its deficient domestic demand cannot be universalised
Key point. Competitiveness gained by depressing domestic demand (internal devaluation) is lost by depressing domestic demand in importing countries.
As we know, this isn't just about Greece, there are other countries in the PIIGS. And the wonderful rating agencies seem keen to downgrade sovereign debt so much faster than they ever looked into Enron junk or subprime slime:
UPDATE: Fitch Large AAA Must Set Out Fiscal Consolidation | iMarketNews.com
LONDON (MNI) - The large 'AAA' sovereign borrowers - like the US, UK, France and Germany - have 'exceptional financing flexibility', Fitch Ratings said today, but warned this is not enough to maintain their current rating. The major AAA states must set out further credible consolidation plans in 2010 to secure their triple-A ratings, the ratings agency announced today in its 'Sovereign Review and Outlook' for 2010: "While current ratings incorporate a further substantial rise in public indebtedness, all major AAA sovereign governments need to articulate more credible and stronger fiscal consolidation plans during the course of 2010 to underpin confidence in the sustainability of public finances over the medium term and the commitment to low and stable inflation". The UK, Spain and France particularly need to 'articulate' credible consolidation plans this year, "given the pace of fiscal deterioration and the budgetary challenges they face in stabilising public debt." "Failure to do so will greatly intensify pressure on their sovereign ratings," Fitch states. In comments on specific countries, Fitch Sovereign Analyst Brian Coulton said that there was 'major uncertainty' on the appetite of the Greek authorities for the level of fiscal consolidation required to stabilise public finances. While the outlook in Portugal remains certainly better than in Greece, Coulton cautioned that the minority government there could dampen the political will needed to make the required budget cuts. Coulton had some good words on the UK outlook, such as its fiscal track record and history of monetary stability over the past 20 years. He said that the plan in the Pre-Budget Report was 'fairly well laid-out' but said that the goal of halving the deficit over the next four years is 'not fast enough' and left the UK vulnerable to further shocks. In the case of Spain - a triple-A sovereign which has been highly exposed to the implosion of the real estate bubble - Coulton said Fitch would be looking 'very closely' at the government's Stability and Growth Pact Update when it comes out. Coulton applauded Ireland's 'dogged' pursuit of fiscal consolidation even during the recession and expressed his optimism that NAMA would help stabilise public debt. This lessening of further risk in Ireland meant that the country was not under increased ratings pressure in the next 12 months.
LONDON (MNI) - The large 'AAA' sovereign borrowers - like the US, UK, France and Germany - have 'exceptional financing flexibility', Fitch Ratings said today, but warned this is not enough to maintain their current rating.
The major AAA states must set out further credible consolidation plans in 2010 to secure their triple-A ratings, the ratings agency announced today in its 'Sovereign Review and Outlook' for 2010:
"While current ratings incorporate a further substantial rise in public indebtedness, all major AAA sovereign governments need to articulate more credible and stronger fiscal consolidation plans during the course of 2010 to underpin confidence in the sustainability of public finances over the medium term and the commitment to low and stable inflation".
The UK, Spain and France particularly need to 'articulate' credible consolidation plans this year, "given the pace of fiscal deterioration and the budgetary challenges they face in stabilising public debt."
"Failure to do so will greatly intensify pressure on their sovereign ratings," Fitch states.
In comments on specific countries, Fitch Sovereign Analyst Brian Coulton said that there was 'major uncertainty' on the appetite of the Greek authorities for the level of fiscal consolidation required to stabilise public finances.
While the outlook in Portugal remains certainly better than in Greece, Coulton cautioned that the minority government there could dampen the political will needed to make the required budget cuts.
Coulton had some good words on the UK outlook, such as its fiscal track record and history of monetary stability over the past 20 years. He said that the plan in the Pre-Budget Report was 'fairly well laid-out' but said that the goal of halving the deficit over the next four years is 'not fast enough' and left the UK vulnerable to further shocks.
In the case of Spain - a triple-A sovereign which has been highly exposed to the implosion of the real estate bubble - Coulton said Fitch would be looking 'very closely' at the government's Stability and Growth Pact Update when it comes out.
Coulton applauded Ireland's 'dogged' pursuit of fiscal consolidation even during the recession and expressed his optimism that NAMA would help stabilise public debt. This lessening of further risk in Ireland meant that the country was not under increased ratings pressure in the next 12 months.
When most of the eurozone is in retrenchment and domestic demand is down the hatch, what will happen to German exports? Or rather, how far will Germany have to go down the wage-cutting, demand-depressing road in order to offer competitive prices?
It was applied to devaluations, when done the monetary route, but it's somehow not used when it takes the route of shrinking domestic wages, which really amounts to the same thing... In the long run, we're all dead. John Maynard Keynes
amounts to the same thing...
Yep.
Coulton had some good words on the UK outlook, such as its fiscal track record and history of monetary stability over the past 20 years.
Coulton applauded Ireland's 'dogged' pursuit of fiscal consolidation even during the recession
Isn't it just about production and efficiency? Am I wrong that it's about industrial infrastructure and high technology?
I really don't know.
When I hear the word, I just assume that it means that some countries both outwork and outproduce others, but a sure way to be more productive is to have more tools to make your efforts more efficient.
Germany has pursued a policy of restraining wage rises and reducing social redistribution costs throughout this decade. Within a single currency system, this amounts to a kind of competitive devaluation. There's no doubt German industry is also competitive re production and efficiency, but it's not all the story.
LONDON (MNI) - The large 'AAA' sovereign borrowers - like the US, UK, France and Germany - have 'exceptional financing flexibility', Fitch Ratings said today, but warned this is not enough to maintain their current rating. The major AAA states must set out further credible consolidation plans in 2010 to secure their triple-A ratings, the ratings agency announced today in its 'Sovereign Review and Outlook' for 2010:
Is Fitch a single French company with offices in London and New York or are these independent companies? It would seem that there might be peril to a rating company with a history of recent questionable ratings, no downgrades prior to defaults, etc. if their actions appear poised to further damage the financial stability of the country in which the operate. One could imagine a new-found interest in their performance in 2008 in certain countries.
One could also imagine a phone call from someone at, say, Goldman Sachs to Fitch or S&P innocently inquiring as to what the appropriate fee might be to rate new bond issues from, say, the US Treasury. A downgrade of a major sovereign issue could introduce volatility that could require lots of additional re-ratings. How do we assess the issue of conflict of interest in such circumstances? Or does anyone bother? As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
You wonder if Gollum Sacks (for instance), might offer payment to a rating agency to diss US Treasuries (for instance)? You smoking powerful stuff. Not so much because of the first part of the supposition. Change US Treasuries for some foreign government's bonds, it might work.
Does anyone care why three American (in spite of a French billionaire owning Fitch) agencies can keep quiet about steaming piles of (US) junk, but make rumbling noises about foreign sovereigns that in fact push the market around? It hasn't seemed to bother anyone in the centre of world financial power to date.
There has been talk recently of creating European rating agencies to compete with this American quasi-monopoly.
You wonder if Gollum Sacks (for instance), might offer payment to a rating agency to diss US Treasuries (for instance)?
You smoking powerful stuff.
