Should that not lead to higher interest rates because the loans are likely to be paid back with a devalued currency? Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
English-speaking debt = good Yurpean-speaking debt = bad Wind power
I don't think that Krugman can be accused of that though. But he may have failed to carry the argument to its logical conclusion: if the clear path to recovery is through devaluation, it should increase interest rates and therefore there must be another factor in the data.
Now, for the record: -I have long been against the high peacetime debt and deficits in any country, English-speaking or otherwise. I reckon that sustainability should be a major target of any policy.
-Also, debt (or deficit) as a % of GDP is a silly metric, since it takes no account of the assets part (plus GDP is a poor metric). When the French Government sold France Télécom shares, which gave 7.5% in dividends, to pay back some debt with a 3.5% interest rates, I screamed.
-I reckon that right now is akin to wartime in economic terms, and that indeed it is not the right moment to worry about deficits. Especially not those who kept saying that they didn't matter when they would have been comparatively easy to reduce.
-That being said, the situation is made a lot worse by the many years of deficits when we should have had a surplus. Since we certainly shouldn't cut spending we should raise taxes.
-Before I am accused of being Hooverian, I'd like to point out that there can be a lot of tax increases that will have zero effect on consumption. Taxation has become at best flat, and sometimes regressive at the top even before taking VAT into account. Taxes (even small ones) on financial transactions would similarly have no effect. Taxing externalities would actually improve things.
-There is (was? the longer we wait the less efficient it will be) a wonderful oppportunity for increased state spending that would actually be a money saver in the medium run: all investments that will cut down costs later, particularly energy costs. Plus a lot of that would have meant work for the depressed construction sector, therefore having a very high multiplier effect.
Then, having done that, I would seriously try to reduce debt when growth returns, but not by selling assets. Rather, by taxing fairly (why on earth should inheritance not be taxed a LOT? Why should capital revenue be exempt? And if corporations want to have moral person rights, they should be taxed based on their revenue, not profits), and in particular by taxing externalities. I think that huge inequalities ARE an externality, hence... Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
why on earth should inheritance not be taxed a LOT?
Because that's how the class of natural masters of the universe propagates down bloodlines.
Yet I have heard no public discussion here of holding down real estate prices and mortgage debt by increasing the land tax. Politicians avoid this because taxpayers react negatively to any kind of a tax rise. The distinction between economically inefficient and inefficient taxes has been lost from public discussion. A revenue neutral tax shift - lowering sales taxes and income taxes on wages by the amount that property taxes are raised - would not take in any more tax revenue than now. But it would levy taxes in a way that holds down property prices. A positive financial effect would be to leave less revenue available for banks to capitalize into interest charges. Holding down housing and real estate prices - and debt - would lower the cost of living and doing business. This would make the economy lower cost. That should be the aim of every economy - to minimize the cost of living and doing business.
Michael Hudson's Talk at Customs House in Australia Courtesy of Steve Keen and other via his blog DebtWatch.
Courtesy of Steve Keen and other via his blog DebtWatch.
He surely counsels bigger deficits and more spending, which he believes will NOT have inflationary effects.
He is still much more worried about deflation.
So, I don't think the criticism about varied ways of addressing the debt problem applies to Krugman.
Krugman firmly believes that we can GROW.
European Tribune - Spiegel's Euro Delirium Tremens
this is all the fault of the evil French and their love for soft money (after all, they did devalue the Franc once)Still, the price for this bailout is high -- possibly too high. The events on that dramatic weekend in Brussels marked the birth of a gigantic European transfer union, where previously unthinkable sums of money are made available to rescue southern euro-zone members. But over and above that, a number of determined politicians under the leadership of French President Nicolas Sarkozy have managed to undermine the independence of the European Central Bank (ECB). Ever since the launch of the euro over 11 years ago, the French have been annoyed that the common currency generally adheres to German principles. While the French central bank is traditionally viewed as an executive organ of government growth and employment policies, the European Central Bank is politically independent and exclusively committed to the goal of achieving price stability, just like the Bundesbank in postwar West Germany. Over the past few years, Paris has repeatedly tried to bring the European monetary authority to heel. French government representatives complained at times about interest rates that they felt were too high. At other times, they called for a devaluation of the euro to boost their own exports. Their requests were never granted. Until recently, the ECB enjoyed a reputation for combating inflation even more resolutely than the legendary guardians of the German mark. All of that has changed since last week. Under the mounting pressure of waves of speculation against the euro, German Chancellor Angela Merkel has allowed herself to be talked into a bailout package that is nothing less than a general overhaul of the monetary union according to the agenda set by the French. In addition to letting the European Commission use the central bank to achieve its own aims, the Germans have accepted the fact that several monetary policy principles are being cast by the wayside. The central bankers are making their printing presses available to finance government loans. They have accepted that European countries are liable for the debts of individual states. They are putting more money in circulation, even though there is already so much liquidity on the markets that a number of experts anticipate that this will soon trigger a rise in inflation.Never mind that Trichet debunked this nonsense two days earlier (but he's French, what he says can't be trusted)
Still, the price for this bailout is high -- possibly too high. The events on that dramatic weekend in Brussels marked the birth of a gigantic European transfer union, where previously unthinkable sums of money are made available to rescue southern euro-zone members. But over and above that, a number of determined politicians under the leadership of French President Nicolas Sarkozy have managed to undermine the independence of the European Central Bank (ECB). Ever since the launch of the euro over 11 years ago, the French have been annoyed that the common currency generally adheres to German principles. While the French central bank is traditionally viewed as an executive organ of government growth and employment policies, the European Central Bank is politically independent and exclusively committed to the goal of achieving price stability, just like the Bundesbank in postwar West Germany. Over the past few years, Paris has repeatedly tried to bring the European monetary authority to heel. French government representatives complained at times about interest rates that they felt were too high. At other times, they called for a devaluation of the euro to boost their own exports. Their requests were never granted. Until recently, the ECB enjoyed a reputation for combating inflation even more resolutely than the legendary guardians of the German mark. All of that has changed since last week. Under the mounting pressure of waves of speculation against the euro, German Chancellor Angela Merkel has allowed herself to be talked into a bailout package that is nothing less than a general overhaul of the monetary union according to the agenda set by the French. In addition to letting the European Commission use the central bank to achieve its own aims, the Germans have accepted the fact that several monetary policy principles are being cast by the wayside. The central bankers are making their printing presses available to finance government loans. They have accepted that European countries are liable for the debts of individual states. They are putting more money in circulation, even though there is already so much liquidity on the markets that a number of experts anticipate that this will soon trigger a rise in inflation.
Ever since the launch of the euro over 11 years ago, the French have been annoyed that the common currency generally adheres to German principles. While the French central bank is traditionally viewed as an executive organ of government growth and employment policies, the European Central Bank is politically independent and exclusively committed to the goal of achieving price stability, just like the Bundesbank in postwar West Germany.
Over the past few years, Paris has repeatedly tried to bring the European monetary authority to heel. French government representatives complained at times about interest rates that they felt were too high. At other times, they called for a devaluation of the euro to boost their own exports. Their requests were never granted. Until recently, the ECB enjoyed a reputation for combating inflation even more resolutely than the legendary guardians of the German mark.
All of that has changed since last week. Under the mounting pressure of waves of speculation against the euro, German Chancellor Angela Merkel has allowed herself to be talked into a bailout package that is nothing less than a general overhaul of the monetary union according to the agenda set by the French. In addition to letting the European Commission use the central bank to achieve its own aims, the Germans have accepted the fact that several monetary policy principles are being cast by the wayside. The central bankers are making their printing presses available to finance government loans. They have accepted that European countries are liable for the debts of individual states. They are putting more money in circulation, even though there is already so much liquidity on the markets that a number of experts anticipate that this will soon trigger a rise in inflation.
One thing I find hard to reconcile, though, is the point about UK being able to borrow more cheaply because it has a path to recovery through devaluation. Should that not lead to higher interest rates because the loans are likely to be paid back with a devalued currency?
Should that not lead to higher interest rates because the loans are likely to be paid back with a devalued currency?
Not necessarily. A 95 % chance of being repaid in a currency that has devalued by 15 % still commands a lower risk premium than a 75 % chance of being repaid in a currency that maintains its value.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
And it also assumes that the international financial markets don't behave like bipolar crack monkeys. An assumption that appears equally unfounded.
I know that, but the interest rate for the UK is not just lower than Greece's, it's simply not particularly high. Too low to be explained by the fact that it is more likely to recover thanks to devaluation.
And if it's something else (like the BoE buying), the lowish interest rates cannot be used as a proof that the possibility of devaluation saves the day. Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
