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 "Portugal, Spain, Italy, France, with Belgium either just before or just after Italy, depending on how much being white and speaking decent English counts for. And lo and behold, it happened exactly as predicted. "

But of course that is not what happened.

And if all of this is a currency thing, what about Ireland? They have a current account surplus, after all.

(And the current account deficit of Italy is quite small)

by IM on Wed Sep 7th, 2011 at 07:39:51 AM EST
[ Parent ]
That would make Ireland the lipstick on the pig, no?
by Colman (colman at eurotrib.com) on Wed Sep 7th, 2011 at 07:41:07 AM EST
[ Parent ]
That is not really much of an answer, right?
by IM on Wed Sep 7th, 2011 at 07:47:49 AM EST
[ Parent ]
Ireland was a debt crisis. A private debt crisis. Which should not be news to anybody reading these pages.

And while the Irish private debt crisis was not a currency crisis on the Continental model, I do note that the ECBuBa did not precisely cover itself with glory in Ireland. To put it very delicately.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 08:09:14 AM EST
[ Parent ]
But that is my point. Not a currency crisis. Doesn't fit your narrative.
by IM on Wed Sep 7th, 2011 at 08:30:51 AM EST
[ Parent ]
Because clearly an Irish debt crisis prevents Spain from having a currency crisis.

That is a novel and interesting analysis. Blatantly false, but novel and interesting.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 08:46:26 AM EST
[ Parent ]
No. You have a analyses fitting for Spain and Portugal -current account deficits - and then you force the other countries with a current account surplus or small deficit in this box.

That is my point. Don't build a straw man.  

by IM on Wed Sep 7th, 2011 at 08:52:41 AM EST
[ Parent ]
All the countries under attack or being ECB'ed (except Ireland which it has been duly noted innumerable times is a different story) are internal CA deficit countries.

That their deficits are "small" (by what metric?) does not matter when nominal growth has flatlined. In the absence of nominal growth, any CA deficit is unsustainable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 08:56:36 AM EST
[ Parent ]
In the absence of nominal growth, any CA deficit is unsustainable.

A tall claim. Do you really think a CA deficit of 1.0% gdp is unsustainable?

Germany e. g. did run a small CA deficit for most of the second half of the 20th century. That did include years without growth. Wasn't really unsustainable.

Perhaps more to the point Italy has now run a small CA deficit and very low growth for twenty years. After twenty years can you really still say unsustainable?  

by IM on Wed Sep 7th, 2011 at 09:05:36 AM EST
[ Parent ]
A tall claim. Do you really think a CA deficit of 1.0% gdp is unsustainable?

Which part of "in the absence of nominal growth" did you find it difficult to parse?

Of course having a 1 % deficit is unsustainable if you have 0 % growth.

Germany e. g. did run a small CA deficit for most of the second half of the 20th century. That did include years without growth. Wasn't really unsustainable.

It most certainly did not. Nominal growth was never below 4-5 per cent per year between 1950 and 1980 - and usually it was somewhat above that level.

And in any event there is a major difference between a year of flatlining nominal growth and a decade of same. Which is what we're looking at if governments don't start spending money to prop up employment.

Perhaps more to the point Italy has now run a small CA deficit and very low growth for twenty years. After twenty years can you really still say unsustainable?

Yes.

Past performance is not a guarantee of future performance. We have been extracting and burning oil on an industrial scale for nearly fifteen decades. Nobody of sound mind would presumably argue that this is sustainable.

In the absence of negative feedback loops on CA surpluses, current accounts imbalances continue right up until they don't. And then you have a crash.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 09:18:16 AM EST
[ Parent ]
 "Nominal growth was never below 4-5 per cent per year between 1950 and 1980 - and usually it was somewhat above that level."

I was more thinking of the years past 1980.

 "And in any event there is a major difference between a year of flatlining nominal growth and a decade of same."

Now you are shifting the goalposts a bit.

Is there even zero nominal growth in any european country?

So if assume zero nominal growth for  a decade, then even a small current account deficit year after year is not sustainable. But that rest on two assumptions. How is this relevant regarding France or Belgium or even Italy?

by IM on Wed Sep 7th, 2011 at 09:26:59 AM EST
[ Parent ]
I was more thinking of the years past 1980.

Germany no longer had a CA deficit by then.

Now you are shifting the goalposts a bit.

No. If conditions change, what is unsustainable can become sustainable, and vice versa. But given no growth, any CA deficit is unsustainable.

Is there even zero nominal growth in any european country?

On average over the past half decade? Yes.

But of course the peak-to-trough part of the business cycle is an outlier...

So if assume zero nominal growth for  a decade, then even a small current account deficit year after year is not sustainable. But that rest on two assumptions. How is this relevant regarding France or Belgium or even Italy?

It's relevant because you have an implicit assumption of zero interest rates stuffed in there. The actual sustainability condition is that total hard currency liabilities normalised to GDP must not diverge when time goes to infinity. It is not difficult to derive the sustainable CA deficit given exogenous nominal growth rates and nominal interest rates, but I have a train to catch now so I'll leave the algebra to the reader.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 09:35:53 AM EST
[ Parent ]
Germany no longer had a CA deficit by then.

Germany had a CA deficit until a few years ago. (unification).

by IM on Wed Sep 7th, 2011 at 09:44:55 AM EST
[ Parent ]
Far as I can understand Germany's Current Acccount was mostly balanced in the 70ies, deficit in early 80ies, surplus in late 80ies, deficit in 90ies and surplus in 00ies. Not that I am sure what either of you is trying to prove, but I figured you should at least have the right numbers.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 7th, 2011 at 03:26:03 PM EST
[ Parent ]
Is not the immediate issue here that a CA deficit, under EMU rules (and with an ECB ready to destroy the economy or if they are not allowed to do that attack the banking system), creates a target for attack by the financial heavyweights?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 7th, 2011 at 03:30:12 PM EST
[ Parent ]
That is the immediate question. I say that isn't the case and Jake tries to disprove this by talking about what happens with a CA deficit and no nominal growth in infinite time period.

A straw man, since I am talking about right now. And of course a small CA deficit is sustainable about a long time period. The data you researched regarding Germany show that Germany had a CA deficit from 1990 until 2002 without any trouble.

So my thesis is that a moderate CA deficit like France or Slovakia or Italy is no reason for worry.      

by IM on Wed Sep 7th, 2011 at 06:33:50 PM EST
[ Parent ]
That is the immediate question. I say that isn't the case and Jake tries to disprove this by talking about what happens with a CA deficit and no nominal growth in infinite time period.

It would really make this discussion a lot easier if you would make the effort to recall the chain of reasoning back more than three posts when you play these annoying "gotcha" games.

A straw man, since I am talking about right now.

Which just proves you don't know the first thing about how to look at macroeconomic data. To obtain an estimate of the structural surplus/deficit, you have to average over at least a couple of business cycles.

You are arguing like a climate change denier who says "but we had a really cold winter in 1992, so global warming isn't happening!"

And of course a small CA deficit is sustainable about a long time period. The data you researched regarding Germany show that Germany had a CA deficit from 1990 until 2002 without any trouble.

From 1991 to 2001, actually. And that's not a long time period. It's the trough-to-peak of the 1990s business cycle.

It would also be more informative to look at the CA position of the former West Germany only, since there was a considerable exodus of industry from the former Eastern Bundesländer under the Kohl Ostmark peg that strongly resembles the exodus from the European periphery under the Schröder Drachma peg.

So my thesis is that a moderate CA deficit like France or Slovakia or Italy is no reason for worry.

And since France and Italy are already under attack, your hypothesis was falsified even before you proposed it.

As fail goes, that's a really impressive example.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 02:30:02 AM EST
[ Parent ]
Under attack? Define that. You use such a loose word that you can prove anything with that.

And you are destroying your own argument. I won't even mention that as usual you don't know the slightest thing about german economic history. If we look at structural deficits and surpluses, the german CA surplus you obsess about vanishes. More importantly, there isn't much of a CA deficit in France or Italy. Or Ireland.
And before you start again babbling - climate science? Case of physics envy? -  if we are only talking about six or seven countries, two or three countries are more then an isolated data point.

by IM on Thu Sep 8th, 2011 at 04:36:20 AM EST
[ Parent ]
Under attack? Define that.

Where have you spent the month of August?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 04:38:35 AM EST
[ Parent ]
Under attack? Define that.

You are under attack when your risk-free secondary market spread against the lowest rate in the currency zone is statistically distinguishable from zero.

In a unified currency zone, all subunits should be operating under the same risk-free rate. If they aren't, there is an implied exchange rate risk.

I won't even mention that as usual you don't know the slightest thing about german economic history. If we look at structural deficits and surpluses, the german CA surplus you obsess about vanishes.

In which fictional alternative universe?

Try averaging over the last three business cycles and get back to me.

More importantly, there isn't much of a CA deficit in France or Italy. Or Ireland.

I never claimed that Ireland was a currency crisis, and you should fucking well know that by now if you are arguing in anything that remotely resembles good faith.

And France and Italy have structural CA deficits, which means, given that the ECBuBa is pursuing a long rate in excess of nominal growth, that they are vulnerable to Soros attacks.

if we are only talking about six or seven countries, two or three countries are more then an isolated data point.

But you only have one country. Not two, nevermind three.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 07:59:07 AM EST
[ Parent ]
"You are under attack when your risk-free secondary market spread against the lowest rate in the currency zone is statistically distinguishable from zero."

In other words, everybody is attacked.

"In a unified currency zone, all subunits should be operating under the same risk-free rate."
Why? What about default risk?

"In which fictional alternative universe?

 Try averaging over the last three business cycles and get back to me."

You really seem to think germanys economic history started in 2002. It hasn't. And prior to that the CA tended to be balanced.

"I never claimed that Ireland was a currency crisis, and you should fucking well know that by now if you are arguing in anything that remotely resembles good faith."
You can't handle dissent well. You claimed a perfect prediction record for your hypothesis, I pointed out that Ireland doesn't fit your hypothesis and you then grudgingly admitted that. Where exactly is the bad faith? You just omitted Ireland in your first comments.

by IM on Thu Sep 8th, 2011 at 08:19:41 AM EST
[ Parent ]
"You are under attack when your risk-free secondary market spread against the lowest rate in the currency zone is statistically distinguishable from zero."

In other words, everybody is attacked.

No. Finland is not under attack.

"In a unified currency zone, all subunits should be operating under the same risk-free rate."
Why? What about default risk?

Only relevant to the private part of the foreign debt, which is why I was talking about the "risk-free" rate.

"In which fictional alternative universe?

Try averaging over the last three business cycles and get back to me."

You really seem to think germanys economic history started in 2002.

"The last three business cycles" is 1985 to 2008 (approx.).

You do know what "business cycle" means, right?

"I never claimed that Ireland was a currency crisis, and you should fucking well know that by now if you are arguing in anything that remotely resembles good faith."
You can't handle dissent well. You claimed a perfect prediction record for your hypothesis, I pointed out that Ireland doesn't fit your hypothesis and you then grudgingly admitted that.

There was nothing grudging about that. I pointed out from the first day that Ireland and Greece were totally and fundamentally different. This is not a problem for my hypothesis, any more than the existence of suicide is a problem the prosecutor in a case against a suspected serial killer.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 08:39:21 AM EST
[ Parent ]
"In a unified currency zone, all subunits should be operating under the same risk-free rate."

Why? What about default risk?

1. What about the Eurozone's "no-default rule"?

You can't have your cake an eat it, too. The combination of the following is an example of having your cake and eating it, too:

  1. The GSP
  2. Growth and Jobs
  3. No default
  4. No bailout
  5. No fiscal transfer
  6. Beggar-thy neighbour neomercantilism
  7. Subordinating fiscal policy to the financial markets

Something has to give. The first thing to give was the GSP (violated by the Francogerman axis which then went on to convince the Council to change the rules) followed by "growth and jobs", then "no bailout" and "no fiscal transfers". Soon the "no default" rule will be breached, too. And then we may not have a Euro any more.

All of this could have been solved very simply and cheaply in February 2010 but it wasn't.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 09:11:51 AM EST
[ Parent ]
Which part of "after Greece" did you find it difficult to parse?

At the time the prediction was made, Ireland and Greece had already happened. I don't know what epistemology you subscribe to, but in the one I subscribe to you don't get points for predicting events that are already known to have occurred.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 08:03:16 AM EST
[ Parent ]
Wait a moment didn't you just brag about two years ago? Nothing happened then in Ireland, at least concerning bail-outs.
by IM on Wed Sep 7th, 2011 at 08:32:43 AM EST
[ Parent ]
And that would be wrong.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 08:47:49 AM EST
[ Parent ]
Well, yes, the crisis started in Ireland or became obvious in autumn 2008.

I was talking about european bail-outs, the so called euro crisis. The NAMA is a national institution.

by IM on Wed Sep 7th, 2011 at 08:54:43 AM EST
[ Parent ]
Ireland - the sovereign, not the banks - came under attack in early Winter 2009, almost immediately after NAMA was announced (for obvious reasons, since NAMA was always suicidally insane).

That it took until mid-2010 before their foreign creditors were bailed out is neither here nor there, since the only reason you brought up Ireland (aside from your obsession with the quaint notion that since Ireland was a debt crisis, Spain, Portugal, Greece, Italy, France and Belgium must also be debt crises) was to make a cheap shot at my 2009 prediction of the order in which Southern Europe was attacked.

(Note, incidentally, that by your definition, the current Spanish crisis is an entirely domestic affair.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 09:03:49 AM EST
[ Parent ]
"aside from your obsession with the quaint notion that since Ireland was a debt crisis, Spain, Portugal, Greece, Italy, France and Belgium must also be debt crises"

I would be obliged if you don't make up my positions for me.

"Ireland - the sovereign, not the banks - came under attack in early Winter 2009, almost immediately after NAMA was announced (for obvious reasons, since NAMA was always suicidally insane)."

Bail-out was only in autumn 2010.

I still think the problem was not NAMA but the guarantee in 2008. Taken without the involvement of any outsiders.

You take countries with large CA deficits: Spain, Portugal, Greece and then mix them together with other countries: France, Italy, Belgium there the CA deficit is quite small. And you just hand wave Ireland away.

by IM on Wed Sep 7th, 2011 at 09:15:26 AM EST
[ Parent ]
I would be obliged if you don't make up my positions for me.

And I would be much obliged if you would refrain from tossing around red herrings. Such as the chronology of bailouts in a discussion of the chronology of attacks.

You take countries with large CA deficits: Spain, Portugal, Greece and then mix them together with other countries: France, Italy, Belgium there the CA deficit is quite small. And you just hand wave Ireland away.

If this were a debt crisis, Germany and France would have been attacked more or less at the same time - the two have roughly equal levels of debt to GDP, and if anything France has outperformed Germany in the growth department over the past two decades.

They weren't, so it isn't.

This is called deriving a testable hypothesis from your theory. When your testable hypothesis does not hold up to empirical scrutiny, the hypothesis is deemed to have been falsified. A large enough number of falsified hypotheses derived from a given theory casts doubt on the validity of the theory.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 09:25:07 AM EST
[ Parent ]
And Ireland hasn't falsified your theory?
by IM on Wed Sep 7th, 2011 at 09:28:29 AM EST
[ Parent ]
In a word, no.

My claim is that the €-Mark is experiencing a currency crisis due to the BuBa being unwilling to pay to defend its currency policy. Your claim is that the €-Mark is experiencing no such crisis.

To disprove my claim, you have to demonstrate that debt is the dominant causative factor in every case (formally speaking - informally, you only have to demonstrate that it is so in the overwhelming majority of cases). To disprove your claim, I only have to demonstrate that current accounts are the dominant factor in a single case (again, if we stand on formalism - for practical purposes, I have to demonstrate that the test case is of at least moderate significance).

The former is a significantly more daunting proposition than the latter.

Or, to put it in slightly less formal terms, I am claiming that a suspect murdered his wife. You are claiming that the suspect did not murder anybody, and as proof of this you note that he did not murder his neighbour, who is known to have committed suicide.

I hope you can see why this is not a viable defense strategy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 03:37:03 PM EST
[ Parent ]
Well, no. I don't . You have put a hypothesis and now you are not able to defend it. I have pointed out that CA deficits don't matter in some cases and all you have as an answer is to decree abritary rules.
by IM on Wed Sep 7th, 2011 at 06:39:59 PM EST
[ Parent ]
sigh

You are not even looking at my hypothesis, which is that this is a currency crisis, not a debt crisis. You are playing silly gotcha games based on nothing but your total ignorance of elementary econometrics.

I did dare to assume that since you were arguing a point on economics, you possessed at least rudimentary schooling in, y'know, actual economics. But this is not in evidence anywhere in your argument - you argue more like a lawyer or a theologian than a scientist (or even an economist).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 02:48:01 AM EST
[ Parent ]
Appeal to authority? I really try to argue with you, but all  I get back is insults and shouts" Look I am an economist."

Pounding on the table.

by IM on Thu Sep 8th, 2011 at 04:08:34 AM EST
[ Parent ]
Furthermore, if what you say is right, countries should have been attacked in order of their CA deficits. Didn't happen, so it isn't a current account crisis.
by IM on Wed Sep 7th, 2011 at 09:30:50 AM EST
[ Parent ]
Furthermore, if what you say is right, countries should have been attacked in order of their CA deficits.

Um, no. That does not follow. At all. CA deficits are far from the only determinant in vulnerability to Soros attacks, whereas debt levels relative to asset levels are (almost definitionally) the overwhelmingly dominant component in vulnerability to bankruptcy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 03:36:42 PM EST
[ Parent ]
"CA deficits are far from the only determinant in vulnerability"

Shifting the goal posts again? You claimed CA deficits are the start and end of this crisis.

by IM on Wed Sep 7th, 2011 at 06:41:29 PM EST
[ Parent ]
No, I said that this was a currency crisis.

Currency crises are caused by structural CA imbalances (note: Imbalances include CA surpluses - the surplus country is as responsible for the imbalance as the deficit country).

They are triggered by all sorts of things, and there is a substantial component of black magic in divining when a vulnerability to a currency run will translate into an actual run (though in this case it was real easy: Just sort the structural CA deficit countries in ascending order of political power).

Really, the distinction between fundamental and proximate cause is not a novel concept or arbitrary imposition. It has been a recognised concept in every school of epistemology (except perhaps the radical social constructivists) since Aristotle. And I did dare to presume - wrongly, apparently - that you had paid attention to epistemology at some point in the last three or four thousand years.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 02:42:59 AM EST
[ Parent ]
LOL

Nice straw man.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 04:14:13 PM EST
[ Parent ]
"Such as the chronology of bailouts in a discussion of the chronology of attacks."

Because there is obviously no connection.

by IM on Wed Sep 7th, 2011 at 09:33:50 AM EST
[ Parent ]
Of course not: Dexia and Fortis were among the first Eurozone banks to be bailed out but France, the Netherlands and Belgium will be among the last countries to be attacked.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 09:37:09 AM EST
[ Parent ]
We are talking about bailouts of countries. At least I hope we do.
by IM on Wed Sep 7th, 2011 at 09:41:21 AM EST
[ Parent ]
You keep bringing up NAMA...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 09:42:34 AM EST
[ Parent ]
No, JakeS did.

 I said Ireland was bailed out in 2010, he said NAMA late 2009, I said that I meant states, not banks. And then said he meant "attacks" and that the Eurozone bailouts are red herring. And then I pointed out that attacks and bail outs go together like a horse and carriage.

And then you brought up the rescued banks by Belgium/Netherlands/France.

I hope everything is clear.

by IM on Wed Sep 7th, 2011 at 09:49:08 AM EST
[ Parent ]
I noted that I had correctly predicted the sequence of attacks. Specifically, I wrote:

We even called the order in which they would come for Eurozone countries after Greece: Portugal, Spain, Italy, France, with Belgium either just before or just after Italy, depending on how much being white and speaking decent English counts for.

You then tried to play gotcha by noting that Ireland's creditors were not bailed out until 2010, and therefore Ireland should have been included in any prediction made in 2009.

Which is completely irrelevant, since the bailouts of Ireland's creditors were Act 3 of the Irish Assisted Suicide, and Act 2 - which was the first one that involved international economic hit men - took place in 2009 (Act 1 was in 2008-9, but as you correctly note that part involved only Irish economic hit men, not foreign ones).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 04:15:00 PM EST
[ Parent ]
You didn't mention Ireland at all probably because it didn't fit your model. As far as being white an d decent english speaking it isn't fitting your secondary model either. That you take refuge in a weasel word like attacks is telling.
by IM on Wed Sep 7th, 2011 at 06:46:35 PM EST
[ Parent ]
For the last goddamn time: I didn't mention Ireland because Ireland was already under attack when I made my prediction about which countries would come under attack and in which order the attacks would happen.

I may be a sad existence, but I'm not sad enough to brag about being able to predict events that are already part of the public record. That you seem to think that this is a failure is less telling of any failure of mine than it is of your insistence on extrapolating wildly from a single data point to reach a conclusion that goes against the overwhelming weight of the remaining data.

That's called "cherry picking," and it's a denialist tactic.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 02:52:49 AM EST
[ Parent ]
A bailout of a country involves guaranteeing non-usurious interest rates on new issues during the 18-24 months it takes for the hysterical children to calm down after a sovereign default.

A bailout of the bondholders involves having other countries roll over the bonds so the current bondholders get their money back.

I will leave it to the reader to decide which of the two descriptions is the more apt for what the ECBuBa, EFSF, et al have been doing

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 03:49:33 PM EST
[ Parent ]
You take countries with large CA deficits: Spain, Portugal, Greece and then mix them together with other countries: France, Italy, Belgium there the CA deficit is quite small. And you just hand wave Ireland away.
Euro Crisis scorecard:
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% under attack
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%
I don't see any reason at all not to "mix" France, Ireland and Italy with Spain, Portugal and Greece.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 09:32:16 AM EST
[ Parent ]
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% under attack
19(12)     Slovakia    -1.36%
21(14)     Slovenia    -0.73%
--------------------------------------------
 8 (6)     Belgium    +0.5%

There is a difference between 10.00% and 2.86 or 1.79%. Gradual differences matter.

Belgium isn't fitting either. Are the irish numbers current?
So you two predict a "attack" on Slovakia? Then Slovenia?

by IM on Wed Sep 7th, 2011 at 09:40:02 AM EST
[ Parent ]
Belgium hasn't been attacked yet. Part of it is because, not having a government, it hasn't been able to implement damaging austerity plans. Though that might change soon or not... The Belgian issue is complicated by the "fact" that Flanders "belongs" in the Neuro and Wallonia in the Seuro.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 09:48:12 AM EST
[ Parent ]
And Slovakia?
by IM on Wed Sep 7th, 2011 at 09:49:51 AM EST
[ Parent ]
Hasn't happened yet?

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Sep 7th, 2011 at 09:50:28 AM EST
[ Parent ]
There is a difference between 10.00% and 2.86 or 1.79%.

But the Greek CA deficit was not 10 % of GDP when Greece was attacked. It is 10 % of GDP after the ECB-led Troika has destroyed the Greek domestic economy (and thereby cratered GDP) and imposed usurious interest rates on its foreign debts.

You are using a snapshot of different points in the business cycle to say something about the relative magnitude of structural variables. That's nonsense. If you want to make structural arguments (which you implicitly are here) then you need to look at cycle-averaged variables.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 04:11:47 PM EST
[ Parent ]
"But the Greek CA deficit was not 10 % of GDP when Greece was attacked. It is 10 % of GDP after the ECB-led Troika has destroyed the Greek domestic economy (and thereby cratered GDP) and imposed usurious interest rates on its foreign debts."

(This whole usurious debt is nonsensical. Greece still pays whatever interest rate it did got quite prior to the crisis on most of its debt. Even you can't assume that the new interest rates have already influenced its CA.)

Wait a moment. You are saying all the time that everything depends on CA deficits. But whatever, lets say it was only 8.0% in 2007. So what?

"You are using a snapshot of different points in the business cycle to say something about the relative magnitude of structural variables. That's nonsense."

Of course it is nonsense! Tell that to Migeru and his famous table! Tell that to your reflection in the mirror!

But lets talk about structural CA deficits. All I claimed is that structural CA deficits in Italy and France - not to talk about Ireland and Belgium - are low. A lot lower than in Spain and Greece and Portugal. Isn't that a bit of a problem to your CA hypothesis?

by IM on Wed Sep 7th, 2011 at 06:58:01 PM EST
[ Parent ]
But lets talk about structural CA deficits. All I claimed is that structural CA deficits in Italy and France - not to talk about Ireland and Belgium - are low. A lot lower than in Spain and Greece and Portugal. Isn't that a bit of a problem to your CA hypothesis?

No, the prediction is that the endgame in all this is that all the deficit countries including France will end up on the other side of the fracture from Germany when the Euro blows up. (Cue in the discussion of Jerome's Niemöller moment)

The only reason why France migth be included in "core Europe" is the political prejudice of the Francogerman axis, but if France insists on hoisting itself to a new faux gold standard alongside Germany and the Netherlands, their economy will first suffer a private debt bubble and then get blown out of the water in the next business cycle.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 04:10:17 AM EST
[ Parent ]
Fine. Lets talk again when - or if - the euro blows up.
Any month now, if I remember your last prediction it was June.

 "all the deficit countries"

I still claim that calling a country with a CA deficit of 0.1 gdp and a country with 10.00 of gdp both deficit countries doesn't make sense.

by IM on Thu Sep 8th, 2011 at 05:08:35 AM EST
[ Parent ]
The stability condition for a structural CA deficit country in a fixed-rate regime without a BanCor is that nominal growth must exceed nominal interest rates on the foreign debt. If the ECBuBa were pursuing a zero risk-free interest rate policy, this would be possible. But it isn't, so it isn't.

If you don't believe me, just derive the convergence criterion yourself.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 08:03:45 AM EST
[ Parent ]
(This whole usurious debt is nonsensical. Greece still pays whatever interest rate it did got quite prior to the crisis on most of its debt.

That is an extraordinary claim - you are arguing that the bulk of Greek foreign debt had a maturity greater than two years in 2009. I find that very difficult to believe, but perhaps you are better informed?

Wait a moment. You are saying all the time that everything depends on CA deficits. But whatever, lets say it was only 8.0% in 2007. So what?

Structural CA deficits. And more like 5 %, since in 2007 the ECBuBa hadn't destroyed a quarter of the Greek GDP yet.

Of course it is nonsense! Tell that to Migeru and his famous table!

I did. You missed the part where I noted that Ireland did not belong in the table?

Oh right, you didn't. You used it to play silly gotcha games with Mig.

But lets talk about structural CA deficits. All I claimed is that structural CA deficits in Italy and France - not to talk about Ireland and Belgium - are low. A lot lower than in Spain and Greece and Portugal. Isn't that a bit of a problem to your CA hypothesis?

No. Italy has had a cycle-averaged nominal GDP growth in the ballpark of 3 % of GDP, and a structural CA deficit in the ballpark of 1½ % of GDP, and the ECBuBa is targeting a "long-run" overnight rate in the ballpark of 1-2 %. This is at risk of blowing up if the average markup over the risk-free rate exceeds 1½ percentage points for any length of time.

If the banks that are lending to Italy are gearing 10:1 and require 7½ % nominal return on their equity, then all other overheads can amount to no more than 75 basis points before the whole edifice becomes unstable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 07:07:41 AM EST
[ Parent ]
Greece and CA deficit:
-6,5% 2003    -5,8% 2004      -7,6% 2005     -11,2% 2006     -14,4% 2007     -14,7% 2008     -11,0% 2009    -10,4% 2010     -8,6% 2011

OECD numbers. I don't know what is the structural deficit but it seems to be  lot larger then in Italy or France or indeed even Spain.

by IM on Thu Sep 8th, 2011 at 07:40:28 AM EST
[ Parent ]
When last we looked at these numbers, they differed considerably from Eurostat numbers.

I asked Yanis Varoufakis point blank if he had any internal insight into official Eurostat/OECD numbers and the Greek economy. He replied that the numbers were absolutely not to be trusted. Greece neither reported them accurately, nor did Eurostat seem to care.

by Upstate NY on Thu Sep 8th, 2011 at 03:36:49 PM EST
[ Parent ]
And according to the economist the average maturity of greek debt was about seven years.
by IM on Thu Sep 8th, 2011 at 12:58:23 PM EST
[ Parent ]
Foreign or sovereign?

It's the foreign debt (public and private) that's relevant for the CA imbalance, not the sovereign.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 9th, 2011 at 10:29:58 AM EST
[ Parent ]
sovereign. I doubt anybody has numbers on the average maturity of foreign hold private greek debt.
by IM on Wed Sep 14th, 2011 at 11:24:41 AM EST
[ Parent ]
The Greek regulators should have. But they're probably not telling.

I would be very surprised if the average maturity was not substantially shorter on the total foreign debt than on the sovereign debt.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 14th, 2011 at 03:26:09 PM EST
[ Parent ]
Ireland doesn't belong in that group - it has a structural CA surplus. The current CA deficit is a temporary aberration caused by the usurious seigniorage the ECB is extorting at the moment.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 04:13:38 PM EST
[ Parent ]
Ireland doesn't belong in that group - it has a structural CA surplus.

You don't say. But how does that fit Ireland in your CA deficits are everything model?

by IM on Wed Sep 7th, 2011 at 06:48:23 PM EST
[ Parent ]
Ireland fits in the small country with large internationally active banking sector category alongside Iceland and Switzerland (which, in case you haven't noticed, is in a panic over the spillover from the Euro crisis into the macroeconomic and financial stability of its tiny economy). That's why Ireland's banks blew up in 2008, just like the Icelandic ones and the Belgian (Dexia and Fortis) did.

Oh, and don't forget Cyprus. They're a hedge fund too, and are duly under market attack.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 04:14:54 AM EST
[ Parent ]
No, no. Everything is peachy in Switzerland! They still have their own currency after all and didn't join the cursed euro!

"Ireland fits in the small country with large internationally active banking sector category alongside Iceland and Switzerland"

Yes. Nothing to do with CA deficits.

I didn't mention Cyprus because there seems to be an genuine non-economic reason: the power plant explosion.

by IM on Thu Sep 8th, 2011 at 05:14:32 AM EST
[ Parent ]
Everything is peachy in Switzerland!
Do you really have your head up one of your bodily orifices, or are you trolling?
I didn't mention Cyprus because there seems to be an genuine non-economic reason: the power plant explosion.
Yeah, the "external shock" cop-out of neoclassical economics.

About Cyprus: they have become an offshore appendage of the City of London where the banking sector has grown to 7xGDP. Were that not the case, an accident at a power plant would not have spelt economic disaster.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Sep 8th, 2011 at 05:55:19 AM EST
[ Parent ]
No, no. Everything is peachy in Switzerland!

That remains to be seen, but the Swiss central bank is actually behaving intelligently in this crisis.

They still have their own currency after all and didn't join the cursed euro!

And that is why the Swiss CB still has the power to behave intelligently.

They may not be doing enough, and it may not be possible to do enough. But I wouldn't bet money on that in the way that I would without hesitation bet money on the non-viability of the Spanish balanced budget rule.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 08:43:19 AM EST
[ Parent ]
By noting that "CA imbalances (not deficits) are everything" is not my model. My model is that an unsustainably overvalued currency is the fundamental cause of the attacks on all the countries that were attacked after Ireland.

The structural CA imbalances are evidence that they have an overvalued currency, not the cause of the overvaluation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 8th, 2011 at 07:12:18 AM EST
[ Parent ]

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