Debts, promises and the erosion of democracy | 423 comments (422 topical, 1 editorial, 0 hidden)

Re: Debts, promises and the erosion of democracy (4.00 / 3)

Germany ran "austerity" politics for most of its recent history and yet has one of the most advanced social networks in Europe.

Germany's austerity was a protectionist exercise in which Germany piggybacked on the rest of the Eurozone to pay for the reunification.

Colour me unimpressed.

And of course it won't work for the Eurozone as a whole, because the world outside the Eurozone is not going to let the Eurozone piggyback on their recovery.

Basically, what got us off track, financially,

A creative rewriting of the present. There is no European government finance crisis. There is a European trade imbalance crisis.

were three things: the unsuccessful Keynesian episode in the 70ies,

Historical revisionism. The Keynesian policies in the '70s were perfectly successful at their objective - which was to maintain output and employment.

They were not successful at containing inflation, but (a) inflation doesn't matter, so fuck that. And (b) the '70s inflation was imported and therefore not amenable to fiscal policy solutions.

The point of prudent financial policy isn't a balanced budget per se. Others have noted that one method of dealing with debt is growing out of it (which, fwiw, is only sustainable as there actually is long term growth,

False. The government can simply elect to pay zero per cent interest on its bonds.

And if THAT is austerity, well, its the only long term sustainable policy at all. All other policies lead to the Greek end game.

False. Look at Japan.

The problem with Keynesian reality is that there is no political system that ever managed to implement the "and in boom years we pay back the debt we incurred in a bust period" part.

Because it is totally unnecessary. Governments do not have to pay back their "debt," ever.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 03:48:40 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

Germany's austerity was a protectionist exercise in which Germany piggybacked on the rest of the Eurozone to pay for the reunification.

It might surprise you, but history didn't start in 2002 or 1999.

Because it is totally unnecessary. Governments do not have to pay back their "debt," ever.

Yea, because after frequently defaulting they have no problem to attract new lenders.

Just how stupid do you think people are?

by cris0 on Sat Feb 18th, 2012 at 08:06:17 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 6)

Yea, because after frequently defaulting they have no problem to attract new lenders.
Just how stupid do you think people are?

Ahem.

Fitch Upgrades Iceland Rating To First Step Of Investment Grade (FEBRUARY 17, 2012)

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 08:13:06 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

Different situation.

Iceland never defaulted. They just (prudently) refused to guarantee certain debt of their failed banks (something that Ireland should have studied much more closely before doing the opposite).

They found other creative solutions to maintain a banking sector sufficient to service their (relatively small) domestic economy; solution which may or may not work in bigger states.

If investors did learn something from that is "do not lend money to loosely regulated Icelandic banks" - which do not exist any more anyway.

They also might learn "trust the instincts of Icelandic politicians" - which actually could improve their bonds' reputation.

by cris0 on Sat Feb 18th, 2012 at 09:10:19 AM EST
[ Parent ]

wtf? (none / 0)

With this statement you have lost whatever credibility you had.

In the United States, Cris? Your contribution is really unwelcome. You should spend more time on US politics.

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

by r------ on Sat Feb 18th, 2012 at 09:40:15 AM EST
[ Parent ]

Re: wtf? (none / 0)

In the United States, Cris?

That's the default setting for new users...

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 09:42:11 AM EST
[ Parent ]

heheh (none / 0)

talking about default....

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

by r------ on Sat Feb 18th, 2012 at 09:49:57 AM EST
[ Parent ]

Re: wtf? (none / 1)

ah.

hmm.

Thanks for the pointer. Corrected.

FWIW, this kind of mandatory data collection is not a good idea. That particular selection list would benefit from an "undefined" or "world citizen" line.

by cris0 on Sat Feb 18th, 2012 at 10:09:25 AM EST
[ Parent ]

ET 2.0 feature request (n/t) (none / 1)

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 10:21:42 AM EST
[ Parent ]

Re: ET 2.0 feature request (n/t) (none / 1)

ET 1.01 you mean?

Would be good.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Feb 18th, 2012 at 10:43:18 AM EST
[ Parent ]

Re: ET 2.0 feature request (n/t) (none / 0)

ET 1-plus-epsilon.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 10:46:00 AM EST
[ Parent ]

Re: wtf? (none / 0)

what are you talking about?

by cris0 on Sat Feb 18th, 2012 at 09:56:37 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 3)

Iceland defaulted on its depositor guarantee. Which has far higher seniority than mere government bonds.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 09:42:49 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 1)

except, as to my knowledge, it didn't.

Uk and the Netherlands' loud yelling to the contrary notwithstanding Iceland made it clear very early that it only considered Icelandic domestic savers guaranteed; and afaik those were compensated to the legal limit.

Aside from that, even if you were right and Iceland had really changed the order of seniority in favor of its bondholders here, that again would boost its reputation with bond investors. The increase of which was the original point Migeru was making.

by cris0 on Sat Feb 18th, 2012 at 11:37:56 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 2)

Uk and the Netherlands' loud yelling to the contrary notwithstanding Iceland made it clear very early that it only considered Icelandic domestic savers guaranteed; and afaik those were compensated to the legal limit.

Yeah, except that under the relevant international treaties and domestic law, domestic and foreign depositors are equally covered by depositor insurance. Because depositor insurance is based on the country the bank lives in, not the country the depositor lives in.

That's an insane rule, of course, but no more insane than expecting Greece to pay for Germany's export subsidies.

If an ex post facto law can change a default into a not-default, then I propose that Greece et al introduce such a law stating that all government debt issued prior to such and such date is payable in Monopoly money.

Problem solved!

But if you still don't like the Icelandic example, you can have Argentina, Russia and 1920s Germany as examples of the world not ending just because you go with the Argentina Alternative.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 11:56:30 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 1)

So where do you think money comes from? Some wizard shitting gold ingots?
Or would you agree that it is created by the Central Bank?

by generic on Sat Feb 18th, 2012 at 08:15:50 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 2)

Well, it's actually created by the commercial banks. In the short run, the Central Bank just accommodates it.

Otherwise the "real economy" would be swimming in money from the ECB's "nonstandard liquidity measures". Instead, the ECB's liquidity is ending up... as excess bank reserves at the ECB.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 08:54:30 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 1)

True but all state debt must be bought with CB money so I don't think it is misleading to say that all the money we are talking about here is created by the CB.

by generic on Sat Feb 18th, 2012 at 09:07:01 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 3)

It's quite possible that the announcement of 3-year liquidity auctions, the second of which will take place at the end of the current month, is responsible for the drop in bond yields in recent peripheral bond auctions (Spain and Italy, mostly). After all, banks know in advance they'll be able to turn the bonds into cash.

However, none of this liquidity is free or cheap, despite the low interest rate (you have to take into account the valuation haircut for collateral).

See Why Deutsche Bank Avoids The LTRO

Sometimes, there is news that isn't what it seems. Today, we got one of those: Deutsche Bank (DB) saying that it didn't take advantage of the LTRO due to its wish to keep its reputation.
...
So German public debt yields 0.2%, Deutsche Bank would be losing money on it if it decided to buy and deliver such debt at the LTRO. This means that for Deutsche Bank to make money on the LTRO, they would need to buy debt from the troubled countries, which at this point obviously no bank official wants to increase exposure to.
So the LTRO is a way for banks to make money, but one that works mostly only for the periphery, troubled, countries and their banks. And Deutsche Bank isn't avoiding it because of its reputation; it is avoiding it because it doesn't want more exposure to the sovereign troubles, and there is no money in it otherwise.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 09:41:00 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 4)

The historical experience is that states can access the international money markets again after 18-24 months. See, e.g. Russia, Iceland and Argentina.

Besides, states only need to borrow to fund their current accounts deficit. Which, when you default on all foreign debt, means your trade deficit.

So yeah, a year or two of fuel rationing, and then they're in the clear. So far, Greece has suffered two solid years of far greater arbitrary cruelties in pursuit of an economic theology that has been wrong about everything of any importance for the last two hundred years.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 09:35:26 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 3)

It might surprise you, but history didn't start in 2002 or 1999.

Indeed. The recent episode of (West-)German mercantilist wage suppression began in 1991.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Feb 18th, 2012 at 09:44:55 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 5)

Speaking of 1991, if German "solidarity" was compatible with the destruction of the East German economy, a fortiori there's no problem with doing the same with the Eurozone doing the same to Greece.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Sat Feb 18th, 2012 at 09:47:12 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

The same and worse.

by Upstate NY on Sat Feb 18th, 2012 at 10:28:03 AM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

Which could have been avoided if East German salaries and fortunes had been repressed, by for example swithcing 2 Eastmarks for 1 Deutschmark.

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

by Starvid on Mon Feb 20th, 2012 at 01:11:36 PM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

True, but if the Bundesrepublik had had even a half-assed industrial policy for the East, the salaries would have recovered in short order.

The fortunes would not, of course. My heart bleeds for them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 20th, 2012 at 02:25:12 PM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

Sure, I agree. Salaries would have climbed back up at the pace East German industry had modernized, just like in Poland, Czech republic and so on.

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

by Starvid on Mon Feb 20th, 2012 at 02:29:41 PM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (4.00 / 2)

'Ways and ways' are a matter of priorities. Who takes the hit. The wealthy or the workers? Germany wanted to reunify, but not at the expense of the wealthy and powerful.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 20th, 2012 at 02:53:22 PM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 1)

As it was, the BuBa retaliated against Kohl by being extra hawkish, which was a contributing factor to the 1992 crisis which ejected the Pound and the Lira (and nearly the Franc) from the ERM.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Mon Feb 20th, 2012 at 03:13:56 PM EST
[ Parent ]

Re: Debts, promises and the erosion of democracy (none / 0)

JakeS:

And (b) the '70s inflation was imported

could you please explain/enlarge on this? are you referring to OPEC and the results of their change in policies then, lines at gas pumps etc?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sun Feb 19th, 2012 at 08:38:09 AM EST
[ Parent ]

Debts, promises and the erosion of democracy | 423 comments (422 topical, 1 editorial, 0 hidden)

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