[kenberg]

Are these the shadows of things that must be, or are they the shadows of things that MIGHT be?

[Aberlour10]

So, the thread is now 2y old, Greece stands on the edge of the disaster, Spain and Italy struggle hard and EU activites in Brussels seem to be like a Dance on the Vulcano

[jdeegan]

The fundamentals of this situation are mindnumbingly familiar by now. Your own national currency makes it possible to devalue one single price (your currency) whenever your economy goes in the crapper (and vice versa). A common currency (assuming everyone believes in it) makes borrowing and lending within the currency union much easier. Advantages and disadvantages.

Spinning off the sunny Med countries I think makes sense. Keeping together France, Germany, Benelux and their Eastern European followers should be O.K. We live and learn.

[y66]

Soros on the Euro -- From Krugman's blog June 4, 2012, 8:11 AM

Quote

His speech is getting a lot of attention, and rightly so. It’s not so different from what many of us have been saying, but given the source — and, to be fair, the historical breadth of his perspective — I can see why it’s getting people to pay attention in a way they hadn’t before.

His point about the euro bubble is particularly well taken. I’d put it this way: it so happened that the euro came into existence at a time when the German economy was in the doldrums. Then the euro made investors believe that southern Europe was safe, causing a huge fall in interest rates there:



This in turn led to vast inflows of capital; the flip side of these inflows was large trade deficits, and large counterpart German surpluses, which was just what the Germans needed. Everyone was happy! For a few years.

And then the bubble burst, leading to the crisis today.

Needless to say, this story bears little resemblance to the morality play of profligacy and its consequences that has dominated European discussion until just about now. If there were any villains, they were the architects of the euro, who waved away warnings about the system’s flaws. But never mind the villains: the question is what to do now. And time is running out fast.

Edit: replaced link to Soros speech.

[y66]

Guess who's emerging from the crisis?

Spoiler

Iceland, of course.

[phil_20686]

 y66, on 2012-June-15, 07:15, said:

Guess who's emerging from the crisis?

Spoiler

Iceland, of course.

Except that he seems to credit it as due to expansionary fiscal policy, which is wrong. They have had contractionary fiscal policy (in real terms) and expansionary money policy: scott sumner analyses it at greater length. To whit:

Quote

Now you might wonder what all this has to do with market monetarism. Recall that we are the ones claiming that Britain and the eurozone need to combine tight fiscal policy with monetary stimulus. The tight fiscal policy addresses the looming debt crisis, and the monetary stimulus keeps AD (i.e. NGDP) growing at the sort of rate needed to keep the economy close to full employment. Is there any evidence that Iceland did some monetary stimulus? Here's Kevin Drum:

Also worth noting: the Icelandic krona got devalued a lot. In 2008 a euro bought 90 krona. Today it buys 160 krona. [and the euro has been falling like a stone against the dollar]

Iceland did almost everything right. They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend. In the eurozone the bank creditors are being bailed out. They relied of fiscal policy to address S/I and debt issues [i.e fiscal contraction], and let monetary policy address AD [i.e. quantitative easing, i.e. printing money], just as the New Keynesians were recommending in the 1990s. In the eurozone they combined tight money with reckless deficits. And now Iceland is growing fast and the eurozone is stagnating.

[]= my edits, bold emphasis mine..

So far the economic crises seems to score up as : Market monatarists = Winners, New keynesians= ok, Real buisness cycle = hard money austerians (i.e. Austrians) = EPIC FAIL.

[y66]

Krugman: What a real bank bailout looks like

30 percent of Spain's GDP (2010) = $423 billion = €335 billion.

[32519]

Germany v Greece

[y66]

Greece Drinks the Hemlock

Quote

The fact is, just about everything in this austerity package has been tried before and failed disastrously. These unpalatable steps will do nothing to make Greece’s debts more payable, bring its budgets closer to balance or help make the structural reforms Greece needs to revive its economy. Instead they will almost certainly further shrink an economy that has already shrunk by an astounding 25 percent over the past few years, making fiscal improvement nearly impossible.

What else is new?

[Aberlour10]

Who thought a few months ago that Cyprus will stand so fast on the edge of disaster?. Surely, this economy is too small to have a big impact on financial situation in Europe, but the loss of confidence will be enormous if this state fails.

[Winstonm]

One would think that the American opponents of Keynesian theory would view the destruction caused by European austerity during times of poor economic performance and rethink their position about supply-side, but when dealing with a group who refuses to abandon its narrative beliefs in the face of conflicting data we can only hope that group is not allowed into places of national influence - like Congress.

[mike777]

A big problem with European austerity.


They are still following Keynesian theory and running massive deficits.
They still have massive debt problems.
On top of that they dont have free movement of labor in many ways.


Austerity is not running 800 billion deficit year after year.

The most frequently asked question now is "can goverments walk away from their debt?"

[onoway]

 mike777, on 2013-March-22, 12:45, said:

A big problem with European austerity.

Austerity is not running 800 billion deficit year after year.

The most frequently asked question now is "can goverments walk away from their debt?"

Is there going to be any other option when all is said and done?

What I know about economics would fit on the head of a very small pin but it would appear that virtually every country in the world including the US is extended way beyond its capacity to pay and the only other way out is borrowing or printing yet more money. Even printing money costs the government yet more interest so... Somehow this seems as though it is merely delaying the inevitable..certainly would be for an individual.

I have doubts that everyone would sit passively while their governments raid their savings accounts to pay the IMF or whomever. Especially when that won't even begin to solve the problem. I also have doubts that the majority of people will sit passively while their standard of living shrinks to that of serfs serving the will of the IMF and world banks.

It's certainly possible that I am missing something and have been watching the "wrong " videos from the "wrong" experts but..

Looks from here as though the longer they put it off the worse it will be when it finally and inevitably happens.

[mike777]

6 possible time bombs or Zombi Swans from Outer Space.

No shortage of problems but at least we can see some crises coming. They are both visible and comprehensible, making crafting solutions possible via the admittedly slow moving political/economic system.

More dangerous for society at large is the crisis we dont see coming.

1) Derivatives blow up.
30$ trillion in unregulated derivatives in 2000 over 600 trillion today and counting.

2) Japan finally implodes.
Aging population that will spend more, save less means less domestic demand for govt bonds and interest rates that can only go up.

3)The Petrodollar dies.
Since 1973 Saudies only accept US dollars for oil and we would provide protection

4) U.S. Pension defaults spike.

5)Debt jubilee resets the system.
Widespread forgiveness of debt engineered by governments rather than the markets.
Have central banks simply write off the bonds they are now accumulating.

6) Cyber attack cripple the economy?
Sooner or later a major act of cyberterror, cybercrime or cyberwar will occur. It will happen with little advance warning.

[mike777]

dup

[ArtK78]

 mike777, on 2013-March-22, 12:45, said:

A big problem with European austerity.


They are still following Keynesian theory and running massive deficits.

The only thing worse than following Keynesian theory is following any other theory.

[y66]

From the New Yorker

[y66]

Holy Coding Error Batman from Krugman's blog.

Quote

The intellectual edifice of austerity economics rests largely on two academic papers that were seized on by policy makers, without ever having been properly vetted, because they said what the Very Serious People wanted to hear. One was Alesina/Ardagna on the macroeconomic effects of austerity, which immediately became exhibit A for those who wanted to believe in expansionary austerity. Unfortunately, even aside from the paper’s failure to distinguish between episodes in which monetary policy was available and those in which it wasn’t, it turned out that their approach to measuring austerity was all wrong; when the IMF used a measure that tracked actual policy, it turned out that contractionary policy was contractionary.

The other paper, which has had immense influence — largely because in the VSP world it is taken to have established a definitive result — was Reinhart/Rogoff on the negative effects of debt on growth. Very quickly, everyone “knew” that terrible things happen when debt passes 90 percent of GDP.

Some of us never bought it, arguing that the observed correlation between debt and growth probably reflected reverse causation. But even I never dreamed that a large part of the alleged result might reflect nothing more profound than bad arithmetic.

But it seems that this is just what happened. Mike Konczal has a good summary of a review by Herndon, Ash, and Pollin. According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.

Fix all that, say Herndon et al., and the result apparently melts away.

If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.

Paul Ryan and Ollie Rehn, now won't you please go home?

[WellSpyder]

 y66, on 2013-April-17, 09:01, said:

Holy Coding Error Batman from Krugman's blog.

Quote

But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear

Don't tell Al_U_Card whatever you do.....

[dwar0123]

 WellSpyder, on 2013-April-17, 10:12, said:

Don't tell Al_U_Card whatever you do.....

Don't worry, AL_U_Card can't see or hear anything that would contradict his world view, so no fear he will see this.