% is PROBABLY ok, but I'm not sure about that. Russia became a communist state under Stalin [& Trotsky] when their bank system essentially exploded - inflation at 40%, etc. Interest rates went all out of whack and all of a sudden you've got the USSR for 50 years, starting from the Korean War in the 1950's & ending with the fall of the Berlin Wall in 1989.
http://www.jstor.org/discover/10.2307/4479376?sid=21105878641533&uid=2&uid=3739256&uid=4
The USSR had NO stock market after Stalin's officials shut them down in the 60's. That is why Russia is not in the EU to this day.
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-2% inflation (2% deflation) is an economic disaster. I'm not even sure what's the relationship with russia in here.
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I'm reading news at the moment that "separatists" are still shooting in Ukraine. When will this piece of shit country called Russia stop terrorising Eastern Europe? Like USSR didn't do enough damage to all of us.
User was temp banned for this post.
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On February 17 2015 09:04 WhiteDog wrote:
-2% inflation (2% deflation) is an economic disaster. I'm not even sure what's the relationship with russia in here.
This is a European economics thread, bro, & Russia is technically part of Europe  . I'll concede that point about inflation since I wasn't really sure about it.
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On February 17 2015 08:48 A3th3r wrote:Show nested quote +On February 17 2015 08:37 WhiteDog wrote:
I'm not sure I follow you. Inflation at 0 is very different from inflation at 5% : just think about it, inflation at 5% in the euro zone right now would just end the debt crisis in ten or so years give or take. And your point about Greece in the eurozone is also shortsighted. Also, I don't know what a functionnal economy is for you : do you believe an economy at 1 % inflation or at -4 % inflation is "functionnal" ? In economic theory, the best inflation target is between 2 and 4 % : in this regard, no european economy is functionnal (and the rampant unemployment perfectly shows that).
http://www.jstor.org/discover/10.2307/4479376?sid=21105878641533&uid=2&uid=3739256&uid=4The USSR had NO stock market after Stalin's officials shut them down in the 60's. That is why Russia is not in the EU to this day.
1) lol for both the claim in the sentence and for the sentences factual inaccuracy (pst, Stalin died in 1953)
2) a bunch of countries that also were without stock markets are in the EU: Poland, Czech, Slovakia, Croatia, Hungary, Estonia, Latvia, Lithuania, Romania, Bulgaria...
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On February 17 2015 09:23 Sub40APM wrote:Show nested quote +On February 17 2015 08:48 A3th3r wrote:On February 17 2015 08:37 WhiteDog wrote:
I'm not sure I follow you. Inflation at 0 is very different from inflation at 5% : just think about it, inflation at 5% in the euro zone right now would just end the debt crisis in ten or so years give or take. And your point about Greece in the eurozone is also shortsighted. Also, I don't know what a functionnal economy is for you : do you believe an economy at 1 % inflation or at -4 % inflation is "functionnal" ? In economic theory, the best inflation target is between 2 and 4 % : in this regard, no european economy is functionnal (and the rampant unemployment perfectly shows that).
http://www.jstor.org/discover/10.2307/4479376?sid=21105878641533&uid=2&uid=3739256&uid=4The USSR had NO stock market after Stalin's officials shut them down in the 60's. That is why Russia is not in the EU to this day. 1) lol for both the claim in the sentence and for the sentences factual inaccuracy (pst, Stalin died in 1953) 2) a bunch of countries that also were without stock markets are in the EU: Poland, Czech, Slovakia, Croatia, Hungary, Estonia, Latvia, Lithuania, Romania, Bulgaria...
stalin is apparently one of the >actual< ghosts of communism spooking around in Europe - even after his death.
they are just unstoppable!
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On February 14 2015 05:01 Nyxisto wrote:Show nested quote +On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone?
Yes.
On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts.
This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor).
Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred.
Edit:
Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want?
We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged.
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I'm still having trouble understanding alternatives to 'austerity'. Is it something like:
1. Country A belonging to the Euro goes insolvent, +10% deficit and skyrocketing public debt, asks for help.
2. Countries B-to-Z offer +100Bn Euro, no-strings-attached, pay-back optional?
It seems the anti-austerity crowd argues purely on the poor economic performance of Greece within the program while not addressing the moral hazard problem, which seems to me to be the fundamental reason why the program exists. How do you protect tax-payers in other EU countries? How do you guarantee that Greece does not sink again towards insolvency if the structural problems are not addressed?
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well obviously they bet on Greece's politicians being on their side/in their pockets.
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On February 17 2015 17:22 cLutZ wrote:Show nested quote +On February 14 2015 05:01 Nyxisto wrote:On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone? Yes. Show nested quote +On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts. This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor). Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred. Edit: Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want? We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged.
No the point is that if Germany and Greece had different currency, the currency would appreciate themselves as greek buy german marks, effectively increasing the price of german goods at exportation, preventing this situation. Just think about what the chinese are doing to prevent their currency from increasing : they stockpile cash on vault, german would have to do that to (note that, for some economists, chinese strategy is at the core of the subprime crisis, I consider that in the same vein, german modern mercantilism in a flawed common currency area is at the core of the euro crisis).
You ask "what greek could produce that germans wants ?" that's not the problem, the problem is how greece can build its own industry to produce goods it wants - and with a floating exchange rate, and germans goods at a high price, there would have incentive for building greek goods.
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On February 17 2015 19:05 WhiteDog wrote:Show nested quote +On February 17 2015 17:22 cLutZ wrote:On February 14 2015 05:01 Nyxisto wrote:On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone? Yes. On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts. This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor). Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred. Edit: Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want? We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged. No the point is that if Germany and Greece had different currency, the currency would appreciate themselves as greek buy german marks, effectively increasing the price of german goods at exportation, preventing this situation. Just think about what the chinese are doing to prevent their currency from increasing : they stockpile cash on vault, german would have to do that to (note that, for some economists, chinese strategy is at the core of the subprime crisis, I consider that in the same vein, german modern mercantilism in a flawed common currency area is at the core of the euro crisis). You ask "what greek could produce that germans wants ?" that's not the problem, the problem is how greece can build its own industry to produce goods it wants - and with a floating exchange rate, and germans goods at a high price, there would have incentive for building greek goods.
Yes, that is one way it COULD have worked. However, that is not the path, and no it is not about Greeks needing to buy from Greeks, because even in your example the currency exchange rate means that they could have (probably) produced goods at a cost that Germans wanted. Your also intentionally ignoring the example of America which has a fiscal union and poorer areas. Greece could have chosen the economic development model that poorer American states do: more business friendly governance, compete on wages, lower property values, instead they chose a different path. There always was a market for Greek goods, the Greeks just never accepted low enough wages (Euro denominated or otherwise) to produce them. We should not pretend that under the Drachma they were some sort of economically stable and dynamic economy. They were a shitty economy and even then they had too many social commitments with not enough capital to support them.
You are simply looking at the wrong part of the equation, from 2001-2008 Greece enjoyed a higher standard of living than their underlying economy should have normally supported. In other words, if you charted SOL the "integral" of the graph during that period is higher than it would have been. Its probable that now from 2008-2014 it is lower than if they had never joined the Euro, but I would bet they still are in the black, and if they had competed on wages and developed an economic niche with their leverage instead of creating a vast welfare state + massive bureaucracy they likely would be permanently in the black.
Edit:
This is not me saying I know what is necessarily best for the Greeks moving forward. They basically have 3 options: Austerity; Default and Remain on the Euro; or Default and leave the Euro. My point is simply that a united currency system is not flawed, the only flaw is leveraging without using it for sensible investments and the irrational exuberance of those who lend that money.
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However, that is not the path, and no it is not about Greeks needing to buy from Greeks, because even in your example the currency exchange rate means that they could have (probably) produced goods at a cost that Germans wanted.
I don't understand this sentence.
I'm not putting aside america's exemple EXACTLY because america fit my description perfectly. "More friendly to business" my ass, what makes poorest american state okayish is that they receive fiscal transfert through the federal state... something that does not exist in europe.
In fact, Krugman used to make a comparaison between Greece and some american state (kansas I believe ?) just to enlight this fact (that the core of the problem is the inexistance of fiscal transfert in a monetary union).
Greece "enjoyed a higher standard of living" : this is irrelevant to the point at hand. I'll stop respond until I take the time to actually write a full explanation. You're purposely focussing on Greece and putting aside the fact that it is entirely a result of the euro area, that what happened in Spain, Portugal or Italy is exactly the same thing (even if the desequilibrium is less and thus the adjustment is easier). Greece is not the problem of the euro zone, the euro zone is overall in a difficult position (the eurozone is doing worst than Japan since the crisis...).
+ Show Spoiler +
"Common currency is not flawed" => read optimum currency area on wiki. It's not inherently flawed, it needs specific things to work out.
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On February 17 2015 22:36 Taguchi wrote:Show nested quote +On February 17 2015 19:37 cLutZ wrote:On February 17 2015 19:05 WhiteDog wrote:On February 17 2015 17:22 cLutZ wrote:On February 14 2015 05:01 Nyxisto wrote:On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone? Yes. On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts. This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor). Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred. Edit: Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want? We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged. No the point is that if Germany and Greece had different currency, the currency would appreciate themselves as greek buy german marks, effectively increasing the price of german goods at exportation, preventing this situation. Just think about what the chinese are doing to prevent their currency from increasing : they stockpile cash on vault, german would have to do that to (note that, for some economists, chinese strategy is at the core of the subprime crisis, I consider that in the same vein, german modern mercantilism in a flawed common currency area is at the core of the euro crisis). You ask "what greek could produce that germans wants ?" that's not the problem, the problem is how greece can build its own industry to produce goods it wants - and with a floating exchange rate, and germans goods at a high price, there would have incentive for building greek goods. Your also intentionally ignoring the example of America which has a fiscal union and poorer areas. Greece could have chosen the economic development model that poorer American states do: more business friendly governance, compete on wages, lower property values, instead they chose a different path. Where are (most of) the military-industrial factories located, pray tell? NOT in New York? Why?! Could it be American leaders of ages past had the good sense to support their not-so-well-off regions via big investments (remember, these companies are private but their major client is the US government)?
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On February 17 2015 18:50 warding wrote:
I'm still having trouble understanding alternatives to 'austerity'. Is it something like:
1. Country A belonging to the Euro goes insolvent, +10% deficit and skyrocketing public debt, asks for help.
2. Countries B-to-Z offer +100Bn Euro, no-strings-attached, pay-back optional?
It seems the anti-austerity crowd argues purely on the poor economic performance of Greece within the program while not addressing the moral hazard problem, which seems to me to be the fundamental reason why the program exists. How do you protect tax-payers in other EU countries? How do you guarantee that Greece does not sink again towards insolvency if the structural problems are not addressed?
Alternative to austerity is not free money, no. Ask yourself what the aim of austerity is: restoring competitiveness thus restoring growth, right? Austerity does that via deflationary means - wage dampening, loosened workplace regulations (basically a license to allow companies to take advantage of their employees, but in nicer words) and so on.
So how else could one restore competitiveness and growth? Same way you do it inside your country's borders, fiscal transfers! Have an industry that can be located in a relatively remote region without major trouble? Provide employment for that region by striking a deal about factory getting located there! Does infrastructure really suck out there, even though everything's functional and pretty in the capital? Pay for that infrastructure with money generated in your wealthy regions!
So on and so forth. The general idea is to setup a surplus recycling mechanism so that the surplus generated in successful regions gets spent in regions that are lagging behind. The Americans did it right after WW2 with Europe and Japan and everyone rejoiced. Germany is... unwilling to do it, currently. And since it is also unwilling to raise wages - spend the surplus for the benefit of its own citizens, who in turn might at least spend some of it in foreign countries, aka become part of the recycling process - you get austerity as the 'one and only true path'.
Leave aside the catastrophic effects of sustained severe austerity on a population, profligate leaders/governments and such. Running a surplus requires someone, somewhere running a deficit. If you wish to continue running your surplus you better be willing to fund that deficit and keep funding it until your surplus is no more. Everyone running a surplus at the same time, as austerity advocates would have it (success is determined by your ability to produce, after all, no? and austerity aims at making everyone successful!) is, by definition, impossible, as trade deficit/surplus is a zero sum game.
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Do we know why the situation is that bad only in Southern European countries?
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On February 17 2015 22:58 Taguchi wrote:Show nested quote +On February 17 2015 22:36 Taguchi wrote:On February 17 2015 19:37 cLutZ wrote:On February 17 2015 19:05 WhiteDog wrote:On February 17 2015 17:22 cLutZ wrote:On February 14 2015 05:01 Nyxisto wrote:On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone? Yes. On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts. This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor). Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred. Edit: Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want? We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged. No the point is that if Germany and Greece had different currency, the currency would appreciate themselves as greek buy german marks, effectively increasing the price of german goods at exportation, preventing this situation. Just think about what the chinese are doing to prevent their currency from increasing : they stockpile cash on vault, german would have to do that to (note that, for some economists, chinese strategy is at the core of the subprime crisis, I consider that in the same vein, german modern mercantilism in a flawed common currency area is at the core of the euro crisis). You ask "what greek could produce that germans wants ?" that's not the problem, the problem is how greece can build its own industry to produce goods it wants - and with a floating exchange rate, and germans goods at a high price, there would have incentive for building greek goods. Your also intentionally ignoring the example of America which has a fiscal union and poorer areas. Greece could have chosen the economic development model that poorer American states do: more business friendly governance, compete on wages, lower property values, instead they chose a different path. Where are (most of) the military-industrial factories located, pray tell? NOT in New York? Why?! Could it be American leaders of ages past had the good sense to support their not-so-well-off regions via big investments (remember, these companies are private but their major client is the US government)? edit: Show nested quote +On February 17 2015 18:50 warding wrote:
I'm still having trouble understanding alternatives to 'austerity'. Is it something like:
1. Country A belonging to the Euro goes insolvent, +10% deficit and skyrocketing public debt, asks for help.
2. Countries B-to-Z offer +100Bn Euro, no-strings-attached, pay-back optional?
It seems the anti-austerity crowd argues purely on the poor economic performance of Greece within the program while not addressing the moral hazard problem, which seems to me to be the fundamental reason why the program exists. How do you protect tax-payers in other EU countries? How do you guarantee that Greece does not sink again towards insolvency if the structural problems are not addressed? Alternative to austerity is not free money, no. Ask yourself what the aim of austerity is: restoring competitiveness thus restoring growth, right? Austerity does that via deflationary means - wage dampening, loosened workplace regulations (basically a license to allow companies to take advantage of their employees, but in nicer words) and so on. So how else could one restore competitiveness and growth? Same way you do it inside your country's borders, fiscal transfers! Have an industry that can be located in a relatively remote region without major trouble? Provide employment for that region by striking a deal about factory getting located there! Does infrastructure really suck out there, even though everything's functional and pretty in the capital? Pay for that infrastructure with money generated in your wealthy regions! So on and so forth. The general idea is to setup a surplus recycling mechanism so that the surplus generated in successful regions gets spent in regions that are lagging behind. The Americans did it right after WW2 with Europe and Japan and everyone rejoiced. Germany is... unwilling to do it, currently. And since it is also unwilling to raise wages - spend the surplus for the benefit of its own citizens, who in turn might at least spend some of it in foreign countries, aka become part of the recycling process - you get austerity as the 'one and only true path'. Leave aside the catastrophic effects of sustained severe austerity on a population, profligate leaders/governments and such. Running a surplus requires someone, somewhere running a deficit. If you wish to continue running your surplus you better be willing to fund that deficit and keep funding it until your surplus is no more. Everyone running a surplus at the same time, as austerity advocates would have it (success is determined by your ability to produce, after all, no? and austerity aims at making everyone successful!) is, by definition, impossible, as trade deficit/surplus is a zero sum game.
The thing, from my point of view, is that that's about what we tried to do for the last decades and it didn't work because of the way the money was used. You mentioned corrupt politicians and problems with taxes yourself iirc. It's not just about throwing money at Greece but how they're using that money and if something's constantly siphoning away at it for it to be a problem, getting more money isn't what's solving the issue.
So the reality of austerity probably doesn't even have the "what's best for Greece" at it's origin. Rather a "okay we need to stop blindly throwing money at them to encourage a change first and THEN we continue throwing money at them"
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On February 17 2015 23:54 Toadesstern wrote:Show nested quote +On February 17 2015 22:58 Taguchi wrote:On February 17 2015 22:36 Taguchi wrote:On February 17 2015 19:37 cLutZ wrote:On February 17 2015 19:05 WhiteDog wrote:On February 17 2015 17:22 cLutZ wrote:On February 14 2015 05:01 Nyxisto wrote:On February 14 2015 04:23 WhiteDog wrote:On February 14 2015 04:19 Nyxisto wrote:
I don't understand the point about cash flow out of Greece, if anything the creation of a common currency has lead to "excess money" going into Greece, creating the imbalance that has now lead to Greece's indebtedness? Compare to a closed circuit : if greece was closed, the excess money in greece would have created inflation right ? That was not the case, so it was not excess money : it didn't lead to a decrease in the value of money, so it mean that the money was actually used to increase production somewhere (it responded to a demand of money), just not in greece, or not at a rate high enough to pay back the interest and the debt (or both). But isn't that just another way of saying that the money borrowed by the Greek government and private actors just simply was wrongly invested or spent, because else it would have created productivity that would have enabled Greece to pay back debt and interest now? So it's at least partially a structural problem within the Greek economy and not only a problem of the Eurozone? Yes. On February 17 2015 07:52 WhiteDog wrote:
Huh not really. Money does not come from work at all, I'm not sure where you learned that but it's not economic theory at all. Money is an intermediary for trade in economic theory - the idea of the veil or the dichotomy stress that enough. Money has no value in itself, and it's the quantity of money that create its value : by rarity. Thus, by choosing to extend or compress the monetary mass, it's the central bank that define the value of money in an economy (the inflation rate).
It's true that bank move the money, but adding the financial system to the little model I was discussing does not make it false : it just create the possibility of a debt crisis, because in the existance of a stable desequilibrium, the debtor and the creditor are always the same.
That germany does not spend money is not the problem in itself, the problem is that they are in the same common currency as Greece, and that without a floating exchange rate, their exchange rate in relation to Greece's exchange rate does not change even if they don't spend.
I was away on a week end, I'll try to post a clear explanation in a few days of the european monetary system and how it is entirely responsible for situation at hand, and how reforming the public sector in favor of the private sector is not a solution - like suggested in previous posts. This is basically the retroactive way of explaining away what I quoted from Nyx above. You say, "If Greece was on its own currency, they could inflate their debts away." This is, of course, true but they only were allowed to take out that debt because the creditors assumed that they could not do this (see the Argentinian bond market for an example of a country that doesn't have this kind of guarantee/isn't a well respected debtor). Now, because, in the past, Greece didn't have a floating currency there was an influx of money out of the economy because Euro-denominated goods/services were cheap for greeks and the debt taken out to purchase those goods was financed at a low rate. Now, the Greeks could have bought a bunch of things with that debt, and it is likely that none of those things would have totally prevented the current crisis they have (because the capital stocks are built over longer periods of time than the Eurozone has existed), however they spent it on some of the worst things imaginable, which is why the situation is now so dire: because there has been no real improvement in the underlying capital stocks which would have allowed it to generate the needed growth to pay off the debts incurred. Edit: Now you can say the Germans are "cheap" and need to spend, but what do the Greeks produce that Germans would want? We have the same situation in America, New York and California are very expensive places with high standards of living that produce luxury goods, and much of the South like Louisiana or Alabama has a lower SOL but they produce goods there more cheaply, or produce different kinds of goods (Cotton, Tobacco, Oil), and they aren't nearly as leveraged. No the point is that if Germany and Greece had different currency, the currency would appreciate themselves as greek buy german marks, effectively increasing the price of german goods at exportation, preventing this situation. Just think about what the chinese are doing to prevent their currency from increasing : they stockpile cash on vault, german would have to do that to (note that, for some economists, chinese strategy is at the core of the subprime crisis, I consider that in the same vein, german modern mercantilism in a flawed common currency area is at the core of the euro crisis). You ask "what greek could produce that germans wants ?" that's not the problem, the problem is how greece can build its own industry to produce goods it wants - and with a floating exchange rate, and germans goods at a high price, there would have incentive for building greek goods. Your also intentionally ignoring the example of America which has a fiscal union and poorer areas. Greece could have chosen the economic development model that poorer American states do: more business friendly governance, compete on wages, lower property values, instead they chose a different path. Where are (most of) the military-industrial factories located, pray tell? NOT in New York? Why?! Could it be American leaders of ages past had the good sense to support their not-so-well-off regions via big investments (remember, these companies are private but their major client is the US government)? edit: On February 17 2015 18:50 warding wrote:
I'm still having trouble understanding alternatives to 'austerity'. Is it something like:
1. Country A belonging to the Euro goes insolvent, +10% deficit and skyrocketing public debt, asks for help.
2. Countries B-to-Z offer +100Bn Euro, no-strings-attached, pay-back optional?
It seems the anti-austerity crowd argues purely on the poor economic performance of Greece within the program while not addressing the moral hazard problem, which seems to me to be the fundamental reason why the program exists. How do you protect tax-payers in other EU countries? How do you guarantee that Greece does not sink again towards insolvency if the structural problems are not addressed? Alternative to austerity is not free money, no. Ask yourself what the aim of austerity is: restoring competitiveness thus restoring growth, right? Austerity does that via deflationary means - wage dampening, loosened workplace regulations (basically a license to allow companies to take advantage of their employees, but in nicer words) and so on. So how else could one restore competitiveness and growth? Same way you do it inside your country's borders, fiscal transfers! Have an industry that can be located in a relatively remote region without major trouble? Provide employment for that region by striking a deal about factory getting located there! Does infrastructure really suck out there, even though everything's functional and pretty in the capital? Pay for that infrastructure with money generated in your wealthy regions! So on and so forth. The general idea is to setup a surplus recycling mechanism so that the surplus generated in successful regions gets spent in regions that are lagging behind. The Americans did it right after WW2 with Europe and Japan and everyone rejoiced. Germany is... unwilling to do it, currently. And since it is also unwilling to raise wages - spend the surplus for the benefit of its own citizens, who in turn might at least spend some of it in foreign countries, aka become part of the recycling process - you get austerity as the 'one and only true path'. Leave aside the catastrophic effects of sustained severe austerity on a population, profligate leaders/governments and such. Running a surplus requires someone, somewhere running a deficit. If you wish to continue running your surplus you better be willing to fund that deficit and keep funding it until your surplus is no more. Everyone running a surplus at the same time, as austerity advocates would have it (success is determined by your ability to produce, after all, no? and austerity aims at making everyone successful!) is, by definition, impossible, as trade deficit/surplus is a zero sum game. The thing, from my point of view, is that that's about what we tried to do for the last decades and it didn't work because of the way the money was used. You mentioned corrupt politicians and problems with taxes yourself iirc. It's not just about throwing money at Greece but how they're using that money and if something's constantly siphoning away at it for it to be a problem, getting more money isn't what's solving the issue. So the reality of austerity probably doesn't even have the "what's best for Greece" at it's origin. Rather a "okay we need to stop blindly throwing money at them to encourage a change first and THEN we continue throwing money at them"
This is why Varoufakis proposes that the European Investment Bank handles the core of the surplus recycling mechanism (edit: actually Varoufakis proposes that we let EIB issue bonds for itself so that the financing can come from outside the EU and avoid German objections from the get go but, longterm, some sort of large scale transfer mechanism needs to be implemented inside EU anyway), not member states themselves. Of course previous governments screwed up big time, no one disputes that - see greek election results of 2009, 2012 (x2) and 2015, tells you all you need to know really.
Encouraging a change is ok as long as it's handled correctly. See one of my previous posts about troika growth/unemployment projections (these things too were a part of the program) and reality. There is a huge disconnect there.
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EPT![[image loading]](http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150216_var1.jpg)
![[image loading]](https://aneconomicsense.files.wordpress.com/2014/11/gdp-growth-in-eurozone-japan-and-us-2008q1-to-2014q31.png)
