massive depreciation of currency can still be a net stimulus for employment and thus result in a net transfer of wealth from the bankers, merchants, and capitalists to the workers in a given country.
It might be, but it's odd how it never seems to work like that.
I'll remind you that massive depreciation of currency is reliably used an excuse for severe monetarist spending cuts, offshoring, and financialisation.
What has happened in practice is that in countries like Greece the required cuts are far lower than would have been 'required' otherwise.
You seem to imply upthread that it is possible for these devaluations to be good for workers while hurting the "internationally active firms". If the salutory effect on workers comes about from more favourable terms of foreign trade, how can the sudden bankruptcy of banks and import/export firms due to their foreign-currency liabilities blowing up be a good thing? En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
And it's not that there is a transfer of wealth from "firms" to workers, but that there is a transfer of wealth from bankers, traders, and firm owners to workers. Clearly if firms go out of business, workers are hurt as well or more than owners. But what I argue is that there is no reason to believe that a flight to the DM in today's Europe would result in the closure of any Spanish manufacturing firms. (It might result in a few banks and merchant houses closing shop, but that's part of the transfer of welfare.)
Spain is not Indonesia, so it's pretty questionable whether currency speculation could result in anything but a very temporary change in the exchange rate. The daily flow of huge amounts of goods and services over borders would have to eventually push rates back to levels consistent with country's current account balances. However, under a fixed rate regime like the euro provides, an imbalance such as high unemployment might only be solved through transfers of wealth from richer countries or migration, both of which are also highly restricted.
I think a large part of the dissonance on this topic comes from two different ways of defining what the EU really is. For many, particularly here, the EU is an institutional framework for international governance, which puts it against the neo-liberal narrative. However, for many others, the EU is primarily a free trade agreement, epitomizing the victory of merchants over the medieval militarists who established castles every few kilometers on the Rhine River to soak the traders on their barges. This view places the EU project squarely in support of the neo-liberal narrative. Generally, common currencies and currency pegging are pro-neo-liberal policies meant to support the welfare of traders and bankers at the expense of workers and local governance, so the establishment of the euro ahead of a stronger, continental welfare policy framework can look alot like the neo-liberals are winning.
And it's not that there is a transfer of wealth from "firms" to workers, but that there is a transfer of wealth from bankers, traders, and firm owners to workers.
Citation needed.
Preferably more than one.
Legal persons own things. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
The question is - what evidence do you have that proves your contention that wealth is transferred from owners to workers?
The same question goes the other way: What evidence do you have that wealth is transferred from workers to owners when a currency crisis occurs? It might just as easily be a transfer of wealth from capitalist-owners to capitalist currency traders and thus have only minor welfare effects in terms of workers and other more vulnerable populations.
Sweden had in 70ies and 80ies fought unemployment with a series of devaluations, all the while having a high inflation which ate the gains of the devaluations. This had several effects, one of them was creating a generation with next to no mortgages on their houses, as inflation had been higher then interests rates for a long period.
On the other hand Sweden had a currency crises in the early 90ies which served as the starting point for neoliberal reforms and the socdems taking the third way. Similar crises, same country, different result. A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
For many, particularly here, the EU is an institutional framework for international governance, which puts it against the neo-liberal narrative. However, for many others, the EU is primarily a free trade agreement, epitomizing the victory of merchants over the medieval militarists who established castles every few kilometers on the Rhine River to soak the traders on their barges.
I like that description of the debate. In the long run, we're all dead. John Maynard Keynes
It is also questionable whether a 6% stock market drop could result in anything but a very temporary loss of loan collateral for shereholders. And yet the political class is in a panic over "investors" because the dominant ideology tells them to. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
It's not for nothing that I sometimes say that the Brussels Consensus is taking the place of the Washington Consensus with much the same effects. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
This is like when you were claiming a housing bubble followed by a wave of defaults is a net transfer of wealth from financiers to homeowners. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
I got the same gist from living through a few of them. After first continuing to drop, employment will pick up in their wake, but the spread of poverty will be a more lasting effect. And the next crisis will come certainly, especially after tax cuts. *Lunatic*, n. One whose delusions are out of fashion.
Although in fact a wave of deliberate defaults would be an efficient way to make that happen.
E.g. In the UK, many credit card agreements are legally unenforceable. Many mortgage companies in the US and the UK - and probably elsewhere - are unable to supply proof of ownership or proof of debt.
And so on.
many credit card agreements are legally unenforceable. Many mortgage companies in the US and the UK - and probably elsewhere - are unable to supply proof of ownership or proof of debt.
"What is it?" I asked, imagining that he was about to come out with yet a new junk mathematics formula? "The poor are honest," he said, accompanying his words with his jaw dropping open as if to say, "Who could have guessed?" The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today's neoliberal Chicago School language, the poor behave "uneconomically." That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.
"The poor are honest," he said, accompanying his words with his jaw dropping open as if to say, "Who could have guessed?"
The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today's neoliberal Chicago School language, the poor behave "uneconomically." That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.
Economic View - Will More Borrowers Walk Away From Their Mortgages? - NYTimes.com
A provocative paper by Brent White, a law professor at the University of Arizona, makes the case that borrowers are actually suffering from a "norm asymmetry." In other words, they think they are obligated to repay their loans even if it is not in their financial interest to do so, while their lenders are free to do whatever maximizes profits. It's as if borrowers are playing in a poker game in which they are the only ones who think bluffing is unethical.
The problem with devaluation as a strategy for small countries' currencies is that it results in only a short term re-adjustment of the cost base, to be rapidly eroded by inflation, and carries a huge "exchange risk" price tag in the form of higher interest rates almost on a permanent basis.
The Euro in large part caused and also ended the Celtic Tiger. Businesses used to high and fluctuating interest rates could now plan on the basis of low and stable German style interest rates. This led to rapid expansion and inflation which should have been counter-balanced by fiscal policy in the absence of independent monetary policy levers.
Unfortunately the Government, for political popularity reasons acted in a pro-cyclical fashion, and the ECB rates - at first far too low - were then raised just as we were going into recession and needed them reduced. So we are always going to pay a price for ECB rates being determined by the Franco-German business cycle and need to use fical policy to counterbalance this.
However, otherwise, we benefit greatly from having a common currency with most of our main tarding partners, and from the protection the sheer size of the Euro gives us from speculators. notes from no w here
I think everyone was paying double-digit interest rates for mortgages in the 1980's, not just "peripheral" economies. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
Anyway, Volcker raised interest rates above 20% in 1982 and that propagated to the whole world... En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
In addition, the Irish banking sector would be a 20-times-bigger smoking crater than Iceland's were it not for the Euro. The fact is that just the impossibility of an attack on the currency has allowed the Irish government to get away with a blanket guarantee of all liabilities or all banks (which adds up to several multiples of GDP) without having to actually make good on it or accounting for it explicitly as government debt. If you had had the punt, the reaction of the markets would have likely turned that massive contingent liability into a disaster. But the markets can't attack the Deutsche Mark so the Irish government gets to make promises they can't possibly keep because they won't likely be forced to make good on them.
NAMA is a different issue - that's an actual, not contingent, liability. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
NAMA is a different issue - that's an actual, not contingent, liability
Nah - its off balance sheet - in a special purpose vehicle - so its not really real in the world of "modern" accounting.
If there is a negative with the Euro for us, it is that it made the lunacy of the bank guarantee to bond-holders possible. Otherwise we would (presumably) have let the banks go into into examiner-ship (our Chapter 11) or some such purgatory, and reconstituted them as new banks the next week - with shareholders and non-senior bond-holders and not taxpayers taking the hit. notes from no w here
Like I said, the Irish banking sector would be a 20-times-bigger smoking crater than Iceland's were it not for the Euro. It's a mixed blessing. I'm not sure what's worse for ordinary people. Systemically, in the long term, maybe the smoking crater is preferable. But zombie banks are less immediately painful. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
