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Silahsor
Turkey59 Posts
All central banks are pumping more and more money to the system. Result -> Rich gets richer while middle / low class loose their jobs. Pumped money goes to financial tools, not to manufacturing. Entire world economic system is designed to make speculators / bankers / brokers rich.  | ||
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DannyJ
United States5110 Posts
On May 10 2013 06:24 Silahsor wrote: Euro crysis, Far East crysis, liquidity crysis, this crysis, that crysis. These will keep coming where real economy vs. speculation is 5% to 95%. My graphics card will never survive | ||
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JonnyBNoHo
United States6277 Posts
On May 10 2013 05:54 aksfjh wrote: There was not, and still isn't, anything wrong with the fiscal policy of Spain. There are some provisions that made their labor more expensive, but a great deal of Spanish issues stem from a massive jump in unemployment in 2009 (maybe due to construction, but I'm not sure) and huge amounts of government money going to bail out banks. The latter should have never happened with a competent ECB, but it did. Then, the massive expansion of Spanish government debt fueled concerns that they, too, would have a liquidity problem. Of course this happened because, again, of the incompetency of the ECB. Time and time again, the ECB restricted funds to troubled nations and banks because of their finances in moments of crisis. They waited for those countries to catch fire, then made them sign agreements in desperation to keep their countries from fully imploding. Spain's problem wasn't anything they did wrong, but instead got duped by a system that turned on it when crisis struck. Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. | ||
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radiatoren
Denmark1907 Posts
On May 10 2013 08:52 JonnyBNoHo wrote: Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. I think there is a very heavy pressure from liberals in USA on ECB to increase inflation to deal with the problem, but that is not gonna happen before a huge reform of the ECB happens. ECB is a normal company (Yes ECB is a private company with shares and budgets!). Basically ECB has a 2% inflation soft-limit (based on HICP), making its abilities to inflate very limited. Germany and France to a lesser degree is in charge of the politics behind ECB and none of them want to change it substancially. As for the waiting and acting, ECB has little actual power to act economically. We are talking deals in the European Council with nasty Merlande restrictions getting slapped on to the countries to discourage other countries from asking for help. | ||
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Melliflue
United Kingdom1389 Posts
On May 10 2013 08:52 JonnyBNoHo wrote: Could you explain what you think the ECB should have done a bit more? My colloquial understanding is that Spanish firms had become uncompetitive which meant that incomes and asset prices had to fall. The debts that underwrote those incomes and asset values then had to fall in tandem, which destroyed bank capital. That doesn't sound like something the ECB can deal with, unless I don't have my story straight or I'm neglecting some policy tools at the ECB's disposal. I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to  | ||
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paralleluniverse
4065 Posts
On May 10 2013 20:24 Melliflue wrote: I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to This is exactly right. | ||
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zimz
United States510 Posts
On May 10 2013 06:24 Silahsor wrote: Euro crysis, Far East crysis, liquidity crysis, this crysis, that crysis. These will keep coming where real economy vs. speculation is 5% to 95%. All central banks are pumping more and more money to the system. Result -> Rich gets richer while middle / low class loose their jobs. Pumped money goes to financial tools, not to manufacturing. Entire world economic system is designed to make speculators / bankers / brokers rich. yep so true. its really time for a closer look and decency in the whole paradigm. atleast in olden times men knew when they grow up they go hunting and everyone had a job and a purpose. | ||
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JonnyBNoHo
United States6277 Posts
On May 10 2013 20:24 Melliflue wrote: I think the Spanish firms being uncompetitive was more of a problem after the crisis, rather than before the crisis. The crisis itself was more a result of foreign money flowing into Spanish housing/construction. When the global crisis hit, the Spanish housing market collapsed. The Spanish government took on massive debt to fund bailouts. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. The interest rate was kept high to avoid inflation, even though inflation wasn't the problem in the struggling countries. It was mostly fear of hyperinflation in countries like Germany that kept the interest rate high. A high interest rate encourages saving money, but if everyone is trying to save money at the same time then things spiral downwards (businesses/corporations are reluctant to invest any money since demand is weak, but then it's harder to find jobs so people try to save money, thus reducing demand more and so on). Also, some inflation could help Spain become more competitive; if wages rise across the Eurozone as a whole but wages in Spain don't then Spain becomes more competitive. (Side note; it would also help if Germany had better worker rights, which could help fight the rising inequality in Germany too). I try to read up on these things but am by no means an expert, so if someone else wants to correct anything or explain better then they're welcome to Thanks for the post. I had forgotten about some of the ECB's mistakes - particularly early on. That said, Spain's more recent problems seem to stem from political decisions rather than inaction from the ECB. Yields on the Spanish 10yr were low and fairly stable until late 2010 and the Merkel / Sarkozy deal in Deauville. | ||
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Rassy
Netherlands2308 Posts
At least the imf is studying the options,the implications would be huge. Is the fed program of buying back bonds a prelude to this and will the power and control of the banks over the economy finally be broken? http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf (Its A bit unlucky that they also take into account the reinhart roggof study lol but the idea is interesting none the less) | ||
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aksfjh
United States4853 Posts
On May 11 2013 04:58 JonnyBNoHo wrote: Thanks for the post. I had forgotten about some of the ECB's mistakes - particularly early on. That said, Spain's more recent problems seem to stem from political decisions rather than inaction from the ECB. Yields on the Spanish 10yr were low and fairly stable until late 2010 and the Merkel / Sarkozy deal in Deauville. That's when Spain was forced to bail out their banks, while unemployment was still at some crazy number. | ||
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JonnyBNoHo
United States6277 Posts
On May 11 2013 16:13 aksfjh wrote: That's when Spain was forced to bail out their banks, while unemployment was still at some crazy number. I'm referencing October 2010. Spain wasn't bailing out its banks until summer 2012 iirc. | ||
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RvB
Netherlands6188 Posts
On May 11 2013 15:56 Rassy wrote: A financial revolution in the making? At least the imf is studying the options,the implications would be huge. Is the fed program of buying back bonds a prelude to this and will the power and control of the banks over the economy finally be broken? http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf (Its A bit unlucky that they also take into account the reinhart roggof study lol but the idea is interesting none the less) For anyone who cba to open the document but still wants to know what's in it here's a little excerpt: At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy. | ||
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Nyxisto
Germany6287 Posts
All central banks are pumping more and more money to the system. Result -> Rich gets richer while middle / low class loose their jobs. That's pretty generalized and not even completely true. You are right on the part that pumping to much money into the system is probably not the best idea, but technically it's not making "the rich richer", in fact inflation reduces the value of peoples money , and so people with a lot of money basically lose some. Also generally lending money with low interests rates and getting money into the market stimulates growth and creates jobs, austerity policy on the other hand destroys them. That doesn't mean printing money is good of course, but just screaming "It's all the fault of the big banks!" isn't right and won't really help. The ECB did a couple of things that made things worse. Firstly, they set interests rate for the Eurozone and they kept the interest rate quite high until 2009, which was not helpful for the weaker Eurozone economies. Secondly, it repeatedly distanced itself from the idea of securing national debt. If it had been willing to say from the start that it would back all national debt then the rates countries like Spain had to pay when taking on new debt would not have been anywhere near as high. You are right of course and I think that argument shows one serious problem of the crisis, and that is the fact that all European countries, as different as they economically are, have only one monetary policy available at a time. I for a long time didn't think about giving up the Euro and i still don't really do, but i'm getting more open for ideas like two separate currencies for the North and South, or at least parallel currencies. But my knowledge on these topics is pretty limited and i absolutely don't know if those things could work at all. But people who claim that at least two different currencies would solve the problems regarding monetary policies still have a strong point and i think it would be reasonable to discuss these options a little more. That said, Spain's more recent problems seem to stem from political decisions rather than inaction from the ECB. Regarding the house market crisis in Spain it actually happened a lot like it did in the USA. Many people bought a lot of houses they couldn't really afford and eventually it all went down when the bubble burst. I was actually really stunned when i read a few weeks ago that 85% of the people in Spain own their own home. (for comparison here in Germany it's about 50%) So you definitely can't put all the fault on the EU institutions because it's not their job to tell countries how to keep their budgets straight or how to structure their markets. .. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits... Well that basically means going back to a gold standard. Which in principle isn't even such a nonsense or bad idea. But the way our current system works it's unthinkable of going back to it. Banks don't even hold 10% of what they lend to people. They can't backup all the check money that's going around, not even remotely. So a change to the proposed system would probably crash the whole financial market and so it doesn't seem like a very good idea. | ||
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Flyingdutchman
Netherlands858 Posts
On May 10 2013 04:00 Melliflue wrote: What do you mean by terrible decision making? I can see how that could be said about Greece but I'm not sure how it relates to Spain. As far as I know Spain and Greece had very little in common before the global financial crisis, at least in terms of government deficits/debt. just ask a random Spanish economics professor what they think of the various Spanish governments' policies of the last decade. I suspect you will have a hard time finding on that won't go into a fit of rage as he explains all the problems. | ||
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RvB
Netherlands6188 Posts
On May 12 2013 02:55 Nyxisto wrote: That's pretty generalized and not even completely true. You are right on the part that pumping to much money into the system is probably not the best idea, but technically it's not making "the rich richer", in fact inflation reduces the value of peoples money , and so people with a lot of money basically lose some. Also generally lending money with low interests rates and getting money into the market stimulates growth and creates jobs, austerity policy on the other hand destroys them. That doesn't mean printing money is good of course, but just screaming "It's all the fault of the big banks!" isn't right and won't really help. You are right of course and I think that argument shows one serious problem of the crisis, and that is the fact that all European countries, as different as they economically are, have only one monetary policy available at a time. I for a long time didn't think about giving up the Euro and i still don't really do, but i'm getting more open for ideas like two separate currencies for the North and South, or at least parallel currencies. But my knowledge on these topics is pretty limited and i absolutely don't know if those things could work at all. But people who claim that at least two different currencies would solve the problems regarding monetary policies still have a strong point and i think it would be reasonable to discuss these options a little more. Regarding the house market crisis in Spain it actually happened a lot like it did in the USA. Many people bought a lot of houses they couldn't really afford and eventually it all went down when the bubble burst. I was actually really stunned when i read a few weeks ago that 85% of the people in Spain own their own home. (for comparison here in Germany it's about 50%) So you definitely can't put all the fault on the EU institutions because it's not their job to tell countries how to keep their budgets straight or how to structure their markets. Well that basically means going back to a gold standard. Which in principle isn't even such a nonsense or bad idea. But the way our current system works it's unthinkable of going back to it. Banks don't even hold 10% of what they lend to people. They can't backup all the check money that's going around, not even remotely. So a change to the proposed system would probably crash the whole financial market and so it doesn't seem like a very good idea. You should read more kf the report since it's definetly not the same as going back to the gold standard. | ||
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Nyxisto
Germany6287 Posts
You should read more kf the report since it's definetly not the same as going back to the gold standard. If you're backing up all credits with gold or cash or with horses is irrelevant, the key idea of the proposed system is to stop banks from creating money by forcing them to hold assets that equal the money they're giving out as credits. And that is essentially the idea of the gold standard. (Where it's always possible for you to go to your bank and trade in any amount of money into gold). So if you disagree at least try to elaborate why. Also with the Bretton-Woods-System we had a very similar idea applied and funnily enough also as an reaction to the Great Depression, and said System didn't even hold for 30 years. | ||
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JonnyBNoHo
United States6277 Posts
On May 12 2013 02:26 RvB wrote: For anyone who cba to open the document but still wants to know what's in it here's a little excerpt: I think it would be easier to just require (via regulations) and encourage (via taxes) banks to hold more equity. Not as dramatic, but I'm tired of dramatic | ||
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GoTuNk!
Chile4591 Posts
On May 12 2013 02:26 RvB wrote: For anyone who cba to open the document but still wants to know what's in it here's a little excerpt: As I understand as of now banks have 10:1 equity/debt ratio, compelled by law (not sure). How would this change with this? requiring 100% backing for deposits means they can't have debt or I am misunderstanding something? :s ( How are banks gonna make not go insta bankrupt? | ||
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Nyxisto
Germany6287 Posts
As I understand as of now banks have 10:1 equity/debt ratio, compelled by law (not sure). How would this change with this? requiring 100% backing for deposits means they can't have debt or I am misunderstanding something? :s ( How are banks gonna make not go insta bankrupt? Yes you understand it right, they basically can't create money anymore, and everything they lend they are forced to have in cash. That means that everyone could turn their check money into cash. And regarding the bankruptcy question, i can't answer that either, and i'm pretty sure you can't actually start that "financial revolution" without crashing the whole system. | ||
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WhiteDog
France8650 Posts
On May 10 2013 06:24 Silahsor wrote: Euro crysis, Far East crysis, liquidity crysis, this crysis, that crysis. These will keep coming where real economy vs. speculation is 5% to 95%. All central banks are pumping more and more money to the system. Result -> Rich gets richer while middle / low class loose their jobs. Pumped money goes to financial tools, not to manufacturing. Entire world economic system is designed to make speculators / bankers / brokers rich. The "system" is in crisis since the 70th and the "energy crisis". Everything that is happening right now is due to the mecanism that the Occidental countries have put in place to face the rising price of petrol and complete inability for some country to spend their money in a sane way (like China, or Germany in Europe) - which means a way that would impact on their demand and not lending it to countries that would spend it (like the US or Spane in Europe). All economists knows that, but well whatever since capital mobility is the new trend it's not going to change. Capitalism works by crisis anyway : seems like we need to hit a low to understand how things should be done. | ||
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