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On May 26 2017 19:20 opisska wrote:
I honestly don't know what exactly the ECB did here, so I am awaiting the promised post to educate myself, but I find the "print money" method rather efficient, if used well. I actually don't understand why it isn't used for budget purposes more? I mean really in the most harsh way of "the state makes new money, and gives it itself to spend" - because what that is is a flat tax on any capital, however undeclared it might be, however it tries to hide from the hands of the state, because it simply takes a little bit of value from every piece of the currency and gives it to the state to spend. I find it quite brilliant.
(Hyper)inflation mostly. Look at Venezuela for an example of how printing money to finance government expenditure can go horribly wrong.
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If we were to construct two categories, one titled "entities like Venezuela that print money to finance government expenditure" and the other titled "entities not like Venezuela that print money to finance government expenditure," it would seem clear that the EU falls into the latter and that the two should be regarded as rather different. Accordingly, "look at venezuela" is not exactly a convincing response to Opisska's question without a lot more explanation.
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So we went from "hidden inflation in the EU" to "hyper inflation in Venezuela"...
This thread manages to surprise again and again.
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I have the tendency to do that to threads usually
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Ok, in that case, let's explain it a bit further.
The problem is that it is very easy to lose control. If you print too much money, and inflation starts to rise, people will notice. Those people will stop trusting your money, thus further decreasing its value. Which means that you have to print more. Which further decreases the value, lowers the trust in it, and can result in a death spiral that leads to hyperinflation.
Which is very bad for the economy, because it means that people have to resort to barter trade, which is way less effective than currency, all sorts of weird things happen with salaries, no one is willing to lend money to people anymore, because even with high rates the money you get back is still worth less than the money you lend them. Investments become problematic, savings become worthless, and everything goes out of control.
Thus, printing money is indeed quite in modicum (After all, the money people use to trade also has to come from some place), but one needs to be very careful so one doesn't lose control.
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On May 26 2017 20:09 RvB wrote:Show nested quote +On May 26 2017 19:20 opisska wrote:
I honestly don't know what exactly the ECB did here, so I am awaiting the promised post to educate myself, but I find the "print money" method rather efficient, if used well. I actually don't understand why it isn't used for budget purposes more? I mean really in the most harsh way of "the state makes new money, and gives it itself to spend" - because what that is is a flat tax on any capital, however undeclared it might be, however it tries to hide from the hands of the state, because it simply takes a little bit of value from every piece of the currency and gives it to the state to spend. I find it quite brilliant. (Hyper)inflation mostly. Look at Venezuela for an example of how printing money to finance government expenditure can go horribly wrong.
Why don't we look to Iceland instead ?. Not to speak that the moment Draghi setted the system up to circumvent the purely ideological rigidity on this issue by the ECB, and it was to be able to get to the 2% inflation target (and save Italians Banks on the way if i remember correctly ?).
On May 26 2017 20:16 mahrgell wrote:
So we went from "hidden inflation in the EU" to "hyper inflation in Venezuela"...
This thread manages to surprise again and again.
You just need to write or say "print money" on any context and you will get the hyper inflation in Venezuela answer.
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I took Venezuela since it's a recent example. The west had the same problem in the 70s with a period of stagflation caused by excessive monetary easing. The increase of power for central banks is in part a response to this period of stagflation.
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On May 26 2017 20:19 Godwrath wrote:Show nested quote +On May 26 2017 20:16 mahrgell wrote:
So we went from "hidden inflation in the EU" to "hyper inflation in Venezuela"...
This thread manages to surprise again and again. You just need to write or say "print money" on any context and you will get the hyper inflation in Venezuela answer.
So true. It's funny because this whole discussion is irrelevant when there's a central bank that controls the interest rate (printing money, temporarity or otherwise, in order to do so). If you want to discuss printing money as a source of revenue (beyond the bit that comes in because of a positive inflation target), you first have to discuss stopping the central bank from setting interest rates.
Well, or your could discuss increasing the inflation target, that would do it as well.
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A question on the topic of 'printing of money' in the Eurozone and in general,
As far as I know - virtually all modern western economies employ a reserve bank to preside over the creation of new currency. For the European central banks - is every euro that is 'created' made in the form of a 'loan' with interest due?
If the answer is yes, then isn't this the fundamental problem and danger with printing currency? For every euro that is printed, further euros are also created out of nothing from the interest due.
I recall reading that Japan has had some improvement with this practice recently, but they have had years of shrinking workforce and in some cases even negative interest rates.
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On May 26 2017 21:26 AaBbCc wrote:
A question on the topic of 'printing of money' in the Eurozone and in general,
As far as I know - virtually all modern western economies employ a reserve bank to preside over the creation of new currency. For the European central banks - is every euro that is 'created' made in the form of a 'loan' with interest due?
If the answer is yes, then isn't this the fundamental problem and danger with printing currency? For every euro that is printed, further euros are also created out of nothing from the interest due.
I recall reading that Japan has had some improvement with this practice recently, but they have had years of shrinking workforce and in some cases even negative interest rates.
Central banks usually can buy or sell treasuries to add or remove (print or destroy) money from the economy, so I don't see this fundamental problem and danger. The problem with Japan is a complicated one, but it certainly wasn't caused by an overabundance of money like you're describing.
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What's wrong with the Venezuela example? The problem with central banks controlled by the executive branch is that monetary policy is too powerful of a tool to be controlled by politicians with messed up incentives. The main difference between Venezuela and the EU is the quality of the institutions and having an independent central bank is a key part in that distinction.
Look at how much fun inflation rates were in southern Europe previous to adherence to the single currency:
+ Show Spoiler +
I'm still waiting on that hiddennn inflation explain. The big mac I just ate still cost only €3.10.
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If it were due to the Euro dropping in comparison to foreign currencies, it wouldn't be hidden. It would be reflected in prices of imported goods. Now I don't know how much these are taken into account when creating the inflation index, but I presume they are. And if inflation is still low despite that, then it doesn't seem to be happening.
And if the argument is that corporations are not passing on these costs to consumers then I see that as a net win for the vast majority of people. But judging from recent increases in the Apple and Google stores, tech companies at least are passing costs due to exchange rates on to consumers.
As for Venezuela. Seems more like an example of what happens when monetary policy is abused (and lots of other things going wrong with the economy and politics). Unless you can make an argument that the ECB is abusing printing money in order to maintain internal order, rather than trying to actually get some inflation going (I'd really like my savings account to not be stuck at 0% interest), it doesn't seem like a good example.
I am not an economist.
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Today is the 75th anniversary of the assassination of Reinhard Heydrich, the Nazi Protector of "Bohmen und Mahren" by a group of Czech soldiers sent from Britain. The only successful assassination of a high rank Nazi during the war has led to massive retaliation by the Nazi regime, including the razing of two villages and widespread killings, however it also led to major foreign recognition of the Czech resistance to the Nazi rule. For a long time, this was a controversial act, fueled by the Communist party's disdain for Britain-based resistance, but even after the fall of the Communism, it took a surprisingly long time for example for the memorial at the attack site to be erected.
https://en.wikipedia.org/wiki/Operation_Anthropoid
The events of WWII are slowly shifting from "something that happened to our families" to "history book material", so it's always good to take a moment to remind oneself of the not-so-distant past. For me, the main message of WWII is how easy it is for a whole nation to be consumed by the ideology of hate.
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On May 27 2017 17:46 Acrofales wrote:
If it were due to the Euro dropping in comparison to foreign currencies, it wouldn't be hidden. It would be reflected in prices of imported goods. Now I don't know how much these are taken into account when creating the inflation index, but I presume they are. And if inflation is still low despite that, then it doesn't seem to be happening.
And if the argument is that corporations are not passing on these costs to consumers then I see that as a net win for the vast majority of people. But judging from recent increases in the Apple and Google stores, tech companies at least are passing costs due to exchange rates on to consumers.
As for Venezuela. Seems more like an example of what happens when monetary policy is abused (and lots of other things going wrong with the economy and politics). Unless you can make an argument that the ECB is abusing printing money in order to maintain internal order, rather than trying to actually get some inflation going (I'd really like my savings account to not be stuck at 0% interest), it doesn't seem like a good example.
I am not an economist.
The thing is that abuse of monetary policy isn't limited to countries like Venezuela. The western world was dealing with high inflation due to the influence politics had on monetary policy (70s & 80s). Politicians are unwilling to increase rates since it they think it'll alienate voters. In the end it took stagflation, a shift in policy towards the monetarist view and increasing central banks independence to reduce inflation to reasonably rates.
Of course there's nothing wrong with the ECB easing monetary policy in times of low inflation and crisis like the last couple of years. As long as the central bank stays independent and will tighten policy when necessary there's no issue. Directly funding governments will reduce the independence of the CB though and make a return to high inflation more likely.
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Directly funding governments was arguably what was needed though to restore confidence immediately after the crisis. We would have needed a TARP for European countries, the indirect mechanism of keeping national banks funded through national governments that was introduced with the EFSF didn't restore confidence and the crisis spread to half of Europe.
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On May 28 2017 02:10 Nyxisto wrote:
Directly funding governments was arguably what was needed though to restore confidence immediately after the crisis. We would have needed a TARP for European countries, the indirect mechanism of keeping national banks funded through national governments that was introduced with the ESM didn't restore confidence and the crisis spread to half of Europe.
That's... what the bailouts were.
Edit: misread the second part of your post. What else could Europe do with troubled countries other than the bailout money, the ESM and the bond purchasing program of the ECB? Arguably, all of it seems to have worked.
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The money wasn't lend directly by the ECB, which would have been good (this only happened in 2015 when the situation was already dire, but that actually worked). We bailed out countries through the ESFS with each country separately 'slicing' the debt according to their own national interest rate and putting their own money up as collateral, the debt was still sovereign. This had the bad effect of driving one country after another out of the markets, because the interest rates in the weakest countries still supplying money through the ESFS were going up. Pooling the risk without pooling the debt was the worst combination of both worlds.
The alternative would have been to issue Eurobonds and directly recapitalise the banks, combined with a genuine banking union. This proposal was blocked in 2012 though by Germany, Netherlands, Finland and some other countries.
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Germany seems to be much more open about it's dissatisfaction with Trump than most other countries:
After summits with Trump, Merkel says Europe must take fate into own hands
Europe can no longer completely rely on its allies, German Chancellor Angela Merkel said on Sunday, pointing to bruising meetings of G7 wealthy nations and NATO last week.
Merkel did not mention by name U.S. President Donald Trump, who criticized major NATO allies and refused to endorse a global climate change accord, but she told a packed beer tent in Munich that the days when Europe could completely count on others were "over to a certain extent".
"I have experienced this in the last few days," she said. "And that is why I can only say that we Europeans must really take our fate into our own hands - of course in friendship with the United States of America, in friendship with Great Britain and as good neighbors wherever that is possible also with other countries, even with Russia."
"But we have to know that we must fight for our future on our own, for our destiny as Europeans," Merkel said.
The two-day G7 summit in Italy pitted Trump against the leaders of Germany, France, Britain, Italy, Canada and Japan on several issues, with European diplomats frustrated at having to revisit questions they had hoped were long settled.
The American tycoon-turned-president backed a pledge to fight protectionism at the end of the G7 summit on Saturday, but refused to endorse the climate pact, saying he needed more time to decide.
But EU Council President Donald Tusk said on Sunday he was more optimistic now than after the U.S. election last November after EU leaders held talks with Trump in Brussels. "What I am absolutely sure after this meeting is that despite some extraordinary ... expressions, behaviors, etc, etc, our partners in the G7 are much more responsible than the first impression after the election in the United States," Tusk said in the Slovak capital.
At the NATO summit on Thursday, Trump intensified his accusations that allies were not spending enough on defense and warned of more attacks such as this week's Manchester bombing unless the alliance did more to stop militants.
Turning to France, Merkel said she wished President Emmanuel Macron success, adding to applause: "Where Germany can help, Germany will help, because Germany can only do well if Europe is doing well."
France is Germany's second-biggest trading partner and the presidential election victory of the pro-European centrist reformer Macron over far-right protectionist rival Marine Le Pen in early May has sparked hopes that Berlin will ally with Paris in spearheading a broad-based economic revival in Europe.
source: www.reuters.com
Don't think I'm seeing that anywhere else as strongly. Also at the meeting itself or shortly afterwards, Merkel was the only one who straight up said she was disappointed and annoyed (or whatever it was) while iirc Macron in contrast was more on the postive side of things, highlighting that he was positively surprised in some aspects
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United Kingdom13775 Posts
I like the part where they talk about "Europe" as if it's a unified entity rather than a troubled coalition of individual nations that have as much trouble with each other as with any "foreigners."
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That's the beauty of the Trump presidency: uniting Europe and serving as an antidote against nationalist forces in the continent.
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EPT![[image loading]](http://blogs.ft.com/ftdata/files/2015/08/Inflation-line_chart-ft-themelargewebinline-600x421.png)
