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The "Euro Crisis" - Both more and less than meets the eye

by JakeS Thu Nov 18th, 2010 at 06:41:15 AM EST

This started out as a response to a post by Bill Mitchell in which he paints a picture of the € as a project so full of FAIL that everybody would be better served by simply abandoning it outright. I felt it worthwhile to repost it here, because such sentiments, while not expressed in quite that many words, have been echoed here on ET.

I take issue with that conclusion not so much because it is economically unsound. There is an economic case to be made against the common currency (although it is not quite as strong as Mitchell would have you believe). But in my view it misses the point. So without further ado:

There's both more and less going on here than meets the eye.

There's less going on here in three ways: In the first place, the Irish crisis is not a € crisis. The Irish crisis is a crisis of Irish domestic governance. Ireland has a trade surplus, and has had one throughout, so nothing prevents Ireland from simply telling the international money markets to go take a hike. Nothing, that is, except the fact that Ireland is run by corrupt halfwits.

In the second place, the crisis is not inherent to the fact that the EU has a common currency. There are plenty of ways to structure a common currency that do not cause this sort of balance of payments crises. The problem is that the € contains two pernicious elements: The German Stupidity Pact (known in more polite company as the Growth and Stability Pact), and the fact that the ECB is mandated to pursue an inflation-first policy. Neither is an intrinsic requirement for having an EU-wide currency. It would be perfectly possible, for instance, to abolish the GSP, and stabilise current accounts by having the ECB issue a Eurobancor to those countries that have intra-€-zone balance of payment deficits.

front-paged by afew


Another possibility (and the one I would favour) is to raise the inflation target to [maximum of current €-zone member's actual inflation rates for the three years prior to entry into the €-zone] + 2 % + [your country's intra-€-zone balance of payments normalised to GDP]. The first term in the formula is to ensure that no country is forced below the inflation rate that it would have had if it had pursued an independent economic policy. Different countries have different structural inflation rates, and it is always far less unpleasant to force your economy above its structural inflation rate than to force it below. The second term is there to leave some room for manoeuvre (every country will occasionally overshoot its inflation target and need to go below its inflation target in a following year to maintain its relative price level), and to make sure that any pressure that has to be exerted by the sovereign will definitely be in the upwards direction. The final term is there to insure against long-term internal current accounts imbalances, by forcing countries that run up an internal surplus to inflate their prices faster than countries that run internal current accounts deficits. Of course, you'll still have to do away with the GSP - that goes without saying, since the GSP is stupid under any conceivable institutional framework other than a commodity standard.

In the third place, even under the prevailing institutional regime the current crisis could have been largely avoided; the current problem is that the EUropean governments at all levels are populated by incompetent halfwit ideologues, who have drunk so deeply from the market-fundie koolaid that they are absconding from their duties to manage the political economy. Hardly a month goes by without one of our Dear Leaders expressing the sentiment that the international money markets know the value of the assets they trade better than the governments of the EU. Which, given the fact that "the markets" have been behaving like a ferret on crystal meth [alternatively, have been engaging in pump-and-dump scams], should tell you something about our leadership's willingness to suspend disbelief in the face of economic reality. Hell, our central banks even seem to have forgotten how to take a bankrupt bank into receivership.

With that sort of leadership, we're fucked. Common currency or no common currency.

Conversely, if the ECB leadership had been able to find their asses with both hands and a flashlight, they would have simply intervened in the secondary market, and everybody who was pump-n-dumping Greek sovereign bonds would have been burned. Hard.

So the € is not, in principle, a bad idea. From an economic point of view a common currency is of debatable value, given the inherent trade-off between inflation and the size and diversity of the currency union. But the € was never about economics anyway - it was always first and last a political unification project.

Which brings us to the way in which these crises are more important than meets the eye: What you are looking at here is not an economic crisis. The €-zone as a whole has no structural economic problem that it is not fully within the collective power of its members to solve. What you are looking at, in live coverage, is a constitutional crisis. The European Union is institutionally unable or unwilling to face up to the trade-offs inherent in being a continent-wide federation. Or, to put it a little more bluntly, this is a power struggle between a camp of "core" countries, led by Germany, and a camp of "peripheral" countries led by... well, nobody in particular.

On the "core" side, the objective is to be able to continue to dictate policy (economic and otherwise), both at the federal level and, through the combination of current accounts surpluses and a common currency, internally in the "peripheral" countries. A secondary objective being to ensure that the EUropean industrial policy continues to favour the incumbent firms (by making sure that the EU keeps prohibiting determined industrial policy), which are largely located in the countries in the "core" camp. On the "periphery" side, the objective is to claw back some of the political power that the "core" has arrogated (in some cases informally rather than through open and above-board treaty negotiations), including some way to industrialise on their own terms, rather than on German terms.

Now, the fact that the EU is going through a constitutional crisis does not mean that the EU or the € are failed projects. The EU is less than three quarters of a century old - most countries and federations have constitutional crises in the first fifty or sixty years after their first formal constitution. Constitutions are, after all, tricky things to write, and small oversights can create quite prominent unintended consequences (which the beneficiaries will, naturally, seek to hang on to). The US, at the equivalent point in its history, was fighting a civil war - and for all the venom unleashed in the present crisis, there is some way to go yet before Europeans start shooting at each other.

On the other hand, the fact that most successful states and federations have had constitutional crises does not mean that the EU or the € will necessarily survive this one. After all, most failed federations also had constitutional crises before (or when) they failed.

- Jake

Display:
for all the venom unleashed in the present crisis, there is some way to go yet before Europeans start shooting at each other.

A clear benefit of the EU is that at this point, Europeans barely have anything to shoot each other with.

If you ignore banks, that is.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Nov 17th, 2010 at 08:09:57 PM EST
ThatBritGuy:
If you ignore banks, that is.

Was that banks or blanks?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Nov 17th, 2010 at 08:57:52 PM EST
[ Parent ]


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 Thu Nov 18th, 2010 at 02:43:05 PM EST
[ Parent ]
I would guess the EU has more soldiers/capita then the US had in say 1855. Fortunately we have a demographic profile with much lower percentage of young men.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 18th, 2010 at 04:23:09 PM EST
[ Parent ]
In the second place, the crisis is not inherent to the fact that the EU has a common currency.

Indeed, it is not. This is just a normal day in neoliberal economics. A complete mess (or a one step closer to the goal, neo-feudalism).

But this is what the middle class wants. Housing bubbles. Nihilism. No one cares if income is earned or unearned. People are screwed by fake "assets" fake "property" fake "wealth." And they like it.

by kjr63 on Thu Nov 18th, 2010 at 03:24:10 AM EST
El Banco de Irlanda adelanta que se está negociando un crédito de "decenas de miles de millones" · ELPAÍS.comThe Bank of Ireland advances that a loan "in the tens of billions" is being negotiated - ElPais.com
Bruselas está pendiente del programa de ajuste de 15.000 millones de euros para los próximos cuatro años que Irlanda debe presentar antes de finales de mes. El rescate podría rondar los 100.000 millones de euros. Según Rehn, el programa de ayuda será acordado con el FMI y las autoridades irlandesas y "estará centrado en la reestructuración del sector bancario". El ministro belga admitió que estaba convencido de que "será difícil para el BCE ir más lejos en el mantenimiento en términos de aportaciones de liquidez para los bancos de ciertos Estados miembros, y quizá de entrada en Irlanda".Brussels is closely following a €15bn adjustment program for the next 4 years which Ireland must present before the end of the month. The rescue might be around €100bn. According to Rehn, the aid programme will be agreed with the IMF and the Irish authorities and "will center on the restructuring of the banking sector". The Belgian [finance?] minister admitted he's convinced that "it will be difficult for the ECB to go further in keeping its liquidity support for the banks of certain member states, and maybe to begin with in Ireland".

And what exactly prevents the ECB from providing liquidity support? Liquidity is free for the Central Bank of a fiat currency zone.

La concesión de importantes ayudas europeas para salvar bancos ?que han incurrido en prácticas temerarias con todo tipo de riesgos y que ya han comprometido unos 60.000 euros para cada ciudadano irlandés? no ha despertado hasta ahora especial preocupación entre los políticos. "No me produce problemas éticos, máxime cuando estamos trabajando en mecanismos que hagan que el futuro de esta crisis la paguen los propios sectores financieros", señaló la vicepresidenta del Gobierno español, Elena Salgado.The concession of large European aid to save banks (which have engaged in reckless practices with all kinds of risks and which have already committed about €60k for each Irish citizen) has not raised particular concern among the politicians. "This causes me no ethical problems, especially when we're working on mechanisms to make that the future of this crisis will be paid by the financial sectors themselves", pointed out the Spanish deputy PM [and Economy minister], Elena Salgado.
Tanto el comisario Olli Rehn como el presidente del Eurogrupo, Jean Claude Juncker, han subrayado, no obstante, que en los planes de rescate de Grecia, Irlanda y Portugal, "no habría participación del sector privado". La exigencia alemana de que los bancos contribuyan también a sufragar las pérdidas de los países que declaren el impago de una parte de su deuda no entrará en vigor hasta que se ponga en marcha el mecanismo de rescate permanente, a mediados de 2013.Nevertheless, both EU Commissioner [for Economic and Monetary Affairs] Olli Rehn as well as the Chairman of the Eurogroup, Jean Claude Juncker, have underscored that in the rescue plans for Greece, Ireland and Portugal "there would be no private sector participation". The German demand that banks contribute to paying for the losses from countries defaulting on part of their debt will not come into force until the permanent rescue mechanism is set up, in mid-2013.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 04:52:04 AM EST
European Tribune - The "Euro Crisis" - Both more and less than meets the eye
The Belgian [finance?] minister admitted he's convinced that "it will be difficult for the ECB to go further in keeping its liquidity support for the banks of certain member states, and maybe to begin with in Ireland".

And what exactly prevents the ECB from providing liquidity support? Liquidity is free for the Central Bank of a fiat currency zone.

Willem Buiter's Maverecon: After subverting bank insolvency, our leaders are now about to make a mess of liquidity (October 6, 2009)

Unless there is a major change of direction among global economic and financial officialdom, we are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised.  This would be the exact opposite of what makes sense: solvency is (or should be) a private good and liquidity is (or should be) a public good.

...

Unlike solvency, which is or should be a private good that has been provided publicly and socially inefficiently by the state, liquidity, which can be provided or hoarded privately, is a public good that ought not to be provided privately but by the central bank.  In the UK, the FSA has announced measures requiring UK banks to hold significantly more liquidity.  Currently, banks and building societies in the UK hold about £280 bn worth of cash and government bonds from countries deemed to be solvent (yes there are some left, apparently).  The FSA wants this liquidity buffer to be increased by at least one third, and possibly by more.  In addition, reliance on wholesale market funding will have to be cut by at least 20 percent: deposits good, wholesale funding bad.  There is a grace period - so as not to depress bank lending even more, these bigger liquidity buffers will only have to be achieved when the economy recovers.

This is bad economics.  Liquidity is not a thing - not something wufting around in the ether.  Liquidity is a multi-demensional property of assets.  The degree of liquidity of an asset (real or financial) depends on (a) the speed with which it can be sold (b) the transactions costs incurred in a sale (as measured, say, by the bid-ask spread) and (c) the spread between the realised price of the security and its fair or fundamental value.  These three characteristics are of course not independent.

Can we please have Willem Buiter as ECB president? Please?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 04:58:40 AM EST
[ Parent ]
There is a very simple way of providing liquidity. Bankruptcy. That should be the first option. If banks go bankrupt, and problems follow, then can ECB provide liquidity. What is the point, keep real assets in the claws of these zombies? And provide THEM liquidity. Liquidity should go to the productive economy.
by kjr63 on Thu Nov 18th, 2010 at 03:04:26 PM EST
[ Parent ]
European Tribune - The "Euro Crisis" - Both more and less than meets the eye
Ireland is run by corrupt halfwits.
Who are reportedly stalling until after the November 25 elections, because they don't want the loss of face from a rescue to affect their electoral performance.

Not that the corrupt halfwits running Germany didn't do the same in the Spring. Except that on that occasion they weren't stalling on their own finances but on Greece's.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 04:54:23 AM EST
In the Irish case, its only a bye election for one seat in Donegal - one the Government will probably lose to Sinn Fein in any case.  One of the more unfortunate domestic political fall-outs of the crisis is the empowering of Sinn Fein - ironically the only party to take a rational stance on the bank bail-out issue.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 18th, 2010 at 05:02:45 AM EST
[ Parent ]
Thanks for the context the Spanish newsie didn't provide...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 05:04:39 AM EST
[ Parent ]
Since you wrote "unfortunate" I have to ask: Except being right on the bank bail-out, what is Sinn Fein's politics now that there is peace in North Ireland?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 18th, 2010 at 07:49:09 AM EST
[ Parent ]
really doing the right thing here, why is it unfortunate they are capitalising on this in Donegal?

Seems to me you vote and work for the ones who are looking after your interests, regardless of what their history may have been...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Nov 18th, 2010 at 08:29:39 AM EST
[ Parent ]
I say unfortunate becuase Sinn Fin comes from the physical force tradition and has also been associated with vigilante groups down south.  I had a personal experience of an attempt at intimidation by a local SF councillr.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 18th, 2010 at 09:32:54 AM EST
[ Parent ]
Understood, and intimidation in any form is of course obnoxious, and perhaps the party's history as one of resistance accentuates the tendancy towards intimidation on the part of its members. Not being anywhere near it (and being totally against the sort of violence its military arm employed in the UK and elsewhere in the past) I wouldn't deign to try to understand...

One would hope that with the passing from one generation to the next this will change. Violence aside though, looking from afar, they appear to be a credible left alternative in the tradition of James P Connolly, great man that he was.

Hopefully Gilmore will reconsider his zero-tolerance approach else I suspect you will not see much change, assuming Labor would instead need to partner with FG (or worse, FF) and meet the same fate they did 15 years ago.  

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Nov 19th, 2010 at 05:28:17 AM EST
[ Parent ]
Labour's only hope is if they do well enough in the next election to be the majority partner in Government.  Historically, the minority partner always losses out - Chiefly Labour, but also the PDs, Workers Party, Greens etc.

I can't see either Fine Gael or Fianna Fail agreeing to be a minority partner with Labour, so that leaves a FF/FG coalition - Grandly entitled a National Coalition, but in reality a coalesing of the old guards.

That would leave Ireland with the standard European left/right split, but with the left keeping its hands clean of the current debacle.  Most people can't see the difference between FF and FG anyway, but there's nothing like a joint Government to expose their ideological near identity and the irrelevance of the split between them.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 19th, 2010 at 08:05:19 AM EST
[ Parent ]
Not mention plain, straightforward criminality.

Sinn Fein's friends are even less desirable than Fianna Fail's.

by Colman (colman at eurotrib.com) on Fri Nov 19th, 2010 at 06:01:48 AM EST
[ Parent ]
I can't imagine that's their motivation. They're screwed anyway.

What am I saying? It's Fianna Fail. They never understand they're screwed.

by Colman (colman at eurotrib.com) on Thu Nov 18th, 2010 at 07:25:50 AM EST
[ Parent ]
Fianna FAIL™

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 08:13:53 AM EST
[ Parent ]
What is remarkable about the "Euro Crisis" is the degree to which it is not a currency crisis at all, and, in Ireland's case, not even an economic crisis.  It is first and foremost a banking crisis, and secondly a bank regulation crisis, both caused by the ideology of neo-liberal economics having gained the upper hand in political circles.

The Irish Government stupidly socialised banking loses - even those of a bank, Anglo-Irish bank, which arguably was performing no good public service whatsoever, against even the moral hazard tenets of Capitalism.  As a result a state with a debt/GNP ratio of 25% has been turned into a near bankrupt state, run at the whim and in the interests of Sovereign Debt markets.  

In the meantime, the real Irish economy is still growing and generating a balance of payments surplus, despite the domestic market being devastated by (often hidden) tax increases, public expenditure cuts, and a loss of consumer and investor confidence.

The crisis is one of the financialising of economies and the inability of the political institutions to respond appropriately, first at the Irish national level, but now increasingly at the level of the EU as well.

What on earth has the IMF to contribute to this whole debacle - other than as the gleeful agents of disaster capitalism?  The Irish Government is probably right to resist the "aid" package - but is probably only doing so as a negotiating/stalling tactic -  and as a ploy to blame the resulting swingeing cutbacks and social devastation on the IMF.

The main opposition parties are playing along with this because they know that otherwise they will face similar harsh dilemas as soon as their turn in office comes, and at least now they can heap all the blame on the Government.

What is strikingly missing from all of this is any institutional force which can stand up for the interests of the EU as a whole - including its peripheral members.  The crisis - as Jake describes - is rapidly descending into a Core vs. Periphery battle with the Core doing all the effective fighting.

Perhaps only Merkel is in a position to take an effective lead as a European/world leader on this issue, but seems to be obsessed with reinforcing her domestic position as the leader of German nationalism.

Certainly the EU institutions themseves, and particularly the ECB, are not covering themselves in glory.  The future of the EU/Eurozone may well be at stake, but only (as Jake observes) because of a failure of political leadership, not because of any inherent economic/currency crisis itself.  

The EU/Eurozone economy as a whole is not in trouble, and Ireland's economy, even if it was, is far to small to have a material impact.  This is a crisis only because it suits certain interests to let it be a crisis and to let it linger as a crisis, and those same interests have no will or vision of what it takes to build a long-term stable EU/Eurozone polity, currency, and economy.

We are letting the marketista mobsters and banksters win.  Disaster capitalism at its most transparently obvious.  The fall-out is for the little guys now, but soon it will effect all but the offshore billionaires who thrive on such fall-out.  No wonder China et al are overtaking "the West".  Those whom the Gods seek to destroy they first make mad...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 18th, 2010 at 05:38:30 AM EST
Frank Schnittger:
What is strikingly missing from all of this is any institutional force which canwill stand up for the interests of the EU as a whole - including its peripheral members.
Fixed. Both the European Central Bank and the European Commission could stand up for the interests of the EU as a whole. That would also be the job of the Council President or the Chairman of the Eurogroup but that must be like herding cats with no energy left to stand up for anything.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 05:54:48 AM EST
[ Parent ]
occasioned by a phony crisis on the periphery suits German commercial interests quite nicely.

The rest is just window-dressing for the domestic political entertainment market...

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Nov 18th, 2010 at 08:21:07 AM EST
[ Parent ]
European Tribune - The "Euro Crisis" - Both more and less than meets the eye
The €-zone as a whole has no structural economic problem that it is not fully within the collective power of its members to solve.
Specificall, the Eurozone as a whole has balanced trade, its currency is a globally-hard fiat currency, and it has a negligible amount of foreign-denominated debt.

The EU as a whole is a different beast - peripheral countries outside the Euro have to manage an exposure to the Euro, much like dollarised economies in Latin America, while being hamstrung by the single market rules and in most cases a commitment to the toxic Maastricht Convergence Criteria in order to join the Euro on a short schedule. This is not impossible to manage, but when mismanaged it can blow up spectacularly, as in Argentina or in the Baltic states.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 05:59:55 AM EST
But even more than balanced foreign trade, which is important, Europe still has world-class infrastructure, reasonable educational attainment, a lot of industrial plant left despite the best efforts of thirty years of Thatcherism and probably the least unsustainable energy mix of any industrialised region on the planet.

Quite simply, except direct control of raw materials, all the economic fundamentals range, for the European Union considered as a whole, from adequate to excellent. The crisis simply can't be the result of structural problems that aren't actually there - so it must be a political crisis.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 07:19:26 AM EST
[ Parent ]
European Tribune - The "Euro Crisis" - Both more and less than meets the eye
Another possibility (and the one I would favour) is to raise the inflation target
If only because it's the only one which is immediately available and compatible with the treaties.

The 2% inflation target has been defined by the ECB itself as its definition of price stability (which is not named but not defined in the treaties).

ECB: Definition of price stability

While the Treaty clearly establishes the primary objective of the ECB, it does not give a precise definition of what is meant by price stability.

The ECB's Governing Council has announced a quantitative definition of price stability:
  • "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%."
The Governing Council has also clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 08:16:59 AM EST
That is one very good reason, but the real reason I prefer it is that it's the only real fix I can think of short of a full-blown federal fiscal policy (which, however appealing, remains a pipe dream at the moment). All the other solutions I can think of are hacks, not patches. And crude ones at that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 08:53:06 AM EST
[ Parent ]
The European national parliaments are capable of full blown fiscal policy, given funding. The problem is the formula. 1/4 the output gap distributed half by GDP share and half by income share (so long, of course, as price stability, defined of course as 5% or lower, is maintained), would avoid the moral hazard of filling deficits.

There is nothing wrong with limiting the ability of individual members of a confederation to run individual deficits, provided that the confederal government is empowered to generate deficits for block transfers to the confederation member countries.

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 Thu Nov 18th, 2010 at 02:56:07 PM EST
[ Parent ]
Yes, a Eurobancor could work.

But a Bancor is a crude hack rather than a true fix, inasmuch as it doesn't really address the underlying problem of long-term price-level divergences within the currency zone.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 03:07:39 PM EST
[ Parent ]
Among all the problems that one can be concerned with, the divergence in price among non-tradeables which exists across the US is not something which threatens to tear the union apart. What reason is there to think that price differentials will diverge at an accelerating rate in the US, rather than arriving at reasonably stable differentials?

This would, I take it, be involved in the fight against an explicit industrial policy in service of a tacit industrial policy which would be unlikely to be explicitly adopted? Since, after all, inflation and price differentials are more a consequence of the interplay between development of productive capacity and recreation of effective demand than they are of monetary policy. Monetary policy has an important supportive role, in the sense that a bad monetary policy can crippled development of productive capacity, but its certainly not a primary driver of price differentials.


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 Fri Nov 19th, 2010 at 01:46:48 AM EST
[ Parent ]
Among all the problems that one can be concerned with, the divergence in price among non-tradeables which exists across the US is not something which threatens to tear the union apart.

However, the US

  1. Has greater internal mobility of labour than the EU will ever have in the foreseeable future, due to the relative lack of language barriers.

  2. Lacks a group of politically dominant states whose growth strategy explicitly involves pillaging the industrial plant of other states. The closest thing the US has is New York, but NY's growth strategy is based on pillaging the entire US industrial plant, including NY's own. Which creates an external imbalance, but not an internal one.

  3. Has an institutional setup that privileges poor states in terms of political power (not because they are poor but because they happen to be thinly populated). That has its own problems, but it does make easier to sustain interstate fiscal transfers in the correct direction.

What reason is there to think that price differentials will diverge at an accelerating rate in the US, rather than arriving at reasonably stable differentials?

#1&2 above.

This would, I take it, be involved in the fight against an explicit industrial policy in service of a tacit industrial policy which would be unlikely to be explicitly adopted?

Yes and no. It's a way to curb the incentive for a member state to obstruct industrial policy in other member states.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 11:47:54 AM EST
[ Parent ]
The closest thing the US has is New York, but NY's growth strategy is based on pillaging the entire US industrial plant, including NY's own. Which creates an external imbalance, but not an internal one.

True, though New York State only gets back about eighty percent of what it pays in federal taxes. And that is misleading since what we're talking about here is the NYC metro area, not New York State.  I can't find the Metro area federal numbers, but as an indicator, NJ and CT get on the order of two thirds back.  Furthermore there are net intrastate transfers as well.  This dwarfs anything in the EU.  Of course if the institutional set up were like that of the EU I rather doubt the wealthy parts of the US would be behaving any differently.  But as you write, not only do poorer states have an equal say, they're effectively more equal than others courtesy of the Senate.

by MarekNYC on Fri Nov 19th, 2010 at 12:07:01 PM EST
[ Parent ]
... why would the differentials spiral? I don't see the cause and effect positive feedback where a larger size of differential causes an increase in the differential.

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 Fri Nov 19th, 2010 at 05:45:39 PM EST
[ Parent ]
Well, my question is why price levels would converge on a steady ratio. Assuming that all states are permitted to engage in fiscal policy sufficient to ensure full employment, I don't have a theory of inflation that permits me to state with any degree of confidence that price levels - rather than, say, inflation rates - will converge on a more or less fixed ratio.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 06:00:57 PM EST
[ Parent ]
... do you have any good literature on inflation? Preferably literature that doesn't fall into the trap of conjuring up The One True Cause Of All Inflation.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 12:20:44 PM EST
[ Parent ]
Never mind causes - I'd settle for literature that manages not to fall into the trap of "One True Kind of Inflation..."
by Metatone (metatone [a|t] gmail (dot) com) on Fri Nov 19th, 2010 at 12:31:04 PM EST
[ Parent ]
Well, inflation is inflation. It's when the same basket of stuff (where the basket is chosen in some non-insane way) costs more money than it used to do.

Of course that depends on how you chose your basket, which is always a political decision. But I know how to make baskets, I don't know what causes them to change price.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 05:00:53 PM EST
[ Parent ]
Of course that depends on how you chose your basket...

And the contents of the baskets vary over time, as does inflation itself. How does the increase in types of goods that "the average family" needs factor into this discussion? For instance, some time in the '80s personal computers became important for families with aspirations for their children. In 1978 I bought a Toyota Corolla wagon of that model year for a little over $6,000.00. In 1981, I believe, I bought an Apple II with dual disc drives for about $2,500. In 1972 I had bought an HP 45 programmable calculator, for about $250.00. Neither the calculator nor the computer or anything comparable in price and function had been available five years before I made my purchases.

The home computer added an entire segment to our economy. It also became a significant expense item for middle class families. So how do we account for the varying contents of the baskets from, say, 1948, when only a small portion of households had TVs and very few had two cars to the mid 70s, when most households had at least one color TV and a large number had two cars, and on to the 21st century, when most households have at least two cars, multiple TVs, and multiple PCs.

And in which time were we better off? I think Elizabeth Warren has noted that family economic well being peaked in the early 70s and that the average family has been squeezed economically since, resulting typically in families with two incomes even when they have young children. But the basket is bigger.

 

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 20th, 2010 at 12:14:48 AM EST
[ Parent ]
Yes, those are problems with measuring inflation, as Mig has discussed previously.

However, what I want is form some idea of what would cause a constant basket to change in price. Because I already know how to make baskets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 20th, 2010 at 08:03:52 AM EST
[ Parent ]
Damn! I would have been so much better informed had I found ET a couple of years earlier.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 20th, 2010 at 12:37:59 PM EST
[ Parent ]
There has been talk about collecting the stuff we've written about economic theory in one place. It seems to always come to nought because of how much work it would be (and how inherently unfunny such a task is).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Nov 20th, 2010 at 02:00:34 PM EST
[ Parent ]
The interim solution I have proposed is diary tagging. More work for diarists however, unless there is an index of carefully planned tags that can be clicked on - rather like the <allowed html> list that is presented as you write.

You can't be me, I'm taken
by Sven Triloqvist on Sat Nov 20th, 2010 at 04:16:02 PM EST
[ Parent ]
A good buddy of mine worked on "Semantic Web" stuff back in 1971.  It didn't work.  

The reasons why are tedious and complex but, as an illustrative example, one reason comes down to the way I use English (words, in the vulgar sense :-), and the way you use English and the way Jake, say, uses English are all ever so slightly different that sum to the necessity for having a ATinNM-to-Sven-to-Jake [& iterate]/English Dictionary & Grammar translation handy and start adding on every user, and every possible user.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Sat Nov 20th, 2010 at 04:53:39 PM EST
[ Parent ]
There is a system of diary tagging. Not a perfectly conceived list, true, but it's there. Who uses it?

(Hint: no one, or almost).

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 20th, 2010 at 04:57:24 PM EST
[ Parent ]
There is? Where?

On other group-blogs I have used tags, mainly from a list someone else made. In general if it comes at the right point in the process (after writing, before preview and publish) and it can be accessed easily from a reader perspective, I think it would be used.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 20th, 2010 at 07:08:52 PM EST
[ Parent ]

There's plenty to criticise about it: the list isn't well-thought-out, and it isn't mentioned in "How to post a diary" in the User Guide. Above all, there's only one possible choice. But you can use those topic tags to filter your search results in the (awful) Scoop Search function. Which might be useful if everyone used them whenever possible.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:09:33 AM EST
[ Parent ]
I seem to recall there being a bug in that function. I take it it was resolved, then? Or am I misremembering?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 21st, 2010 at 03:11:57 AM EST
[ Parent ]
Never heard of that. If you're right there was a bug (discussed where?), I doubt if it's been fixed.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:16:32 AM EST
[ Parent ]
A quick test of the Search function reveals that... you're right. It will bring up a result based on the text entered, irrespective of the topic tag.

More Scoop magic.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 21st, 2010 at 03:22:32 AM EST
[ Parent ]
There was another discussion preceding the linked thread here European Tribune - Socratic Economics IV: How is inflation calculated?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Nov 20th, 2010 at 02:35:15 PM EST
[ Parent ]
... discusses how mark-up pricing works in economies dominated by fix-price markets and firms with substantial market power. Most neoclassically inspired work on inflation is trying to explain why there is ongoing and persistent inflation in economies dominated by flex-price markets where firms typically have little market power ...

... but, historically, those types of economies more normally had periods of inflation and deflation. With a currency with an intrinsic value, the average tendency would be toward inflation, as the sovereign debased the currency in order to cope with the repeated liquidit crises caused by a currency with an intrinsic value, but they did not have the year after year for decades inflation typical of economies dominated by fix-price markets with substantial market power by producers acting as price makers.

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 Fri Nov 19th, 2010 at 05:51:01 PM EST
[ Parent ]
I've read The Affluent Society, but it only goes into one possible mechanism.

What I'm really looking for is something that discusses different plausible mechanisms for inflation (expansion in demand that can't keep up with supply; firms using market power to price in expected inflation; a way to resolve (or not) a political conflict over who gets to take the hit from a resource crunch), and how you can tell from the data which causes are at work at any given time.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 05:56:03 PM EST
[ Parent ]
But its all the same mechanisms ~ demand and supply in flex price markets and price leaders increasing prices in fix price markets. No matter what is driving inflation, it always has to go via those mechanisms.

If you have a pet theory that has to always be the cause, it gets tricky how to squeeze the right answer out of the data, but if you are actually looking for which of the causes are stronger at a particular point in time, you tell that from the data the same way you sort out any other cause in historical time.

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 Fri Nov 19th, 2010 at 09:36:58 PM EST
[ Parent ]
Well, yes - but that ignores the fact that the useful definition of inflation isn't some percentage variation in something or other, but loss of buying power.

And current measures of inflation have a very partial and selective view of that. Specifically they consider inflation a loss of buying power for one class, who experience inflation as a corrosive destroyer of asset values.

Coincidentally, that same class experience property and investment appreciation as an expansion of buying power, which is why they're not considered inflationary - even though to someone outside that class their buying power can be reduced dramatically during (e.g.) a property bubble.

There's only a loss of buying power for the population as a whole when nominal inflation is running at outrageous levels and wages aren't being raised to suit.

The real cause of inflation isn't profit, but interest/usury and the constant demand for increasing ROI.

If your units of measurement are discrete rather than synergistic, it's not physically or mathematically possible to make the pie higher without inflating it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 19th, 2010 at 10:08:49 PM EST
[ Parent ]
Yes, the useful definition of product price inflation is the loss in buying power of new product of future contracts fixed in terms of money values.

Chasing after "the proper" definition of inflation sui generis is another one of those idealist will-o-wisp chases after the impossible. The question of what is "the proper" definition of inflation sui generis is a category mistake.


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 Fri Nov 19th, 2010 at 10:58:48 PM EST
[ Parent ]
And current measures of inflation have a very partial and selective view of that. Specifically they consider inflation a loss of buying power for one class, who experience inflation as a corrosive destroyer of asset values

I'm not sure what you mean by that.  Inflation plays havoc with debt instruments, but it has little impact on other classes of wealth such as property or shares.  For those in the middle class, their homes do fine, their savings get hammered. The poor have no assets to worry about, but they do see their already low incomes decline with high inflation.  My one experience with it, back in Poland in the early nineties, was merely annoying, but that's because when my wages went from quite adequate to 'oh fuck' I was able to both beg my parents for an infusion and to switch to a de facto inflation indexed form of freelance work.  

by MarekNYC on Fri Nov 19th, 2010 at 11:35:26 PM EST
[ Parent ]
The poor only see their already low incomes declining because there's an implicit assumption that wages can't be increased to compensate.

The usual narrative is that if wages were increased, that would be 'inflationary.'

Meanwhile profits that increase at the expense of wages aren't considered inflationary, even though they drive down effective buying power for the majority of the population in an equivalent way.

Nor is commodity sharking - at least not directly.

Nor are asset bubbles.

So in practice, traditional inflation is almost entirely a political concept. It's a loaded idea that enforces certain political assumptions about the way that wealth should be distributed.

This doesn't mean that economies can't explode. But economies can explode in many ways, and it's interesting that only some of them are considered inflationary, while others are described as "Oopsie, didn't see that coming - just one of those things, I guess."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Nov 20th, 2010 at 12:28:52 AM EST
[ Parent ]
the great ideological victory of the 70s and 80s for the neolibs has been to blame "inflation" on wage indexation, and conflate inflation with wage inflation. It justified breaking the unions, and it brought about endless growth to profits and asset values, which are of course not 'inflation'...

And then Greenspan went one step further by saying that asset inflation is not something that can be identified (and thus should not be fought) whereas asset deflation is evil and should be fought by increased central bank liquidity.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat Nov 20th, 2010 at 06:16:21 AM EST
[ Parent ]
The poor only see their already low incomes declining because there's an implicit assumption that wages can't be increased to compensate.

The usual narrative is that if wages were increased, that would be 'inflationary.'

It's worse than that.

  • Even if wages are indexed by general inflation, it often happens that the price of products bought by the poor inflate much faster.

  • When the pension system is based on the fiction that people save while they work and live on the savings once retired (rather than be earnest, risk the explicit social confrontation, ditch the Ponzi scheme and treat pensions as one segment of the contributions from working people to non-working people), poor pensioners are at a risk, too. If pension is provided by the state, the state may or may not index by inflation (it didn't in post-1989 former East Bloc countries); if pensions are provided by private funds, those can, no, will lose big when their investments provide the fuel for the next asset inflation bubble.

So, again, I am not convinced that inflation is automatically bad for the wealthy and good for the poor.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Nov 20th, 2010 at 10:39:30 AM EST
[ Parent ]
But its all the same mechanisms ~ demand and supply in flex price markets and price leaders increasing prices in fix price markets. No matter what is driving inflation, it always has to go via those mechanisms.

OK, I'll buy that. But that doesn't answer the question of what causes fixprice actors to change their prices, or how prices are determined in the flexprice sector in an economy that includes a fixprice sector as well.

If you have a pet theory that has to always be the cause, it gets tricky how to squeeze the right answer out of the data, but if you are actually looking for which of the causes are stronger at a particular point in time, you tell that from the data the same way you sort out any other cause in historical time.

Except you can't, unless you have an idea about what different sorts of causes inflation can have, and how they should show up in the data, if they are actually there. There is no theory-neutral way to decompose a data set.

So, I'd like to understand as many possible theories of inflation as I can, and what they would predict about the data if they were true.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 10:56:49 PM EST
[ Parent ]
Splitting it between fix price and flex price impulses helps, especially timelining them separately.

If its on fix price, you of course have to look for stable, falling or rising mark-ups, stable mark-ups indicating cost driven inflation, rising mark-ups indicating growing market power, volatile mark-ups indicating product/input price spirals.

If its flex price, you look for the effects that neoclassical imagine to be the whole picture: shortages, buffer stocks rising or falling, static sales volume indicating demand driven inflation, falling sales volume indicating supply driven inflation.

The problem with trying to sort out causes of inflation independent of understanding what is going on in the economy is that monetary flows are information simplifiers ~ that's the power of monetary production economies for complex industrial economies, after all ~ so that you lose some of the explanatory leverage that you have when looking directly at the industrial activity that is reflected in different rates of product price inflation in different sectors of the economy.

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 Fri Nov 19th, 2010 at 11:17:29 PM EST
[ Parent ]
JakeS:
The One True Cause Of All Inflation.
....is Profit.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Nov 19th, 2010 at 07:58:09 PM EST
[ Parent ]
To zeroth order, profits and wages are symmetric in the firm's cash flow. So if profits cause inflation, wages do too.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 08:14:38 PM EST
[ Parent ]
Profit is a share of gross income. If "the search for profit" is the one true cause of inflation in a capitalist monetary production economy, then "the search for wage growth" would be the one true cause of inflation in a syndicalist monetary production economy.

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 Fri Nov 19th, 2010 at 09:39:03 PM EST
[ Parent ]


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 Fri Nov 19th, 2010 at 05:43:01 PM EST
[ Parent ]
I like it!

And, it's exactly what it is.

Here in France, of course, the attitude of the putative left (PS) resumes itself by the following formula: "L'inflation, impôt pour les pauvres, prime pour les riches, est l'oxygène du système. Regardez-le qui s'époumone." (Inflation, tax for the poor, bonus for the rich, oxygen for the economic system...look whose breathing it in...citation of François Mitterand).

Angela Merkel and Axel Weber couldn't have said it better, but of course, it is ass backwards. Well, partially. The rich find ways (they can afford to!) to avoid the brunt of inflationary impact. The poor are (generally, in a proper welfare state, even a social-democratic one) protected from its deleterious effects especially since they own nothing so no assets to deteriorate in value. The real folks hurt are those in the bottom rungs of the ownership class, i.e., the upper middle class, the professional classes.

Precisely the PS base, in sum...  

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Nov 18th, 2010 at 08:17:01 AM EST
Says the BBC this morning:

Irish Central Bank governor Patrick Honohan has said he expects the Irish Republic to accept a "very substantial loan" as part of an EU-backed bail-out.

Mr Honohan told RTE radio he expected the loan to amount to "tens of billions" of euros.

The final decision will be up to the Irish government, which has yet to comment.

Mr Honohan's comments come as a team of international officials meet in Dublin for further talks on the debt crisis.

Representatives from the International Monetary Fund, the European Central Bank and the EU will meet the Irish government, which has denied that it has asked for aid.

Mr Honahan said that any loan would be substantial.

"It'll be a large loan because the purpose of the amount to be advanced or to be made available to be borrowed is to show that Ireland has sufficient firepower to deal with any concerns of the market. That's the purpose of it," he told RTE.

An EU handout would be seen as a big loss of face for the Republic - essentially meaning that its survival and solvency was reliant on Brussels.

Right. Never mind that any so-called insolvency is a result of corrupt idiots giving free public money to thieves instead of spending it on useful things.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Nov 18th, 2010 at 08:21:32 AM EST
Is there any difference between Irish politicians that place their country in debt to pay and hand it to their masters and politicians in poor African countries doing the same? Should not Ireland then be classed among the most corrupt countries in the world?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 18th, 2010 at 08:51:18 AM EST
[ Parent ]
Ireland has been shown to be as corrupt as Iceland, both quantitatively and qualitatively...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 09:05:03 AM EST
[ Parent ]
They have higher  per capita income flows to play with, and so can spread the wealth around more widely among the political class?

Just guessing, mind.

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 Fri Nov 19th, 2010 at 01:47:58 AM EST
[ Parent ]
The Irish state still pays its civil servants enough that they don't have to resort to more or less veiled extortion of their clients just to make ends meet.

So no, Ireland is not one of the most corrupt countries in the world. Yet. But not for lack of trying.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 05:12:07 AM EST
[ Parent ]
18 months ago, in voxEU, Willem Buiter wrote:
The Fed and Treasury have been captured by save-unsecured-creditors reasoning pushed by special interest groups.
In 2010 it's been the capture of the EU economic policy apparatus that has been made evident.

voxEU - Research-based policy analysis and commentary from leading economists: Zombie solutions: The Good Bank vs Bad Bank approaches

Distributional differences between the good bank and the bad bank solution

The Good Bank solution favours the tax payer. The Bad Bank solution favours the unsecured and non-guaranteed creditors of the zombie banks. `Tax payer' includes those beneficiaries of public spending programmes that may have to be cut to meet the fiscal cost of purchasing or guaranteeing the toxic assets under the Bad Bank solution. It also includes those who lose as a result of future inflation or sovereign default, should either of these two solutions to dealing with the public debt created as a result of the Bad Bank solution eventually be adopted.

...

There can be no doubt that, from a distributional fairness perspective, the Good Bank solution beats the Bad Bank solution hands down.

...

In terms of both moral hazard (incentives for excessive future risk taking) and the efficient use of government funds ('new lending bang per buck'), the Good Bank solution beats the Bad Bank solution hands down.

...

The holders of bank debt, with the possible exception of perpetual subordinated debt (which counts as tier one capital in some countries), have become the sacred cows of this financial crisis. Regulators, central bankers, and Treasury ministers are quite willing to see shareholders wiped out. After the demise of WAMU and Lehman Brothers, however, the unsecured creditors have become inviolable. Somehow, those in charge of macro-prudential stability, notably the Fed, have bought into the notion that if there is either a further default on bank debt, or a restructuring involving a significant debt-to-equity conversion, or a significant write-down of the claims of bank bond holders, this will be the end of the world.

I just don't buy it. Fortunately, I am not the only one. ...



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 08:23:25 AM EST
Expectations grow for Ireland rescue package - MarketWatch
Lenihan's remarks drew scrutiny for acknowledging that the government may eventually apply for rescue funds, although the official continued to emphasize that any aid package would be aimed at shoring up the banking sector rather than helping the government meet its funding needs.

...

And in fixed-income trading, Irish government bond yields declined across the curve as a result of expectations for a bailout, analysts said, while the cost of insuring Irish sovereign debt against default also fell.

Equity markets rallied, with the Irish ISEQ stock index /quotes/comstock/30q!ieop (XX:IEOP 2,765, +72.74, +2.70%)  gaining 2%. Relief spilled over into other equities exchanges in Europe. See more on the rally in European stocks.

(my emphasis)

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 11:11:04 AM EST
[ Parent ]
Opinion hiding among news: Expectations grow for Ireland rescue package - MarketWatch
For Ireland, default delayed

Ireland will be forced to accept a bailout. But this will only postpone its default. That's because it is already overburdened by debt. All these rescues do is switch the pain from creditors to taxpayers. But taxpayers, particularly German ones, won't stay compliant forever.



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 18th, 2010 at 11:15:11 AM EST
[ Parent ]
yields declining = asset price increasing

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sat Nov 20th, 2010 at 07:19:28 AM EST
[ Parent ]
Exactly, the markets are happy!

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Nov 22nd, 2010 at 06:19:12 AM EST
[ Parent ]
Hm, any crisis is also an opportunity. What can we push as constitutional solution? A european treasury? A commission elected by the parliament?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Thu Nov 18th, 2010 at 08:54:02 AM EST
The constitutional change we should be pushing for in the current crisis is to make the ECB subservient to the Commission.

The ECB is, by far and away, the EUropean institution that has acted with the most flagrant disregard for the good of the Union in this crisis. The Council has been mostly out of sight, the Commission has not really done anything to make it an obvious scapegoat, and Parliament hasn't done anything in this crisis to justify expanding its powers. No, the ECB is the target of opportunity here.

Now, making the ECB subservient to the Commission won't, in and of itself, be sufficient as long as the Commission is still run by neoliberal halfwits. But it means that the next time the ECB drives the € into a ditch, we can blame the Commission for not properly policing the ECB, and demand greater parliamentary oversight of the Commission. (Naturally, the bad guys will use the next crisis to argue for reinstating the ECB's independence - that's the "problem" with winning a battle; it gives you more territory that you need to defend.)

A EUropean treasury is a great idea, but it will crash and burn politically. Better to focus on attacking the institution that has made itself vulnerable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 09:14:55 AM EST
[ Parent ]
The ECB is, by far and away, the EUropean institution that has acted with the most flagrant disregard for the good of the Union in this crisis. The Council has been mostly out of sight, the Commission has not really done anything to make it an obvious scapegoat, and Parliament hasn't done anything in this crisis to justify expanding its powers. No, the ECB is the target of opportunity here.

The reason to expand the parliament's powers is to make the notion of broader European solidarity legitimate and to make European policy more accountable and to try to move more powers and responsibilities to the European level.  It won't necessarily mean the voters will choose better policies, but if they don't, so be it.  

by MarekNYC on Thu Nov 18th, 2010 at 09:30:37 AM EST
[ Parent ]
I completely agree. I'd very much like to adopt a full parliamentary system in the EU in which the ECB is just another branch of the Commission, the Commission serves at the pleasure of the Parliament, and the Council is severely de-clawed.

But for "justify" you should, in the above quote, read "done something that will provide political air cover for" rather than "done something to provide a good reason for."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 09:34:07 AM EST
[ Parent ]
  1. Doesn't all of this "take my money" crap reminiscent of how the industrialized countries (the US?) gained control of Central American/South American/African countries ... give corrupt governments money which finds its way into corporations, in this case banks, and the population is "on the hook" for repayment? IOW enslavement through laws, and your politicians know exactly what they're doing, what the consequences will be. This is not accidental stupidity, this is your politicians selling you out!

  2. IMHO, there is an economic war on, not as flashy as the bombs-and-bullets kind but just as deadly. And the weapons on OUR side are what? Somebody answer that one.


They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Thu Nov 18th, 2010 at 09:12:45 AM EST
Doesn't all of this "take my money" crap reminiscent of how the industrialized countries (the US?) gained control of Central American/South American/African countries ... give corrupt governments money which finds its way into corporations, in this case banks, and the population is "on the hook" for repayment? IOW enslavement through laws,

Yes, that is precisely the correct analogy.

and your politicians know exactly what they're doing, what the consequences will be. This is not accidental stupidity, this is your politicians selling you out!

No, that assumes far greater foresight and planning ability than the neoliberals have demonstrated in this crisis. It is simply that the neoliberals suffer from a religious delusion that has empire as its natural consequence.

IMHO, there is an economic war on, not as flashy as the bombs-and-bullets kind but just as deadly. And the weapons on OUR side are what? Somebody answer that one.

We have a lot of weapons - industrial action, political parties, positions in academia, etc. But they all boil down to better organisation and greater numbers than our enemies, to compensate for their greater wealth and greater command of the police. Right now, we have neither the numbers nor the organisation to mount an effective counterattack. The number of potential recruits will go up as deprivation becomes more commonplace, but it is an open question whether they will gravitate towards our position or join the ranks of the authoritarian right.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 18th, 2010 at 09:25:53 AM EST
[ Parent ]
Isn't the obvious solution to turn the country back to the Leprechauns ?

Go back to the gold. They are said to have a lot of it buried. They would, of course, insist on a return to the old religion, circa 432, and you would lose the wine and the wafer, but you'd keep the Guinness and soda bread.

Now THAT would make an interesting referendum !

by greatferm (greatferm-at-email.com) on Thu Nov 18th, 2010 at 11:46:16 AM EST
[ Parent ]
You are one strange individual. Keep it up!

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Thu Nov 18th, 2010 at 06:03:34 PM EST
[ Parent ]
Faisal Islam (faisalislam) on Twitter
On RTE radio: 'we are a sovereign people, I can hardly believe taking money from the British. Blood shed over this' says Irish MP O'Keefe

and

Faisal Islam (faisalislam) on Twitter

Astonishing/ worrying story on Irish radio about Banks systematically defrauding the NAMA bailout fund by lying about loanbooks


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Nov 18th, 2010 at 12:20:49 PM EST
Came across this the other day in a novel I'm currently reading and figured it might be worth posting on ET given recent discussions:

Money is nothing but a pile of memory and anticipation by which we unchain ourselves from our given circumstances; the accumulation of money is a form of asceticism which holds back forces so that these may later form new shapes and deeds.

Michal Ajvaz The Golden Age. Trans Andrew Oakland.

by MarekNYC on Thu Nov 18th, 2010 at 10:56:03 PM EST
Isn't the real problem, in one sentence, that all Euro countries are following the monetary policy that Germany wants the ECB to run?

The question is if this monetary policy is the best for Germany in the short and long run...I thought it wasn't.. now I think it probably is the best way to increase german power in Europe in the short-run. I am not sure about the long-run.

Last week I summed up to some friends the problem facing Spain "A corto-plazo, que seguimos la politica monetaria alemania, a largo plazo,que tenemos un sistema educativo/investigación/capital humano que es un desastre".

So, in the long run, the peripheric countries economic structure will be ruled by their school/research/industrial capiatl system, in the short-run we all are rule by german monetary policy.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sun Nov 21st, 2010 at 02:29:29 PM EST


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