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The european debt crisis is caused by all that plus:
-American suprime crisis that sent the world into a "economic" crisis
-American finance greed that with the help of the rating companys, the same that gave Madoff and the suprime funds TRIPLE AAA+
-Stupid corrupted european politians
-Greedy banks and politicians that would invest even public funds and pension funds in american toxic funds
etc... etc..
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There is also the misconception that cutting spending (i.e. austerity) is the solution to recession, often said by Republicans and European leaders. This is also not true, in fact it will deepen the recession.
Thats true.
BUT some countries spend to much and still need to cut spending, it won't help or potentially even harm these countries in this crisize, but in the long run... Some countries just spent more than they should have and need to cut spending.
The problem is, this should have happened during "the boom years", not during a crisis.
Greece for instance just could not support itself for all eternity.. "thanks" to the crisize the crash just came now and not later...
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Uhm, I don't know where to start...
Public Debt IS Government Debt!. Trade imbalances is totally irrelevant here... Yes, centralizing power like is done in EU and the eurozone is not something I aplaud. But of course no one should lend to mismanaged economies at low rates!
Basically everything you mention is a result of politicians' actions.
And inflation as your solution? Really? Everyone will suffer from inflation. But what's worse, the people who have actually taken care of themselves and been responsible, i.e. the savers, will get all their wealth eroded. You're giving the wrong incentive to citizens and you're inviting a plauge (inflation) into your economy.
Careless austerity may deepen the recession. But long-term austerity plans to turn budget deficits into budget surpluses are definitely necessary.
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On December 30 2011 20:31 ParasitJonte wrote:
Uhm, I don't know where to start...
Public Debt IS Government Debt!. Trade imbalances is totally irrelevant here... Yes, centralizing power like is done in EU and the eurozone is not something I aplaud. But of course no one should lend to mismanaged economies at low rates!
Basically everything you mention is a result of politicians' actions.
And inflation as your solution? Really? Everyone will suffer from inflation. But what's worse, the people who have actually taken care of themselves and been responsible, i.e. the savers, will get all their wealth eroded. You're giving the wrong incentive to citizens and you're inviting a plauge (inflation) into your economy.
Careless austerity may deepen the recession. But long-term austerity plans to turn budget deficits into budget surpluses are definitely necessary.
That was a typo, should have said private debt, instead of public debt. Fixed now.
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Oh yeah we just inflate our problems away because obviously that has no down side :/
Inflation means that all public sectors workers will get paid a lot less. That basically IS cutting spending.
It's better to be upfront and honest about the problem and choose where you want to take money away.
The heart of the problem really is the trade deficit. Borrowing money is fine if the money is invested into something that gives a return. I.e. spend some to get lots back. But obviously what we did was spend lots and get less back. Then you're really in trouble.
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On December 30 2011 19:34 paralleluniverse wrote:
It seems the solution to the European Debt Crisis is inflation to erode away debt, and the ECB to act as a lender of last resort.
This is the only solution to the European debt crisis but it will also be the catalyst to the end of the current capitalist system and a major financial meltdown. I don't have the time to write a huge essay on it but basically my expectation for the year end is currency wars, lack of confidence in thought to be stable currencies, bank runs/bankrupies a-la-lehman style.
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I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct?
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Hahaha, I can't believe someone actually recommends inflation as a way to get countries out of debt. "Well citizens, we realize you've been saving money and that's nice and all, but we're going to make all of that money worth fuck all. Enjoy your Deutsche mark circa 1923, guys!"
Really? It would work for government debt but it would kill off every single private persons' savings in the Eurozone. Are you absolutely mad?
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On December 30 2011 20:49 mdb wrote:
I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct?
I'm also a newb but I think it's more like :
- Huge investor retrieve his capital invested in action in some bank
- People freak out when they see a sudden -20% value of the shares and retrieve their actions and money from the bank
- Banks (that heavily invested in actions) freak out too and in addition to that, they need to give money back to the customers that had title accounts in their bank.
- Banks sell their actions stock at deficit an become kinda red listed, creating panic amoung the last investors.
- Bank bankrupt.
Mainly due to huge investors pullling out of the market, this is about hundreds of millions retrieved in one day, not about iphones (computer, car...) bought with credit
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On December 30 2011 20:31 ParasitJonte wrote:
Uhm, I don't know where to start...
Public Debt IS Government Debt!. Trade imbalances is totally irrelevant here... Yes, centralizing power like is done in EU and the eurozone is not something I aplaud. But of course no one should lend to mismanaged economies at low rates!
Basically everything you mention is a result of politicians' actions.
And inflation as your solution? Really? Everyone will suffer from inflation. But what's worse, the people who have actually taken care of themselves and been responsible, i.e. the savers, will get all their wealth eroded. You're giving the wrong incentive to citizens and you're inviting a plauge (inflation) into your economy.
Careless austerity may deepen the recession. But long-term austerity plans to turn budget deficits into budget surpluses are definitely necessary.
It's not my solution, it's one part of Paul Krugman's solution (he's an economics professor who won a Nobel Prize).
He explains why inflation is necessary to get prices between Eurozone nations to align here: http://krugman.blogs.nytimes.com/2011/11/01/repost-european-inflation-targets/
The gap between German and Spanish wages he is talking about can clearly be seen in the Labor Cost graph in the BBC article I put in the OP (http://www.bbc.co.uk/news/business-16301630).
The inflation is also needed to close the large trade deficit, which partly caused the crisis (this gap can be seen in the graph in above article).
The other part is for the ECB to lend to the countries like Greece, Italy and Spain at low interest rates, so that they don't default.
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On December 30 2011 20:49 mdb wrote:
I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct?
No, you're wrong.
Greece lied about their deficit when they joined the Euro, if they had told the truth they wouldn't have been allowed into the Euro. 40% of taxable income in Greece goes unpaid, no one pays their taxes in Greece the entire country is corrupt and just fucks each other over, add in the fact that during the housing bubble they invested money widely and you have a recipe for disaster.
I'd be pissed if I was German and had to help those douches (the Greeks) out.
Although, Germany and Iceland both entered the housing bubble with their pockets open and didn't know what the fuck they were doing as they have no experience in the financial markets (at least not at the level they were playing), Germany and Iceland bought a shit ton of toxic debts and basically got fucked over by Americans who knew a mug when they saw one coming.
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This is silly. For some Euro countries the problem does lie in government debt, but for others it does not. Making this a black/white story that supports a preferred policy as you make it out cheapens the problem and simplifies what is a complex issue.
The fact is Greece (lol check out the pork being shoveled out of the greek gov't - rail debt @ 5% of GDP http://www.nytimes.com/2010/07/21/business/global/21rail.html), Italy, and Spain all spend WAAAY too much. Was it unsustainable before the recession? No. But the countries spent themselves into vulnerable situations.
Then, on top of all this, GIS do not control their currency, thus cannot devalue to improve the competitiveness of their industries. The trade imbalance isn't the problem per se, bu rather a symptom. Gov't control of the labor market and manufacturing has produced high wages and low productivity. This means no one buys GIS products. Therefore GDP cannot outgrow the huge increase in debt the recession added to the gov't debt accrued during the good times. From where i'm sitting it looks like gov't interference and a bloated labor market from the interference has made the problem even worse.
Though in the end, i'm convinced by Scott Sumner (themoneyillusion.com) that this the crisis part of the this goes away if the ECB steps up as a lender of last resort.
TLDR: Crisis + huge public debt + Private Debt + ECB unwilling to devalue euro or act as lender of last resort all contributed to the crisis.
PS- The Nobel winning Krugman was VERY different than the current Krugman
Edit: Also austerity doesn't mean strict monetary policy, which monetarists believe is more important than fiscal policy for keeping demand up and nGDP from collapsing. It is possible to do austerity without causing a recession.
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On December 30 2011 20:49 mdb wrote:
I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct?
That's certainly part of it.
Then take that to a larger scale.
-Big companies borrow money to invest in high street stores.
-Another lot of big companies borrow money to invest in giant out of town shopping centers.
-First set of big companies lose the war and their investment is now worthless. They've borrowed lots of money and now contribute nothing to the economy.
This then led to problems for the Government.
-Take more money in tax to pay higher wages
-Tax reduces competitiveness of entire private sector, plus private sector is screwing itself over (see above) therefore tax revenue falls
-Now you can't afford to pay higher wages but you already promised them so you borrow the money.
-Now you can't borrow more money and interest rates are going up and the private sector is in real trouble.
-You have stop borrowing money, a lot of which props up the private sector, further screwing the economy.
And even that's just part of the problem. A lack of coherent economic strategy from almost every Country in the EU has led to some awful decisions being made.
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On December 30 2011 21:17 bumwithagun wrote:This is silly. For some Euro countries the problem does lie in government debt, but for others it does not. Making this a black/white story that supports a preferred policy as you make it out cheapens the problem and simplifies what is a complex issue. The fact is Greece (lol check out the pork being shoveled out of the greek gov't - rail debt @ 5% of GDP http://www.nytimes.com/2010/07/21/business/global/21rail.html), Italy, and Spain all spend WAAAY too much. Was it unsustainable before the recession? No. But the countries spent themselves into vulnerable situations. Then, on top of all this, GIS do not control their currency, thus cannot devalue to improve the competitiveness of their industries. The trade imbalance isn't the problem per se, bu rather a symptom. Gov't control of the labor market and manufacturing has produced high wages and low productivity. This means no one buys GIS products. Therefore GDP cannot outgrow the huge increase in debt the recession added to the gov't debt accrued during the good times. From where i'm sitting it looks like gov't interference and a bloated labor market from the interference has made the problem even worse. Though in the end, i'm convinced by Scott Sumner (themoneyillusion.com) that this the crisis part of the this goes away if the ECB steps up as a lender of last resort. TLDR: Crisis + huge public debt + Private Debt + ECB unwilling to devalue euro or act as lender of last resort all contributed to the crisis. PS- The Nobel winning Krugman was VERY different than the current Krugman
Yes, you're correct on Greece. For Greece, the problem is very much government debt. But for Italy and Spain government debt wasn't the problem.
Greece hid their debt through complicated derivatives, some of which were designed by Goldman Sachs. See: http://www.spiegel.de/international/europe/0,1518,676634,00.html
I also think the crisis part will go away if the ECB acts as lender of last resort, but the recession won't.
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On December 30 2011 21:12 paralleluniverse wrote:Show nested quote +On December 30 2011 20:31 ParasitJonte wrote:
Uhm, I don't know where to start...
Public Debt IS Government Debt!. Trade imbalances is totally irrelevant here... Yes, centralizing power like is done in EU and the eurozone is not something I aplaud. But of course no one should lend to mismanaged economies at low rates!
Basically everything you mention is a result of politicians' actions.
And inflation as your solution? Really? Everyone will suffer from inflation. But what's worse, the people who have actually taken care of themselves and been responsible, i.e. the savers, will get all their wealth eroded. You're giving the wrong incentive to citizens and you're inviting a plauge (inflation) into your economy.
Careless austerity may deepen the recession. But long-term austerity plans to turn budget deficits into budget surpluses are definitely necessary. It's not my solution, it's one part of Paul Krugman's solution (he's an economics professor who won a Nobel Prize). He explains why inflation is necessary to get prices between Eurozone nations to align here: http://krugman.blogs.nytimes.com/2011/11/01/repost-european-inflation-targets/The gap between German and Spanish wages he is talking about can clearly be seen in the Labor Cost graph in the BBC article I put in the OP (http://www.bbc.co.uk/news/business-16301630). The inflation is also needed to close the large trade deficit, which partly caused the crisis (this gap can be seen in the graph in above article). The other part is for the ECB to lend to the countries like Greece, Italy and Spain at low interest rates, so that they don't default.
Paul Krugman won the noble prize for his research on trade theory not on the debt crisis. For 10 years he resembles more a politician than an economist. He is not active in research anymore and yet voices his opinion on pretty much everything that concerns economics. In last 5 years his been ridiculed or proven wrong many times yet he keep preaching. I would take everything that he said with a bowl of salt. He has political agenda and he keep pushing it.
The crisis in Europe is a complex event and it will be studied for years before people converge causes. But so far it looked that it was caused:
- Greece: by huge budget deficit it was running for years
- Italy - uncompetitive economy - basically Italy has been not growing for years thanks to Berlusconi.
- Spain - burst of the housing bubble + other economic problems
- Ireland - subprime crisis in US
- Iceland - same as Ireland
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Some more comments on inflating away debt (although this is about the US, and not Europe): http://www.economist.com/blogs/freeexchange/2010/02/monetary_policy_1
It quotes Olivier Blanchard, a IMF economist, who wrote a widely used macro 101 textbook.
I should note that the article doesn't directly apply to the Eurozone, as the point of inflation in the Eurozone is to close the trade imbalances between the countries.
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On December 30 2011 21:15 mememolly wrote:Show nested quote +On December 30 2011 20:49 mdb wrote:
I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct? No, you're wrong. Greece lied about their deficit when they joined the Euro, if they had told the truth they wouldn't have been allowed into the Euro. 40% of taxable income in Greece goes unpaid, no one pays their taxes in Greece the entire country is corrupt and just fucks each other over, add in the fact that during the housing bubble they invested money widely and you have a recipe for disaster. I'd be pissed if I was German and had to help those douches (the Greeks) out. Although, Germany and Iceland both entered the housing bubble with their pockets open and didn't know what the fuck they were doing as they have no experience in the financial markets (at least not at the level they were playing), Germany and Iceland bought a shit ton of toxic debts and basically got fucked over by Americans who knew a mug when they saw one coming.
Don't blame the Greeks in general. The Greek polititions are the ones to blame. Like the polititions in my own country. But in the end the ones making the sacrifices and paying up their screw ups are the hard working people.
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On December 30 2011 22:15 EdSlyB wrote:Show nested quote +On December 30 2011 21:15 mememolly wrote:On December 30 2011 20:49 mdb wrote:
I`m total economics newb and as far as I understand if we put it in simple words
- people get loans from banks
- they dont invest the money in smth that will return profit, but instead buy iphones and such stuff
- people cant return the money to the banks
- banks bankrupt
is this correct? No, you're wrong. Greece lied about their deficit when they joined the Euro, if they had told the truth they wouldn't have been allowed into the Euro. 40% of taxable income in Greece goes unpaid, no one pays their taxes in Greece the entire country is corrupt and just fucks each other over, add in the fact that during the housing bubble they invested money widely and you have a recipe for disaster. I'd be pissed if I was German and had to help those douches (the Greeks) out. Although, Germany and Iceland both entered the housing bubble with their pockets open and didn't know what the fuck they were doing as they have no experience in the financial markets (at least not at the level they were playing), Germany and Iceland bought a shit ton of toxic debts and basically got fucked over by Americans who knew a mug when they saw one coming. Don't blame the Greeks in general. The Greek polititions are the ones to blame. Like the polititions in my own country. But in the end the ones making the sacrifices and paying up their screw ups are the hard working people.
I'm not just blaming the Greek "hard working" people, but the "hard working" people of Greece don't pay their taxes, sure some do but the vast majority don't, everyone is looking to get one over on one another and no one wants to take responsibility, tbh Greece should never of been allowed to join the Euro but who knew they were lying about their deficit? Putting a country like Germany in financial bed with a country as corrupt as Greece was never going to turn out well
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EPT
