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The European Teabagger Bank

by Migeru Mon Aug 1st, 2011 at 05:44:13 AM EST

As Drew put it

The whole idea of "TEA Party" rallies does have roots in the hard money movement, but most of those people view the Teabaggers as hypocrites who stole their schtick.
Some ways to thwart the hard money movement's threat to cause the US government to default include (via Krugman)
A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
Fortunately for us, none of the loopholes available to the crassly Keynesian spendthrifts at the US Treasury is available in the Eurozone, because the Fathers of the Continent, in their infinite wisdom, hardwired basic tenets of the hard money movement into the Maastricht Treaty so, thankfully, it's all deflation for us. Indeed [PDF],
Article 128
(ex Article 106 TEC)
1.    The European Central Bank shall have the exclusive right to authorise the issue of euro banknotes within the Union. The European Central Bank and the national central banks may issue such notes. The banknotes issued by the European Central Bank and the national central banks shall be the only such notes to have the status of legal tender within the Union.
2.    Member States may issue euro coins subject to approval by the European Central Bank of the volume of the issue. The Council, on a proposal from the Commission and after consulting the European Parliament and the European Central Bank, may adopt measures to harmonise the denominations and technical specifications of all coins intended for circulation to the extent necessary to permit their smooth circulation within the Union.
And we all know what happens to people who, in the throes of a Great Depression, decide to reinvigorate the economy of their municipality  by issuing local money thereby infringing on the Central Bank's monopoly on money issue: they get slapped back into Depression.
Despite attracting great interest at the time, including from French Premier Edouard Daladier and the economist Irving Fisher, the "experiment" was terminated by the Austrian National Bank on the 1st September 1933 on the basis of the "Certified Compensation Bills" being a threat to the Bank's monopoly on printing money.
It is perhaps appropriate that the Central Bank involved in 1933 was literally Austrian while in 2011 they're all figuratively so.


Apart from the silly Trillion Dollar Platinum Coin idea, the following argument was advanced recently (h/t Chris Cook)

CNBC: It's a Debt Ceiling not a Spending Ceiling
So what happens when the government writes checks on an account with no money? Nothing out of the ordinary. Those checks will all clear, with deposits made in the recipients' bank accounts just as they would have if the account was not underfunded.

...

But if the government doesn't have enough money in the account, the Fed just doesn't debit anything at all. It simply creates the credit in the account without a counter-balancing debit anywhere else.

The government is unlike a household because it has the ability to create money simply by creating deposits. This money creation ability means that the government does not need to have raised funds--through taxes or borrowing--before it spends them.

Now, of course, our Federal Reserve is supposed to be independent. In theory, at least, it is possible the Fed could decline to credit accounts with deposits from the empty account of the US Treasury. But it is obliged by law to adopt policies that maximize employment and price stability. Refusing to honor the U.S. Treasury's checks would hardly seem likely to promote fuller employment and price stability.

There are two points here. One is, the Fed/Treasury system is the one entity in the US economy that is not balance-sheet constrained, because it can create fiat US$ at will. And the second is the fact that the mandate of the Fed includes macroeconomic objectives such as growth and employment, which are not subordinate to price stability. The ECB is much more single-minded:
Article 127
(ex Article 105 TEC)
1.    The primary objective of the European System of Central Banks (hereinafter referred to as `the ESCB') shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119.
CNBC has written more on the topic: Can The Treasury Department Really Run Out of Money?
But can the government of the United States ever really run out of money?

...

When the government writes a check, it goes to whomever is getting paid. The payee then deposits it in its own bank account. The bank then submits it to the Federal Reserve for clearing.

So far, that's just pretty much the same thing that happens when anyone else writes a check. Except for something very strange--the Obama administration seems to be insisting the Federal Reserve would not allow the U.S. Treasury Department to overdraw its account.

Ah, now we're talking. However, Reuters to the rescue:
"The Fed cannot allow sort of overdrafts by the Treasury," St. Louis Fed President James Bullard said in response to questions at a conference.
So that's it, then, I suppose. Fortunately for Europe, we have that covered, too:
Article 123
(ex Article 101 TEC)
1.    Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as `national central banks') in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
And, moreover, when the ECB tries to buy debt in the secondary market (as opposed to directly from the issuers), you can be sure the members of the ECB's governing council will be ready to come out and mislead the public about whether secondary market purchases are disallowed by the treaties.

Display:
Every criticism of Obama and the Democrats for selling the welfare state down the river applies equally to the European Union policy establishment and the mainstream (Conservative, Liberal and Social Democrat) national politicians.

So don't act surprised.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 04:15:18 AM EST
I'm not surprised. But I can't say I'm cheered up either.

Long conversation yesterday with a friend who works in the financial sector.

The concept of a set of actions that fundamentally renders the bod markets irrelevant was basically indigestible.

Really hard to see how the eurozone gets out of this without a major crisis.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 1st, 2011 at 06:34:10 AM EST
[ Parent ]
Despite the fact that prominent economists continue to write about it, we have socially uninvented seigniorage. I wonder what needs to happen for it to be reinvented.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 06:39:31 AM EST
[ Parent ]
It's going to take another crisis and another Keynes-like figure.

Hard money or "gold-standard" thinking is just too attractive, too easy a sound bite - likewise the notions of economics as morality play fit too conveniently with the history of Western religious thought.

Running government finances like a virtuous, prudent household is just too powerful a meme.

Further of course, until it is in the interests of the finance sector to give up on the government bond kabuki, we'll be continually confronted by a wave of propaganda about it.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 1st, 2011 at 07:11:24 AM EST
[ Parent ]
Needed: economic + media reformation.

Any volunteers?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Aug 1st, 2011 at 07:26:58 AM EST
[ Parent ]
Sure - do you have a better "just so" story than "we can't afford to be in debt, we need to cut back, just the way you stop buying luxuries when money gets tight" ?
by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 1st, 2011 at 07:30:51 AM EST
[ Parent ]
That wasn't a very helpful from me. Sorry. I guess I'm just jaded today.
by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 1st, 2011 at 07:46:10 AM EST
[ Parent ]
Accurate, however.


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Mon Aug 1st, 2011 at 11:47:40 AM EST
[ Parent ]
I guess "if we stop swimming we all drown" is too unsubtle?

It's an impossible problem, in its own terms. I think you can only really remove the meme by creating worker-run corporations which give everyone as many people as possible experience of economic democracy. Then the existing meme becomes outdated and irrelevant.

You have to create the experience first, and then tell the story about it. It's difficult to go the other way.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Aug 1st, 2011 at 07:51:28 AM EST
[ Parent ]
"we don't belong to the banks!"

Wind power
by Jerome a Paris (etg@eurotrib.com) on Mon Aug 1st, 2011 at 08:20:34 AM EST
[ Parent ]
I'm reading that Iceland is giving the big middle finger to the IMF and neo-liberalism, and is growing into a newly democratic nation rewriting its constitution through direct citizen input. They're also prosecuting the heads of the three major banks that brought about the country's economic downfall.  

Interesting story, little told here in the U.S. More information wanted.

by altoid (tom.casadecampanas AT gmail dotcom) on Mon Aug 1st, 2011 at 10:31:18 PM EST
[ Parent ]
You're not alone:

Interesting story, little told here in Europe. More information wanted.

by Bernard on Tue Aug 2nd, 2011 at 02:08:30 AM EST
[ Parent ]
Stjórnlagaráð 2011
The Constitutional Council presented the Speaker of Althingi, Mrs. Ásta Ragnheidur Jóhannesdottir, with the bill for a new constitution in Idnó, today. The bill was unanimously approved by all delegates, at the last meeting of the Council, on Wednesday 27 July 2011. The bill assumes that from now on, changes to the constitution will be submitted to a vote by all who are eligible to vote in Iceland, for either approval or rejection. All delegates agree that the population should be given the chance to vote on the new constitution before Althingi's final vote on it. In the case of ideas arising to make changes to the bill prepared by the Constitutional Council, the delegates of the Council declare themselves ready to revert to the matter before a national referendum is held.
by gk (g k quattro due due sette "at" gmail.com) on Tue Aug 2nd, 2011 at 02:15:35 AM EST
[ Parent ]
We are having the crisis and, just like stagflation in the 1970s, it is being used to discredit Keynesian economics.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 09:48:17 AM EST
[ Parent ]
Right - we didn't develop enough of an alternative in time to take advantage of the crisis.

But after the eurozone fragments - a bigger scale crisis - and there's a couple of fascist governments back in Europe, then maybe we'll be getting somewhere...

Or maybe not - after all, even now I hear people telling me that the problem in the UK is "too much regulation and too much public spending/debt stifling the private sector..."

by Metatone (metatone [a|t] gmail (dot) com) on Mon Aug 1st, 2011 at 09:52:28 AM EST
[ Parent ]
We'll have to wait until 2025 or so...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 10:29:16 AM EST
[ Parent ]
The system is in non-linear, chaotic mode. 2025, 2015, 2035. All is possible.

This is not to nag on dates, just to notice that things can change quite fast. Think 1930s. Like, say, Spain in the 30s speed of change.

by cagatacos on Tue Aug 2nd, 2011 at 08:42:42 AM EST
[ Parent ]
I'm thinking generationally. 2025 is when we should expect the Erasmus generation to achieve politically seniority.

The older generations mostly have exclusively national formative experiences.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 05:27:23 PM EST
[ Parent ]
I'm starting to doubt that that would help. Are we talking about nationalism destroying the EU or simple class war? If it is the latter then having an international elite won't help.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Tue Aug 2nd, 2011 at 06:37:30 PM EST
[ Parent ]
IMO, it won't help much.

When Complex societies collapse - as ours appears to be doing - they simplify.  Areas that supported hundreds of thousands or millions pre-collapse only support hundreds or thousands post-collapse.

Or none, as in the case of Chaco Canyon.

This is based on non-industrialized societies and we've only seen one system cascade collapse of an industrial society: The Great Depression.  

But we've never seen a cascade collapse with systematic multi-feedback loops, e.g., such as a collapse of global food production causing a collapse of raw resource extraction in Africa, etc., causing a collapse of First World manufacturing.  

The nearest I can come to it, others may be able to shed more light than I, was the collapse of the Celtic oppida in the Second and First BC.  In that time a relatively high degree of urbanization across Europe quickly collapsed, wrecking large scale manufacture (of fibulae, among other things), causing a localization of manufacturing and other economic activity.  They didn't lose their technology, per se, but they did lose the mass-market and other economic networks that made widespread, large scale, urbanization possible.  Towns still existed but they reverted to a lower scale of influence and depopulated.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Tue Aug 2nd, 2011 at 07:02:14 PM EST
[ Parent ]
But we've never seen a cascade collapse with systematic multi-feedback loops, e.g., such as a collapse of global food production causing a collapse of raw resource extraction in Africa, etc., causing a collapse of First World manufacturing.  

 The nearest I can come to it, others may be able to shed more light than I, was the collapse of the Celtic oppida in the Second and First BC.

The collapse of British hegemony in the first two decades of the previous century, and the resulting rollback of international trade in the Interbellum.

While industrial society as a whole did survive that experience (albeit a couple of hundred million of its inhabitants and half the global capital plant poorer), it was entirely too close a shave for me to feel sanguine about its repetition.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 04:15:40 PM EST
[ Parent ]
it was entirely too close a shave for me to feel sanguine about its repetition.

Mr Understatement has spoken. :p

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Aug 4th, 2011 at 04:33:38 PM EST
[ Parent ]
While we're recreating the 1930's, let's have a rerun of political violence on the streets of Spain in the run-up to the Civil War: The Madrid PP is considering to call out their 90 thousand members to confront the indignants
In statements to Europa Press, the Madrid PP Secretary General has denounced that "300 indignants are affecting the life of over 3 million inhabitants" of a city like Madrid. And, against that number of demonstrators, he pointed out that in this region only the PP has over 90 thousant members. "I hope the Government delevate, Dolores Carrión, doesn't object to us demonstrating, because then it would be a clear comparative grievance", he added.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Aug 4th, 2011 at 06:12:51 PM EST
[ Parent ]
I rather think that having international elites will make the situation even worse.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 2nd, 2011 at 08:19:23 PM EST
[ Parent ]
But keynesians deserved to be discredited on this issue? They don't understand stagflation...
by kjr63 on Tue Aug 2nd, 2011 at 11:08:55 AM EST
[ Parent ]
The Phillips curve neither follows from nor implies what Keynes wrote in The General Theory. What was done in the 1970s was to use the failure of the Phillips curve to discredit Keynes' insight about lack of aggregate demand causing recessions.

In particular, Keynes was not particularly concerned with inflation.

But, more importantly, in the 1970s there were a number of financial crises that were successfully contained by means of government intervention even as the economy spent a decade in crisis. But by discrediting government intervention we then spent 20 years removing the ability of the government to contain financial crises, as well as filling the civil service and international functionanriat with neoliberals who believe the market will provide...

Another idea of the 1970s which was immediately discredited was The Limits to Growth, which turned out to be pretty much on the mark.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 05:25:14 PM EST
[ Parent ]
Keynes was smart enough to know if the goddamn house is burning down you don't worry that the toilets are backed-up.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Tue Aug 2nd, 2011 at 05:57:59 PM EST
[ Parent ]
But, more importantly, in the 1970s there were a number of financial crises that were successfully contained by means of government intervention even as the economy spent a decade in crisis.

Perhaps, but did they know what they were doing? I'm skeptical.

Stagflation is the simplest form of inflation. It is caused by rising (economic) rent. And there is a very simple and quick fix to it. Rent tax. (But you don't find this in any textbook.)

by kjr63 on Fri Aug 5th, 2011 at 05:29:45 AM EST
[ Parent ]
But if the rent is captured outside your borders through a cooperation on the sales of vital raw materials, then that rent would be hard to tax.

OPEC - Wikipedia, the free encyclopedia


Long-term oil Prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).


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!
by A swedish kind of death on Fri Aug 5th, 2011 at 06:01:09 AM EST
[ Parent ]
Yes, indeed. But that is a political problem, not an economic one.
by kjr63 on Tue Aug 9th, 2011 at 04:19:23 AM EST
[ Parent ]
Depends on how greedy the colluding suppliers get.

If they go all the way to demand destruction pricing, you can eat their markup by imposing taxes on the raw material in question. You will still have high prices and attending issues for your industrial production, but you won't be hemorrhaging hard currency.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 10th, 2011 at 05:53:29 AM EST
[ Parent ]
If anybody tells you that he knows The One True Cause Of All Inflation (or stagflation, for that matter), you should check your wallet because you are being taken for a ride.

In the particular historical case of the '70s, the primary causes of the growth slowdown were (a) increasing demand drain from deteriorating foreign balance between The WestTM and raw materials producing countries (principally OPEC) and (b) the end of the rebuilding of the European capital plant destroyed by the world wars.

The growth slowdown created a distributional problem, because the Fordist political economy's distributional policies were based on high real growth rates. Inflation followed from the failure to resolve this distributional conflict. Inflation was firmly and finally arrested when the distributional conflict was resolved by breaking the labour side's power to sustain the conflict.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 5th, 2011 at 04:21:20 PM EST
[ Parent ]
Neither should we mystify these matters.
It is just a simple logical conclusion that growing monopolisation rises prices and cuts production at the same time.
by kjr63 on Tue Aug 9th, 2011 at 04:32:56 AM EST
[ Parent ]
Simple and logical, perhaps, but not necessarily true. There are plenty of historical examples of monopolies leading to lower prices and more production, when profit maximisation is rendered subordinate to the logic of industrial mass production.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 10th, 2011 at 05:55:19 AM EST
[ Parent ]
James K. Galbraith: James K. Galbraith: The Final Death (and Next Life) of Maynard Keynes
This is a bad movie and we have, of course, seen it before. You may recall that in 1960 the Uncle of, as it happens, of Larry Summers, co-invented a concept called the Phillips curve, stipulating on very weak empirical evidence and no clear theory the relationship between the unemployment rate and the rate of inflation. True Keynesians, including my teacher, Nicholas Kaldor, Joan Robinson, Robert Eisner, a great hero of mine, and my father were appalled. The construct was doomed to collapse and when it did, after 1970, the school that most people thought of as Keynesian was swept away in the backwash.

Today, the failure behind the recovery forecast is conflated with the failure of the stimulus itself and the same thing is happening again. Those who failed most miserably to forewarn against the financial crisis have, as a consequence, regained their voices as scourges of deficits and public debt. There is a chorus of doom as those who once thought the new paradigm could go on forever are now inveighed against living beyond our means and foretell federal bankruptcy and the collapse of the dollar and the world monetary system amongst other scary fairy tales. This includes such luminaries as the leadership of the International Monetary Fund and of all things, the analytical division of Standard and Poor's -- an enterprise on which one might hope at least a small amount of modesty might have developed or devolved in the wake of recent events.

It would be pathetic if it were not so dangerous. But the fact is, these forces are moving down a highway which has been cleared of obstacles by the retreat, indeed the destruction of the False Keynesian position.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 9th, 2011 at 12:11:15 PM EST
[ Parent ]
Keynesians understand stagflation just fine.  Morons in DC who think they understand Keynesianism don't understand Keynesianism and stagflation.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Tue Aug 2nd, 2011 at 06:03:38 PM EST
[ Parent ]
European style, we'd be expecting a couple of these clowns to be strung up, and perhaps a war of a size to be determined.
by redstar on Tue Aug 2nd, 2011 at 09:21:26 AM EST
[ Parent ]
We've historically a pretty good line in grandiose and extremely murderous wars.

We've got to be good at something.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 2nd, 2011 at 09:59:06 AM EST
[ Parent ]
Can more than one Eurozone member leave the Euro at once and institute a proper confederal central bank, including agreed on basis for generating common currency grants to the member countries?

Since the logic if some members drop out is for that to push other Euro members into the position of marginal countries on the bubble, to be pushed out in turn, either the ECB accepts its inexorable return to being just the Bundesbank, except with all surrounding trading partners in a different common currency, or else it adopts the policies to change the rules.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 1st, 2011 at 02:35:35 PM EST
[ Parent ]
An Enhanced co-operation requires nine member states. Looking at the Euro crisis status report
GDP rank Country       CAB/GDP status
--------------------------------------------
17	 Romania	-5.13% under IMF
22	 Bulgaria	-3%
 7	 Poland 	-2.41%
 3	 UK		-2.23%
16	 Czech Republic -1.21%
--------------------------------------------
12 (8)	 Greece        -10.84% under EFSF
14(10)	 Portugal	-9.98% under EFSF
25(15)	 Cyprus 	-7.92% under attack
27(16)	 Malta		-5.39% 
 5 (4)	 Spain		-5.23% under attack
 4 (3)	 Italy		-2.86% under attack
15(11)	 Ireland	-2.73% under EFSF
 2	 France 	-1.79% 
19(12)	 Slovakia	-1.36%
21(14)	 Slovenia	-0.73%
--------------------------------------------
 8 (6)	 Belgium	+0.5%
13 (9)	 Finland	+1.43%
10 (7)	 Austria	+2.31%
26(17)	 Estonia	+4.21%
 6 (5)	 Netherlands	+5.72%
 1	 Germany	+6.06%
20(13)	 Luxembourg	+6.91%
--------------------------------------------
18	 Hungary	+0.51% under IMF
23	 Lithuania	+1.86%
11	 Denmark	+3.42%
24	 Latvia 	+5.49% under IMF
 9	 Sweden 	+5.95%
the deficit countries in the Eurozone could possibly do it. All we need to wait for is a market attack on France.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 05:35:17 PM EST
[ Parent ]
Ah, but if they left the Eurozone, would a joint currency authority require an enhanced cooperation agreement? As a nation leaving the Eurozone would have a sovereign currency again, why wouldn't it be in their power to just set up the joint central bank as a common agreement amongst the participants?

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Aug 1st, 2011 at 08:04:27 PM EST
[ Parent ]
It depends on hoe committed you are to the "political Europe".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 01:41:59 AM EST
[ Parent ]
Yes, why it starts out with a formula based grants system ~ you can wait the common fiscal policy until you collect nine EU members.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 2nd, 2011 at 08:41:48 AM EST
[ Parent ]
A more serious problem is, who are you going to make Central Banker of the new "proper confederal central bank"? As far as I can tell all well-connected economists are insane.

Plus, which right-wing national governments (and there aren't going to be any other kinds of EU national governments within 12 months)  are going to agree to exit the Maastricht straitjacket?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 05:11:14 PM EST
[ Parent ]
Yes, well-connected economists must be institutionally ruled out of heading the central bank.

It'll take some time to sort out the details, so get it ready to be launched when the right wing governments get tossed for not making the depression go away.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 2nd, 2011 at 07:34:01 PM EST
[ Parent ]
Since the logic if some members drop out is for that to push other Euro members into the position of marginal countries on the bubble, to be pushed out in turn, either the ECB accepts its inexorable return to being just the Bundesbank, except with all surrounding trading partners in a different common currency, or else it adopts the policies to change the rules.

The EFSF is already in that situation.

The EFSF has to source over 50% of its operating capital from "the markets" by issuing bonds backed by guarantees from Euro member states.

As member states get thrown under the bus they switch from guarantors of EFSF bonds to borrowers of EFSF funds.

Currently Spain and Italy are the marginal guarantors of the EFSF, and they are "under attack" by "the markets". Italy has suggested that it may exercise its option under the EFSF rules to withdraw its guarantee if its borrowing costs exceed those of Greece. The recent EU agreement allegedly lowered Greece's EFSF interest rate, while completely ignoring the fact that italy was, indeed, "under market attack".

In addition, France's AAA rating has become the subject of French Presidential Election Campaign Football, so whether France can continue to guarantee the EFSF's AAA rating is an open question, even if France continues to enjoy access to bond markets at reasonable rates.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 05:52:58 PM EST
[ Parent ]
Can more than one Eurozone member leave the Euro at once and institute a proper confederal central bank

As I recall, no.

Joining the Euro is not optional unless you have an opt-out, and you can't unilaterally and retroactively apply those. They can leave the EU and then negotiate their readmission en bloc. But that is a much scarier prospect than dumping a deeply dysfunctional currency.

A much more constitutional option would be to nationalise all private debts you don't want your citizens to pay and then default on all sovereign debt. SG and Deutche will piss and moan, but neither of those actions is prohibited by the treaties. And since financial regulation remains a state-level activity, you can then institute de facto local currencies even though they do not formally count as legal tender for the settlement of debts (because your financial regulator is perfectly free to (and justified in) tell(ing) the banks that having any Euro-denominated liabilities at all constitutes a prima facie solvency risk.

But we are already in uncharted waters constitution-wise, so to an extent you can make up constitutional reality as you create facts on the ground.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 12:24:06 PM EST
[ Parent ]
Really hard to see how the eurozone gets out of this without a major crisis.

Barring a really scary definition of "major crisis," I'd say you should have put that in past tense.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 12:04:37 PM EST
[ Parent ]
Well I wrote that a few days ago and the crisis I feared appears to be arriving. The one where the markets start betting on Italy and Spain leaving the Euro.
by Metatone (metatone [a|t] gmail (dot) com) on Thu Aug 4th, 2011 at 04:32:39 PM EST
[ Parent ]
For me this became a major constitutional crisis when the first EU member state got ECB'ed. That they come for Spain after they came for Greece and Portugal and nobody spoke up very loudly should come as a surprise to absolutely nobody.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 06:38:00 PM EST
[ Parent ]
last March:
The PES tried to put together a coordinated position on the crisis, and who missed the meeting? Sócrates and Zapatero.

Luis de Sousa was quite angry in his previous diary: Sócrates and Zapatero leave PES for EPP

We finally seem to have some coordinated effort from the PES to tackle the crisis. The socialist family has gathered in Greece to present an alternative path to the austerity-rules-all course imposed by the conservatives. They lure to have a thorough answer to the new economic governance rules proposed by Merkel and Sarkozy, now being refined to be voted by the Council later this month. Shy to some extent, it nevertheless points to the obvious building blocs needed to both deal with the crisis and reinforce the Union. The creation of an European Treasury, the creation of an European tax, even the reference to the needed structural paradigm change to build an Economy for the XXI century, all of it seems to be considered by the PES leaders.

The meeting is even more important for another reason, by displaying this unity the socialists are sending their citizens a clear message, the blind austerity is not being imposed by the Union, but by the conservatives that at the moment rule the Union. Merkel, Sarkozy, von Rampuy, Barroso, are all members of the EPP; the apathetic servitude to American rating agencies, the blind pursue of a stronger than steel €uro, it's their course, not of Europe itself.

Unfortunately, two socialist leaders missed the meeting: Zapatero and Sócrates. They don't seem to be interested in an alternative to the conservatives' policy. They are now themselves conservatives.

Zapatero has been busy reminding everyone that "Spain is not Ireland" just like "Portugal is not Greece". I'm not sure what ZP expects to gain from that. At the time of the Irish bail-out, I criticised Zapatero for joining forces with the EPP (or farther right in the case of the UK) of the other 4 larger EU member states to "reassure the markets" that bondholders wouldn't suffer losses on currently existing debt:
Zapatero, the last best hope of Social Democracy in Europe [sic], joins forces with the Conservative-Neoliberal governments of Germany, France, Britain and Italy in a futile attempt to protect his own bond spreads, only to find a few weeks/months from now that the other 4 larger economies hang him out to dry...
Sure enough, it took only 5 weeks for the markets to attack Spain...

Who Could Have Predicted?



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Aug 4th, 2011 at 06:42:47 PM EST
[ Parent ]
It wouldn't surprise me if it emerged one day that this is a US strategy aimed at taking the pressure off the $.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Aug 4th, 2011 at 08:39:21 PM EST
[ Parent ]
You're right about the constitutional crisis...

I was thinking merely of the coming collapse of the euro, combined with the collapse of enough banks to create a cash crisis (as in people literally can't get hold of cash, because too many banks and ATMs have closed down...)

That's my fear. I'd agree that in principle the constitutional crisis is more important... but I feel like the crisis I fear will touch us all more directly.

by Metatone (metatone [a|t] gmail (dot) com) on Fri Aug 5th, 2011 at 05:13:26 AM EST
[ Parent ]
The ATMs will not fail. They're all covered by depositor insurance. Those liabilities are not great compared to the total size of the problem, and the catastrophe that would result from failing to print enough money to cover those guarantees is obvious to even the dimmest of dim bulbs in the ECBuBa. The €-zone is not Iceland in this regard.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 5th, 2011 at 04:12:47 PM EST
[ Parent ]
I've given up believing anything is obvious to the dimmest bulbs at the ECBuBa...
by Metatone (metatone [a|t] gmail (dot) com) on Sat Aug 6th, 2011 at 07:04:14 AM EST
[ Parent ]
Unfortunately, on both sides of the Atlantic, people aren't going to get the message until the roof comes down on them.  Then they'll all stand around griping about not having FEMA tarps.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 08:17:08 AM EST
[ Parent ]
Then they'll all stand around griping about not having FEMA tarps.

If they are then told that not having FEMA tarps is due to the big banks having the TARP do you think that they will understand then?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 08:25:14 AM EST
[ Parent ]
No. They'll blame immigrants for stealing their homes.

From Wikiland:

"Propaganda must always address itself to the broad masses of the people. (...) All propaganda must be presented in a popular form and must fix its intellectual level so as not to be above the heads of the least intellectual of those to whom it is directed. (...) The art of propaganda consists precisely in being able to awaken the imagination of the public through an appeal to their feelings, in finding the appropriate psychological form that will arrest the attention and appeal to the hearts of the national masses. The broad masses of the people are not made up of diplomats or professors of public jurisprudence nor simply of persons who are able to form reasoned judgment in given cases, but a vacillating crowd of human children who are constantly wavering between one idea and another. (...) The great majority of a nation is so feminine in its character and outlook that its thought and conduct are ruled by sentiment rather than by sober reasoning. This sentiment, however, is not complex, but simple and consistent. It is not highly differentiated, but has only the negative and positive notions of love and hatred, right and wrong, truth and falsehood."[5]

"Propaganda must not investigate the truth objectively and, in so far as it is favourable to the other side, present it according to the theoretical rules of justice; yet it must present only that aspect of the truth which is favourable to its own side. (...) The receptive powers of the masses are very restricted, and their understanding is feeble. On the other hand, they quickly forget. Such being the case, all effective propaganda must be confined to a few bare essentials and those must be expressed as far as possible in stereotyped formulas. These slogans should be persistently repeated until the very last individual has come to grasp the idea that has been put forward. (...) Every change that is made in the subject of a propagandist message must always emphasize the same conclusion. The leading slogan must of course be illustrated in many ways and from several angles, but in the end one must always return to the assertion of the same formula."

- Hitler, Mein Kampf

Considering the source, it's depressing how true this is. Even if you remove the edge of narcissistic contempt, and the unlikely assertion that most people are like this - I really don't think most people are - you're left with the possibility that enough of the population is like this to give it a swing vote in a functional democracy.

You only need a core of gullible idiots to spoil things for everyone else.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Aug 1st, 2011 at 09:14:00 AM EST
[ Parent ]
Well, you know, considering 50% of the population has an IQ below 100...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 10:34:46 AM EST
[ Parent ]
Not in the USA! Here all are above normal.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 11:45:46 AM EST
[ Parent ]
Considering that Bernay's  Propaganda was not published until 1928, either Father Bernhard Stempfle made significant contributions to Mein Kampf or Hitler was a whole lot more sophisticated than most give him credit for being.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 11:55:19 AM EST
[ Parent ]
It would be interesting to know up to what extent both groups cross-bred intellectually (Nazis and the "nice" people Bernays served).
by cagatacos on Tue Aug 2nd, 2011 at 08:53:52 AM EST
[ Parent ]
I agree that most aren't like this.  But, alas, you don't need anywhere near a majority to implement a dangerous agenda/regime.  The Middle East always gets brought up on this -- minority fascists who manage to out-organize and get funding that the more idealistic majority can't match.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 06:14:37 PM EST
[ Parent ]
Lenin understood this well.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 07:13:21 PM EST
[ Parent ]
Yes.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 07:18:25 PM EST
[ Parent ]
In the USA it seems to be enough that all of the Serious PeopleTM act as though There Is No Alternative. Obama endorses a committee mechanism to authorize revisions to Social Security, etc. by remote control, rather like the base closing commission, to keep his banker friends happy. Of course "No job killing taxes" will be allowed. Wouldn't do to cast doubt on the particularly handy delusional meme that the rich use their wealth to create US jobs. So doing might also cast doubt on the idea that TINA to TBTF. Nor would we want to prosecute the political donors and future employers of so many elected and appointed government officials.

But it is not onward to 1932 as with Hoover, who actually wanted to help the economy. By that time the bad debt that caused the Great Depression had almost totally been written down. Very little of the present US bad debt has been written down because we have figured out how to avoid it -- see TARP, QE 1 and QE 2. Funny how we can create unlimited money for Wall Street but none for Main Street and how the Tea Baggers don't complain about that.

So it is Full Steam Ahead for the US Ship of State. The only reason she is still afloat following these rules is that the "austerity" anchor she is dragging is currently on the continental shelf. Soon the ship will move past the shelf and then it we will see a serious decline. It won't be a "double dip" because the line will not turn back up for a decade, if then. But depressions are great for those who have lots of money. They enable them to smother their competition and buy up assets on the cheap.

 

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 07:52:24 AM EST
'Of course "No job killing taxes" will be allowed.'

And so they are cutting taxes from those who don't produce anything.. That's the neoliberal logic.

by kjr63 on Tue Aug 2nd, 2011 at 11:23:22 AM EST
[ Parent ]
we do need austerity for the banks, and, arguably for some of the more resource-intensive industries.

Within such a limited-growth (or even deflationary) environment, we could still have fairer policies, even if it would not be easy.

But we are compounding the deleveraging with massively unfair distributive polices.

One positive difference between the Us and Europe (and between neolibs and German gold bugs) is that the latter is not so hostile to tax hikes and redistributive polices. Also, we seem to be a bit better at new energy and infrastructure investment

So we could still have progressive policies even in a restricted economic environment - the very kind we've ben argued is otherwise necessary for sustainability reasons.

In other words: this is still a redistribution issue. I agree that austerity makes redistribution structurally more difficult, but I think it still does not make it impossible.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon Aug 1st, 2011 at 08:14:56 AM EST
Monetary austerity is not only a massively unfair distributive policy. It also stifles the necessary investment to change the way our economy is organised at the material resource level.

If you start your comment with "we need austerity" you concede half the battle.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 09:51:47 AM EST
[ Parent ]
Even assuming that by we do need austerity for the banks, and, arguably for some of the more resource-intensive industries you mean we need debt-deleveraging in the private sector, it doesn't follow that we need monetary austerity. We then need the public sector to pick up the slack. But as you know the Maastricht debt limit (let alone the deficit limit) make that impossible. Which is really what this whole crisis is about: enforcing nonsensical rules because they're the rules.

Also, I'm assuming your "limited-growth environment" is one of limited real growth or even real contraction. But that is different from deflation. Deflation is actually bad because debt is denominated in nominal, not real money, and so it negates any gains from debt deleveraging. Also, as Brad De Long put it (h/t kcurie):

So here are five things that I thought I knew three or four years ago that turned out not to be true:

...

2. I thought that the Federal Reserve had the power and the will to stabilize the growth path of nominal GDP.

...

  1. I thought that no advanced country government with as frayed a safety net as America would tolerate 10% unemployment. In Germany and France with their lavish safety nets it was possible to run an economy for 10 years with 10% unemployment without political crisis. But I did not think that was possible in the United States.

  2. And I thought that economists had an effective consensus on macroeconomic policy. I thought everybody agreed that the important role of the government was to intervene strategically in asset markets to stabilize the growth path of nominal GDP. I thought that all of the disputes within economics were over what was the best way to accomplish this goal. I did not think that there were any economists who would look at a 10% shortfall of nominal GDP relative to its trend growth path and say that the government is being too stimulative.

...

With respect to the second of these--that the Federal Reserve had the power and the will to stabilize nominal GDP: Three years ago I thought it could and would. I thought that he was not called "Helicopter Be"n for no reason. I thought he would stabilize nominal GDP. I thought that the cost to Federal Reserve political standing and self-perception would make the Federal Reserve stabilize nominal GDP. I thought that if nominal GDP began to undershoot its trend by any substantial amount, that then the Federal Reserve would do everything thinkable and some things that had not previously been thought of to get nominal GDP back on to its trend growth track.

This has also turned out not to be true.

That nominal GDP is 10% below its pre-2008 trend is not of extraordinarily great concern to those who speak in the FOMC meetings. And staffing-up the Federal Reserve has not been an extraordinarily great concern on the part of the White House: lots of empty seats on the Board of Governors for a long time.

...

Three years ago, I thought that whatever theories economists worked on they all agreed the most important thing to stabilize was nominal GDP. Stabilizing the money stock was a good thing to do only because money was a good advance indicator of nominal GDP. Worrying about the savings-investment balance was a good thing to worry about because if you got it right you stabilized nominal GDP. Job 1 was keeping nominal GDP on a stable growth path, so that price rigidity and other macroeconomic failures did not cause high unemployment. That, I thought, was something all economists agreed on. Yet I find today, instead, the economics profession is badly split on whether the 10% percent shortfall of nominal GDP from its pre-2008 trend is even a major problem.

If you want to see at what cost you can stabilize nominal GDP (let alone stabilize its growth rate back at trend), you can do worse than to watch Richard Koo on Japan's "lost decade" (which appears to have been anything but).

Back to DeLong:

[If economics students were taught macroeconomics through economic history and the history of economic thought] then economists would at least be aware of the range of options, and of what smart people have said and thought it the past. It would keep us from having Nobel Prize-caliber economists blathering that the NIPA identity guarantees that expansionary fiscal policy must immediately and obviously and always crowd-out private spending dollar-for-dollar because the government has to obtain the cash it spends from somebody else. Think about that a moment: there is nothing special about the government. If the argument is true for the government, it is true for all groups--no decision to increase spending by anyone can ever have any effect on nominal GDP because whoever spends has to get the cash from somewhere, and that applies to Apple Computer just as much as to the government.
Progressive policies are the ones that put employment and the standard of living of the worse off at the forefront. Money is a means to that end, not an end in itself, and holding sound money as the most important principle is not progressive, even if at the same time you have your heart in the right place and want to do progressive redistribution within the entirely self-imposed shackles of sound money.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 2nd, 2011 at 02:32:28 AM EST
[ Parent ]
sound money makes me feel so self-righteous!

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Aug 2nd, 2011 at 04:47:33 AM EST
[ Parent ]
Within such a limited-growth (or even deflationary) environment, we could still have fairer policies, even if it would not be easy.

It is difficult to see how a deflationary environment - particularly given how easy it is to avoid by the application of proper fiscal policy - can ever be anything other than unjust, unfair and unproductive. Unless you believe that we need negative real growth in excess of 7 % per year for any great period of time.

Deflation favours bondholders. Bondholders are wholly unproductive in a modern central banking system. Wholly. They have no function that cannot be performed better by the banking system, so to grant them any remuneration at all is a blatant subsidy of people who are already richer than they have any convincing need to be.

So we could still have progressive policies even in a restricted economic environment - the very kind we've ben argued is otherwise necessary for sustainability reasons.

I have argued elsewhere that enforcing reduced resource consumption by inducing a serious industrial depression is a cure that decidedly worse than the disease. It is the economic equivalent to arguing that cutting off your arm will help you deal with an infected leg, because it will force you to practise coping with missing limbs for a few hours before your leg is amputated.

I agree that austerity makes redistribution structurally more difficult, but I think it still does not make it impossible.

Well, if our Dear Leaders had any desire to do proper distributional policy, we wouldn't be having austerity in the first place. So as counterfactuals go, it's not the most interesting one I could come up with.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 01:16:21 PM EST
[ Parent ]
by Jerome a Paris (etg@eurotrib.com) on Mon Aug 1st, 2011 at 08:22:50 AM EST
I wish it were just the Teabaggers dragging us all off the cliff.

It's not.  And we're delousing ourselves thinking of it that way.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 06:18:20 PM EST
[ Parent ]
That's a lousy deluding we're doing ourselves.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Aug 1st, 2011 at 06:22:37 PM EST
[ Parent ]
Eh, doesn't need to be.  Idiocracy looks too optimistic every day.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 06:24:07 PM EST
[ Parent ]
It occurs to me that my comment should say "deluding," but doesn't for reasons passing understanding.

Apple decided to implement iOS predictive text in Lion.  Me no likey.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Aug 1st, 2011 at 06:25:34 PM EST
[ Parent ]
Well, the US electorate is a pretty lousy bunch.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 1st, 2011 at 07:15:09 PM EST
[ Parent ]
i've been looking, to little avail.
by wu ming on Thu Aug 4th, 2011 at 04:23:37 AM EST
[ Parent ]
Considering what "delousing" was a euphemism for the last time we were in a mess like this, "delousing ourselves" strikes me as a completely appropriate reading too.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 4th, 2011 at 01:15:15 PM EST
[ Parent ]
The "Beggar Thy Citizens Austerity" Bill has passed the House and the Senate will most likely pass it tomorrow when they get around to it.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Mon Aug 1st, 2011 at 09:26:49 PM EST
[ Parent ]


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Tue Aug 2nd, 2011 at 06:01:10 PM EST
[ Parent ]
by das monde on Wed Aug 3rd, 2011 at 01:57:03 AM EST


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