[Aberlour10]

He should care more about the ocean of virtual dollars printed with the lightspeed in last two years.

[y66]

Perhaps you should not care so much right now.

It's not like anybody thinks deficits and inflation are non issues. Krugman's position is that they are not the only issues and not even the most pressing issues.

Preaching austerity when the patient is hemorrhaging is not just semi-hysterical, it's semi-delusional.

[OleBerg]

The value of the Euro will rise and fall, compared to the US$.

In the end it will not matter.

Just my 0.42 €

[y66]

OleBerg, on Jun 9 2010, 10:52 AM, said:

In the end it will not matter.

I think you and Keynes are right about this. Unfortunately, economic policy leaders and governments in Germany and the United States are not as percipient about what does matter.

[y66]

From a recent conversation between Paul Krugman and European economic experts:

Paul: Gah. I’m still in Europe having dinner with my dear friends Oleberg, Abelour10 and their pals. The event was lovely. The policy conversations, not so much. We talk about the euro crisis.

O, A & P: Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules.

Paul: No fiscal rule would have constrained the Spanish housing bubble and its consequences.


O, A & P: Thank you for your contribution. Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules.

Paul: What do you mean?

O, A & P: Clearly is one of the greatest adverbs in the English language. Can be used at the start or tacked onto the end of absolutely any - and I mean ANY - sentence for emphasis, adding that extra-special pretentious feeling that one desires in one's speech. Used particularly when the speaker would like to make the person being addressed feel that what is being said is purely common knowledge and that they are utterly retarded for not already knowing it or for disagreeing with it, as in: Clearly, you don't know what the ***** you're talking about.

Paul: The triumph of prejudices over evidence is a wondrous thing to behold. Unfortunately, millions of workers will pay the price for that triumph.

[Rodney26]

The conclusions Krugman is drawing from the chart are not correct. I think what we’re learning from these housing bubbles is that there is an equilibrium number of people that should own homes in a society and that governments should not go out of their way to encourage ownership, especially when the bubble portions of those “owners” are folks that are leveraged close to 100% anyway. Bush and Spain promoted home ownership at the expense of the general economy; now as these economies need to recede and resources need to be deployed elsewhere, the process is hampered greatly by people stuck in homes that they can’t afford to sell because they are underwater.
Germany didn’t have a housing bubble because comparatively very few people own versus rent when compared to the US and Spain. It doesn’t mean austerity isn’t an excellent idea and exceedingly necessary for these governments. Japan’s lost decade and Greece’s general decay using the Keynesian strategy are applicable.

[Aberlour10]

Obama tries to persuade Europeans not to fight against the budget deficits and go out of the crisis through the "inflation gate" He talked about it with Merkel yesterday. He seems not to know how much the Germans hate the word "inflation".
If any political party in Germany would act frankly in this direction, that would bring them politcal suicide on the next elections.

[mgoetze]

The problems won't be fixed quickly, but the euro will remain a relatively solid currency with current membership nevertheless. I mean, come on, California is a much larger part of Dollarland than Greece is of the Eurozone. Get some context.

I agree that it was a bad idea to bail out Greece. I also think many more banks should have been allowed to fail in the past 2 years. (For instance the German IKB.)

The problem is that politicians have allowed sensationalist standpoints such as "if Greece goes bust then the Euro will collapse" to flourish. They should have stomped on that early and quickly by saying "who the f*** cares if Greece goes bust, the Euro certainly doesn't!" Because it's true, you know. What exactly is going to happen to the Euro if Greece goes bankrupt? The only possible effects are psychological ones.

[Aberlour10]

mgoetze, on Jun 22 2010, 04:03 PM, said:

The problem is that politicians have allowed sensationalist standpoints such as "if Greece goes bust then the Euro will collapse" to flourish. They should have stomped on that early and quickly by saying "who the f*** cares if Greece goes bust, the Euro certainly doesn't!" Because it's true, you know. What exactly is going to happen to the Euro if Greece goes bankrupt? The only possible effects are psychological ones.

The true reason why they did not let Greece bankrupt was.... german and french private banks have enormous amounts in greek bonds, the bank-lobby did silent but very effective work once again. This was not the "Greece bail out" but another european bank bailout.

[mgoetze]

Aberlour10, on Jun 22 2010, 10:18 PM, said:

The true reason why they did not let Greece bankrupt was.... german and french private banks have enormous amounts in greek bonds, the bank-lobby did silent but very effective work once again. This was not the "Greece bail out" but another european bank bailout.

And this is absolutely representative of political shortsightedness, because it will just lead to banks having even more bonds of the next european country that is about to go bankrupt.

[Aberlour10]

The G20 bosses made Toronto to a real Potemkin village. Their ( not mandatory! ) agreement about reducing of the budget deficits is the same worth as their announcements about financial help for Africa a few years ago = ZERO!
No even smallest signs for the worldwide financial market regulations, that was another bizzare show, which is "sold" to the media as a big success.

[y66]

From an op-ed by Gavin Barrett in today's Irish Times

Opinion: Imagine the following conversation between an Irish and a German taxpayer on a bus . . .

Irish Taxpayer (Séan): I am really furious right now, Helmut. You are simply not being fair. Why don’t you help us out when we need it?

German Taxpayer (Helmut): Help you out, Seán? I’m not sure I understand. Why should we help you? You got yourselves into this.

Seán: No. You did, Helmut. Your investors – and those from all over Europe – lent to the Irish banks, financing their property market gambling by buying their bonds. The Irish banks are now insolvent, and those investors’ bonds should be worthless. But, despite all Angela Merkel’s talk about haircuts for bondholders, you won’t allow your own investors to take the hit that they should be taking, to get “burned” the way they should! Do you know how much senior bank debt there is in Ireland? €42 billion! Our total national debit is only €90 billion.

Helmut: Wait a minute, Seán. You want me as a German taxpayer to bail out your insolvent State – in exchange for which you will restore budgetary order to Ireland, but inflict losses on German – and other – investors which could trigger pandemonium in the banking sector in Germany and elsewhere across Europe and cause a currency crisis? Well, thanks, but no thanks, Seán. We had enough of currency crises in Germany in the 1920s. Why on earth should we give you our money so that you can use it to present us with another set of gift-wrapped crises?

It is true that Ireland and its banks going bankrupt doesn’t help anyone. So if you want our money to get you out of your problem, it seems fair enough to organise a loan for you. But – let’s be fair – this should not be at our expense. We and our friends will use our good names to get you a loan of, say, €67.5 billion. But you can pay the usual market rate – and throw in €17.5 billion yourselves. Self-preservation dictates we simply have to impose a condition on this help, though, you are not to wreck our banking system by “burning” senior bondholders.

Seán: So, you mean the money the banks owe the senior bondholders to whom our Government issued the guarantee will just have to be paid?

Helmut: No. I mean all the senior bondholders will have to be paid, Seán, even the ones holding the €19 billion worth of senior bank debt you never guaranteed. This is not about guarantees.This is about you not wrecking our banks and investors.

Seán: But that’s not fair! Look, €67.5 billion just isn’t enough to recapitalise our banks and allow us any spare cash to stimulate economic growth. Plus, you’re charging us too high an interest rate. It’s not clear we will even be able to pay this. And on top of that you are now making us take on bank debts that our Government never said we’d pay!

Helmut: Calm down. I know it will be tough, but there’s at least a reasonable chance you will be able to pay. . Here’s a copy of the EU treaties. Show me where it says in there that we would bail you out if you bankrupted your own economy. That’s right . . . nowhere. It’s maybe not the right moment to say this to you, but the reality is you should actually be grateful that I am giving you any help at all. We don’t have to. Look, tell you what, we’ll think about keeping low-interest ECB funding for your banks going for just a bit longer, and maybe when things calm down in a few years we might lend you more if you need it.

Like I said, it’s in nobody’s interest to see Ireland bankrupted – although it is fair that you feel quite a bit of economic pain for your really irresponsible behaviour. You can’t seriously expect us to lend you money while you instigate a panic with your “bondholder- burning” that would wreck our banking system and our currency.

Seán: We won’t pay this. We can’t pay it. It’s too much.

Helmut: I am afraid you will have to, Seán. If you don’t accept the terms on offer you have absolutely no way of financing your ongoing budget deficit. Plus your banks will collapse because, well, you’ll have nothing to finance them with.

Seán: We could just refuse the loan and bring you down too.

Helmut: I don’t think you would dare. For a start, another major crisis in the euro zone is in nobody’s interest – least of all Ireland’s. Secondly, Ireland would collapse financially first, not anyone else. Your problem, Seán, is that you are looking at things the wrong way. You are supposing a moral duty on other countries to help Ireland out to an extraordinary degree. I don’t accept the existence of any such duty. The reality is that every state in the euro zone, and indeed in the EU, is there, for the most part, for its own benefit: out of enlightened self-interest.

[Aberlour10]

Helmut continues : Hey Sean, why should I guarantee your debts with my tax money if you even dont want to increase your so low 12,5% corporate tax rate? Maybe. I will loose my job because the boss will move to Ireland due to these wonderful low tax rates?

[kenberg]

If I may offer a cautionary note, partly inspired by Helmut's reference to the 1920s. Growing up in America, where of course we don't understand nothin, I was taught that a large part of the economic problems of Germany in the 20s, and eventually the political catastrophe of the 30s, stemmed from unwise and unaffordable debts that were imposed after WWI. No doubt France and England could make fine logical arguments, the victors always can, as to why Germany must be required to pay up for all of the trouble it caused. Regardless of the logic, the results were not so great.

Back to the present:
It seems that Helmut has the winning argument here. Totally. That makes it a good time to pause and think about the extent to which he wants to shove the winning argument down Sean's throat.

I grant that it is not Germany's job to rescue the world. Nor is it ours. Still.

So good luck to Sean, Helmut, and the rest of the team. I hope you find the best line of play.

[mike777]

INdeed any country needs a working banking system. Ireland needed to save the system somehow. Guaranteeing the deposits seems a good first step.
Not sure guaranteeing all the bondholders and saving the shareholders was best. Perhaps wipe out the shareholders and let the bondholders take ownership. I think this discussion is really about 2 maybe 3 banks in Ireland.

[y66]

Is Belgium Next? By: Susanne Mundschenk and Raphael Cottin

Excerpt:

For four months Belgium has been without a government, its public debt is approaching 100% of GDP and the spread of Belgian 10-year bonds over the German benchmark is today three times as high as at the beginning of this year. Is Belgium the next country with a sovereign debt crisis?

So far the country has managed to stay off the radar screens of most international investors, who focus on Greece, Ireland, Spain and Portugal. But that may change if the political crisis – which has been going on for more than two years - is not resolved soon. At the June general elections, the separatist NVA emerged as the strongest party in Flanders, while in French-speaking Wallonia, the Socialists came out first. In the ensuing coalition negotiations, the N-VA has chosen to get a federal reform agreed first before building a government, in a complex bargaining process between the seven parties that currently participate in the negotiation talks. The result is a political stalemate that risks paralysing the political system for months.

[y66]

Kevin O'Rourke's Letter From Dublin from earlier this week, in case you missed it.

Excerpt:

The week started on an optimistic note. The general reaction was one of relief – at last, the Indians had come to sort out the cowboys. (The Indian in question was Ajai Chopra, head of the IMF mission to Dublin; there are no prizes for guessing who were the cowboys.) But the atmosphere soon changed, as it became clear that a substantial portion of the bailout funds would be earmarked, not for vital public services, but for the black hole that is the Irish banking system. At one stage there seemed to be the prospect of some relief for Irish families: the Irish Times was reporting that the EU-IMF team would deliver the loss-sharing with bondholders that our own government had been too craven to insist on. This would have been a good-news story that could have transformed the mood of ordinary people, and proved that the European Union was on their side. That hope was dashed over the weekend.

The finger of blame was clearly pointed by the Minister of Finance, Brian Lenihan, and several of his colleagues: it was the European Central Bank and the Commission who had vetoed the proposal to force some of the bank losses back onto the bondholders. This interpretation is generally accepted in Dublin, although many observers also blame the Irish negotiating team for caving much too easily into pressure from Brussels and Frankfurt. The implication is that the IMF were the good guys: an unusual position for them to find themselves in, perhaps, and one with political implications in a country whose relationship with the European Union has been uneasy in recent years, and which has conserved close ties with the United States. On Monday night, an opposition spokesman made it clear that he would be much happier negotiating with the IMF, who are reasonable people, than with our European partners. The fallout from this will be toxic.

...

Irish citizens may bring down the bailout of foreign bank creditors by voting at the ballot box, but if they do not, they will bring about a default of some kind by voting with their feet. We now face a negative spiral in which austerity causes emigration, which increases the burden of the debt, which ultimately leads to more austerity. We need a game-changer to break the cycle, but what might it be? Since the fundamental problem is that Ireland is insolvent, the smart thing to do is to tackle our debt burden head-on, but the Europeans have vetoed this.

Changing our politics might help, by creating a shared sense of national purpose that people can buy into. Unfortunately, it is hard to see the prospect of a Fine Gael-Labour government encouraging young people to tighten their belts and stay home for the good of the country: at this stage, the country needs radical change that can give people a sense of hope. There is a huge desire for such change, but no coherent vehicle to translate that desire into action. One immediate focus should be constitutional reform that everyone can buy into, since people inevitably differ about the policies needed to bring about a recovery.

Iceland is an obvious model for us. In a referendum, her voters have already rejected a proposal to pay back their banks’ creditors, who will take major losses. Now they have elected a constitutional assembly charged with drafting a new constitution. Ireland probably needs this more than does Iceland; I wish I were more confident that we will follow the latter’s example.

[hrothgar]

My understanding is that a very significant part of Ireland's problem came about because various forms of property tax were substituted for income taxes.

During the property bubble, the government was raking in enormous amounts of money due to transaction fees and property taxes. Rather than saving the money, the government assumed that this situation would continue in perpetuity and slashed income taxes.

As a result, when the property bubble popped, the government lost enormous amounts of tax revenue at a time when government spending needs to dramatically increase since

1. Unemployment is spiking
2. The banks need to be recapitalized

From my perspective, one of the big common threads during this crisis is that government seem unduly focused on cutting taxes during temporary upswings in the economy rather than using the money to pay down long term debt / establish rainy day funds.

[Winstonm]

Aberlour10, on 2010-June-22, 11:10, said:

Obama tries to persuade Europeans not to fight against the budget deficits and go out of the crisis through the "inflation gate" He talked about it with Merkel yesterday. He seems not to know how much the Germans hate the word "inflation".
If any political party in Germany would act frankly in this direction, that would bring them politcal suicide on the next elections.

The problem with the inflation answer is that inflation cannot be targeted simply at debt. The same inflation that lowers debt cost will increase real costs of entitlements and defense spending, while having devastating consequences on fixed incomes and savings.

There must be something in the water of the current generation-in-charge that leads them to have fairy-tale-like hope that a relatively easy fix of manipulating money supply can correct structural problems in society.

Growth of GNP is the only genuine way out of debt.

[PassedOut]

hrothgar, on 2010-December-04, 06:48, said:

From my perspective, one of the big common threads during this crisis is that governments seem unduly focused on cutting taxes during temporary upswings in the economy rather than using the money to pay down long term debt / establish rainy day funds.

Yes. It appears that the tax cut foolishness is irresistable to politicians generally.