tag:blogger.com,1999:blog-208932083811268792024-03-20T17:11:57.736+02:00Redesigning the footthe rants of an ex economist existing beyond his means in GreeceThe Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.comBlogger37125tag:blogger.com,1999:blog-20893208381126879.post-45375688690748294332017-04-13T15:46:00.000+03:002017-04-19T11:24:03.534+03:00Calvinomics<div dir="ltr" style="text-align: left;" trbidi="on">
I have given up using economics to explain the rationality behind what happens in Europe. 'European values', as represented by every treaty since <span class="st">Maastricht 1992, are the rules and order of </span>ordoliberalism.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyYqdkAeFl0d1NE6QFDGI5deuqOR3dSzTjR-5vMmjDjYa0H51idOo2VldaGHgE4nGqkug779hlIuvSR5L_Oh5_mX3-4gEWVasckzPRSpBY-U9gMEMIspxW_QCDlcIS5sDOV9-HHG8ETg/s1600/Jean-L%25C3%25A9on_G%25C3%25A9r%25C3%25B4me_-_The_Tulip_Folly_-_Walters_372612.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="208" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjyYqdkAeFl0d1NE6QFDGI5deuqOR3dSzTjR-5vMmjDjYa0H51idOo2VldaGHgE4nGqkug779hlIuvSR5L_Oh5_mX3-4gEWVasckzPRSpBY-U9gMEMIspxW_QCDlcIS5sDOV9-HHG8ETg/s320/Jean-L%25C3%25A9on_G%25C3%25A9r%25C3%25B4me_-_The_Tulip_Folly_-_Walters_372612.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">17th Century Tulip Security Arrangements (<i>The Tulip Folly (1882) by Jean-Léon Gérôme</i>)</td></tr>
</tbody></table>
<span class="st"></span><b>Ordoliberalism</b> <br />
It disavows
macroeconomic policy by treating countries as if they were individual households (or Swabian housewives). When policy fails it blames the household for not fulfilling its obligations and imposes (against the wishes of that household) reforms or punishments to adjust its immoral ways. The word "reform" is as meaningful as the words "reformatory", "correctional facilities" and "approved schools" used in the 19th and 20th century penal systems for offenders. It does not matter if that the household (eg Greece) cannot be a Swabian housewife. What matters is that other households realize the folly of straying from the 'righteous' economic path. The 'true' economies of Ordoliberalism will, even at a cost to themselves, try to ensure that blaspheming economies (include the UK) are not successful examples. <br />
<br />
<b>Wine, women and "exceptional importance"</b><br />
<blockquote class="tr_bq">
"In the crisis of the euro, the countries of the North have shown solidarity with the countries affected by the crisis. As a Social Democrat, I give an exceptional importance to solidarity, but the one asking for it also has obligations" <br />
<br />
“You can’t spend all the money on drinks and women and then ask for help." Jeroen Dijsselbloem, President of the Eurogroup</blockquote>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq-2cJQK4vTFtibg3DB5dNkuoz193cqX5qrf_6YMpPAJabexmDvs7WIa0un7TiVIf2Dn1THP4gQ5QQ_k-HGH3HTYhLrcdShAJvdphyqMnS7FJAnZuCHuFX2vpkHHTzJ7yhZseQSOQg5g/s1600/where+did+the+moneygo.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="296" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq-2cJQK4vTFtibg3DB5dNkuoz193cqX5qrf_6YMpPAJabexmDvs7WIa0un7TiVIf2Dn1THP4gQ5QQ_k-HGH3HTYhLrcdShAJvdphyqMnS7FJAnZuCHuFX2vpkHHTzJ7yhZseQSOQg5g/s400/where+did+the+moneygo.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Apart from wine and women, where else did the Greek bailout go*? <span class="tco-ellipsis"><span class="invisible"></span></span></td></tr>
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In a statement to the BBC, Dijsselbloem apologised for what he termed "Dutch directness" that he attributed to a strict Calvinistic culture.<br />
<br />
<b>Add a strict Calvinistic culture and call it
Calvinomics.</b> <br />
<blockquote class="tr_bq">
“Man’s heart is evil”(Mark 7:21-23) so voters are by
definition evil</blockquote>
Dijsselbloem’ s Five Points of Calvinomics are easily remembered by the acrostic TULIP <br />
<br />
1. <b>T</b>otal Depravity (Total Inability) the voter is intensely sinful and his sin has extended to the entire economy. <br />
<br />
2. <b>U</b>nconditional Election The EuroGroup can chose those whom he was pleased with glory and others for damnation. The elect are saved by the endeavor of good surpluses granted by the grace and divinity of the euro. This is what the EG means when it admonishes the voter to make his "calling" and "election" certain. Bearing the fiscal surpluses is an indication that the euro has sown seeds of grace into the sinner. <br />
<br />
3. <b>L</b>imited Atonement (Particular Redemption of debts): Debt forgiveness is not for all people. Nor is it for all true euro believers. Only the righteous can be forgiven. The righteous are saved unto surpluses and it is thus that only the creditors can be forgiven. Believers cannot go into debt and then ask for atonement. <br />
<br />
4. <b>I</b>rresistible Euro All sins respond to the inward call of the euro, when the outward call is given by the ECB in the name of the Holy Balance sheet. What a comfort it is to know that the gospel of EU will penetrate our hard, sinful hearts and wondrously save us through the gracious inward call of the euro ! <br />
<br />
5. <b>P</b>erseverance of the Surpluses (also known as Once Surplus Always Surplus) They are eternally secure in the Euro.<br />
<br />
..... and add the following map of the EU (Greece is somewhere near the edge on the right)<br />
<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp_5xdc3ZlgbNuDIls97kYJgcdGUBLl9XEMnfq4inbyxn84Or0xqTdcDDULxc7xXSA6bgwfi2lneFk2EWZLbNjBdylPWRDi_-E8DkhTxjl_z7cRpOZLeTp1kOX2XyiT58nEQ7e8nxj5A/s1600/art-bosch-garden-of-earthly-delights.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="181" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp_5xdc3ZlgbNuDIls97kYJgcdGUBLl9XEMnfq4inbyxn84Or0xqTdcDDULxc7xXSA6bgwfi2lneFk2EWZLbNjBdylPWRDi_-E8DkhTxjl_z7cRpOZLeTp1kOX2XyiT58nEQ7e8nxj5A/s320/art-bosch-garden-of-earthly-delights.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">The Garden of Earthly Euro Delights - H Bosch (not to be confused with Bosch <span class="_Tgc">"Invented for life" household products)</span></td></tr>
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<b><br /></b>
<b>On other -isms</b><br />
"<i>Muslims who refuse to accept European values must realize there are better places to reside</i>" – Wolfgang Schaeuble, the German Finance Minister.<br />
<br />
What about Europeans who refuse to accept 'European values'? Where do we go? I want different policies. I don't want ordoliberalism. I am a blasphemer.<br />
<br />
<span style="font-size: x-small;">*Source <span class="tco-ellipsis"></span><a href="http://static.esmt.org/publications/whitepapers/WP-16-02.pdf" target="_blank"><span class="invisible">http://</span><span class="js-display-url">static.esmt.org/publications/w</span><span class="invisible">hitepapers/WP-16-02.pdf</span><span class="tco-ellipsis"><span class="invisible"> </span></span></a></span> </div>
The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-60064507621484381562015-02-18T19:28:00.001+02:002015-02-18T21:45:26.798+02:00Baltic Economic Miracle in two graphs<div dir="ltr" style="text-align: left;" trbidi="on">
Latvia and the Baltic economies are often cited as examples of what the virtue of pain, austerity, can do. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhY4bavFNSJobB68y-ik5PmIUvt33MrYcrM8qYqQ5eMhk-Y1TGhF5fjnc6odBF_O_FbxPvxghtKHxwwJCDck0J3TmdgdddMVcQNLXAqXc-Ct33gH2I8GrM5drC4PVmIzvLPZ5RW2LWWJA/s1600/Why+@VDombrovskis+(from%2BLatvia)%2B%2Bone%2Bgraph.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhY4bavFNSJobB68y-ik5PmIUvt33MrYcrM8qYqQ5eMhk-Y1TGhF5fjnc6odBF_O_FbxPvxghtKHxwwJCDck0J3TmdgdddMVcQNLXAqXc-Ct33gH2I8GrM5drC4PVmIzvLPZ5RW2LWWJA/s1600/Why+@VDombrovskis+(from%2BLatvia)%2B%2Bone%2Bgraph.png" height="202" width="400" /></a></div>
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How was this Baltic economic miracle achieved? Depopulation </div>
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<a href="https://www.blogger.com/null">
</a>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh42CELsFg2DmJQ1xc1DJK8imEk2K-8TFn-8HSaZ7ChANkHJdB4h58ABY0s80qfc7C6dkkWR2fsH0-4-otNBhbq_D-IVqqvLMzqAQ5aVGvMU6ifkeBxezVShiExhd4xW6RycNnfTwwWUQ/s1600/Baltics-Population.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh42CELsFg2DmJQ1xc1DJK8imEk2K-8TFn-8HSaZ7ChANkHJdB4h58ABY0s80qfc7C6dkkWR2fsH0-4-otNBhbq_D-IVqqvLMzqAQ5aVGvMU6ifkeBxezVShiExhd4xW6RycNnfTwwWUQ/s1600/Baltics-Population.png" height="228" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="https://www.blogger.com/null"></a><a href="http://www.forbes.com/sites/markadomanis/2013/07/19/the-baltic-demographic-disaster-since-1992-the-region-has-lost-more-than-20-of-its-population/">http://www.forbes.com/sites/markadomanis/2013/07/19/the-baltic-demographic-disaster-since-1992-the-region-has-lost-more-than-20-of-its-population/</a></td></tr>
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And the medicine: <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsvnBdfNtKBpOnx0s0e7AwfK3g5Kd4wulmLan8mP-O2-6E96eLKhWYeYcbmiUXuekDE6WZVC77sykElbMwR8tXJ03RTcyhjutVNmzYFmoH4RCS7nUXG0QbbKgwJzcvDtTlPcPTPd-Wsw/s1600/drink-me1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsvnBdfNtKBpOnx0s0e7AwfK3g5Kd4wulmLan8mP-O2-6E96eLKhWYeYcbmiUXuekDE6WZVC77sykElbMwR8tXJ03RTcyhjutVNmzYFmoH4RCS7nUXG0QbbKgwJzcvDtTlPcPTPd-Wsw/s1600/drink-me1.jpg" height="200" width="200" /></a></div>
Latvia’s economy fell by more than 20 percent from its peak in 2007. By doing what EU officials want, as fast as possible, it successfully reduced the ability of Latvians to make more Latvians and lost a large slice of its population. In doing so, it managed to become the best performing shrinking economy in the European Union.<br />
<blockquote class="tr_bq">
</blockquote>
The message to Greece is that austerity can work.....if it has a responsible macro-pruning government to stamp on its own population to death until they leave or stop breeding.<br />
<br />
...unless, <span id="articleText">Schaeuble has an efficient or quicker </span>way to reduce the population of Greece.<br />
<br />
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<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/yfl6Lu3xQW0" width="560"></iframe>
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<br />
<br />
<i>If you want a vision of the future, imagine a boot stamping on a human face - forever." - George Orwell (1984)</i><br />
<br />
<i>Reference: <a href="http://www.nytimes.com/2013/01/02/world/europe/used-to-hardship-latvia-accepts-austerity-and-its-pain-eases.html">Used to hardship latvia accepts austerity and its pain </a></i><br />
<br />
<i>Recommended:</i><br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzx_qJ6Ljba83sMVXmVlkVs0iFN2xfgF_qqZ_ACnJZfbmzonkoyRhNEX3fdI1DwQq4nCTyieGkpeQdyEkcPUA8cye24EBvrIotjjq8ZMsqV-bjf5PkGm0Cls8myJgQF09q5j4uT9byVQ/s1600/A+Neo-Modest+Proposal1+.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjzx_qJ6Ljba83sMVXmVlkVs0iFN2xfgF_qqZ_ACnJZfbmzonkoyRhNEX3fdI1DwQq4nCTyieGkpeQdyEkcPUA8cye24EBvrIotjjq8ZMsqV-bjf5PkGm0Cls8myJgQF09q5j4uT9byVQ/s1600/A+Neo-Modest+Proposal1+.png" height="320" width="228" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><a href="http://teacherdudebbq.blogspot.gr/2012/11/a-neo-modest-proposal.html">http://teacherdudebbq.blogspot.gr/2012/11/a-neo-modest-proposal.html</a></td></tr>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com1tag:blogger.com,1999:blog-20893208381126879.post-19412627062427365722015-02-12T20:36:00.001+02:002024-03-19T21:07:35.540+02:00Germany is a very inefficient economy<div dir="ltr" style="text-align: left;" trbidi="on">
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The European Union not so long ago received a Nobel (inventor of dynamite) prize for remaining in one piece. Let me take the opportunity to lob a stick of dynamic.<br />
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The Germany economy is really inefficient.....<span face="arial, sans-serif" style="background-color: white; color: #222222; font-size: 12.8px;"> </span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRTq3uceVk6finsL3ECEwOSoMOPT4vfLXlYcxBeW_6d3vnqkhLUP0qKLWI93Pk6ZcD8N7SS3ZtwweY_xjw_y5GSe5LNUQ89dGprSRMrst7GIC-K1kYN2XPHMVTbJfeDghn52W2kjzc7w/s1600/article-0-11F1E159000005DC-407_468x312.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="133" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRTq3uceVk6finsL3ECEwOSoMOPT4vfLXlYcxBeW_6d3vnqkhLUP0qKLWI93Pk6ZcD8N7SS3ZtwweY_xjw_y5GSe5LNUQ89dGprSRMrst7GIC-K1kYN2XPHMVTbJfeDghn52W2kjzc7w/s1600/article-0-11F1E159000005DC-407_468x312.jpg" width="200" /></a></div>
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<span style="font-size: 12.8px;"></span></div>
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<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">there... you may now click and leave</span></span></div>
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<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;"><br /></span></span></div>
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<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">So let me begin by apologizing to German readers who are unwtting victims. It must be painful spinning around on Schäuble's treadmill. And, as the "BIld" will tell you, we having such a jolly crisis at your expense. But.... </span></span></div>
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<div style="background-color: white; color: #222222; font-family: arial, sans-serif; font-size: 12.8px;">
<blockquote class="tr_bq">
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">"The world should rejoice at the positive economic signals the eurozone is sending almost continuously these days". </span><a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;">Wolfgang Schäuble </a></blockquote>
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<span style="font-size: 12.8px;">So let me call it the </span><span style="font-size: 12.8px; text-align: center;">Schäuble economy, as many Germans are being treated unfairly by it. Here's his success story: </span></div>
<blockquote class="tr_bq">
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">"Take Germany. In the late 1990s it was the undisputed “sick man” of Europe – seen by domestic and international commentators alike as uncompetitive and condemned to decline ...... A first wave of adjustment, starting in 2003, focused on strengthening employment incentives, streamlining the public sector, fixing social security and raising consumption taxes. Down to shop-floor level, companies and unions worked together to make labour more flexible........" </span><a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;">Wolfgang Schäuble </a></blockquote>
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<span style="font-size: 12.8px; text-align: center;">You may well ask why Germany was the "sick man of Europe" in the late 1990s - but lets leave that other monetary union (the German Mark and German unificiation) aside for now. </span></div>
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<span style="font-size: 12.8px; text-align: center;">What is the primary goal of the </span><a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;">Schäuble </a><span style="font-size: 12.8px;">economy? To </span><span style="font-size: 12.8px;">chase down little pots of gold, found at the end of the rainbow, called trading surpluses. </span></div>
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<span style="font-size: 12.8px;"><br /></span></div>
<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">If it weren't for the euro or for agreements in the labour market that Schäuble mentions above, then this excess demand for "all things German" would have raised the price of German goods, increased the demand and the wages of the workers that produced these goods, and eliminated the trade surplus. </span></span></div>
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<span style="font-size: 12.8px;">Schäuble</span><span style="font-size: 12.8px;"> </span>trade surplus means that wages are lower than what they would be (without the agreements). It also means the wages are also lower that what they would be relative to capital (so we use less machines, robots etc in the production mix). So more labour (which <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;">Schäuble </a>economy sucks in <span style="font-size: 12.8px;">from the periphery's pool of idle young) and less capital is being used than what would otherwise have occurred. In other words, there is less physical investment and this production mixed creates a lower or sluggish growth rate. </span><span style="font-size: 12.8px;">This drags down the growth rate not only of the </span><span style="font-size: 12.8px;">Schäuble economy, but the </span><span style="font-size: 12.8px;">entire </span><span style="font-size: 12.8px;">European continent with it.</span></div>
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In other words the German or the <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;">Schäuble</a> <span style="font-size: 12.8px;">economy is highly inefficent one in its misuse of resources and dooms the European economy, by getting investment wrong, to lag behind the rest of the world. This inefficiency is paid by imposing austerity on taxpayers living in the periphery</span></div>
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So if <span style="font-size: 12.8px;">surpluses are </span><span style="font-size: 12.8px;">wasteful, </span><span style="font-size: 12.8px;">Germany is Europe's most inefficient economy.</span></div>
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Here is the statistical data showing the current (trading) account surplus moving in the opposite direction to the levels of capital stock. </div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2J32HHlO7fS_fhRl3Mjn7wNfzt_WE-i9YiRcnMTVUqdk16xLEXiM9io9lPD_11svTADa7eZroRHKZJq6s8D-lan1kB8RxbfbBiu1NvCR8h9mPd8LJKNB2wb0QuPPFymPGizLLMcYlww/s1600/Ger+CA+Capital.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2J32HHlO7fS_fhRl3Mjn7wNfzt_WE-i9YiRcnMTVUqdk16xLEXiM9io9lPD_11svTADa7eZroRHKZJq6s8D-lan1kB8RxbfbBiu1NvCR8h9mPd8LJKNB2wb0QuPPFymPGizLLMcYlww/s1600/Ger+CA+Capital.jpg" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><div style="font-size: 12.8px;">
<span face="'Helvetica Neue', Arial, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"><span style="font-size: 14px; line-height: 18px; white-space: pre-wrap;">via </span></span><a dir="ltr" href="https://twitter.com/LThomas12" style="background-color: whitesmoke; color: #009999; font-family: "Helvetica Neue", Arial, sans-serif; font-size: 14.4px; line-height: 18px; text-decoration: none; white-space: pre-wrap;"><span style="color: #66c1c1; font-size: 14.4px;">@</span><span style="font-size: 14.4px;">LThomas12</span></a><span face="'Helvetica Neue', Arial, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"><span style="font-size: 14px; line-height: 18px; white-space: pre-wrap;"> CA Surplus and investment are highly negatively related.
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">"The share of investment in gross domestic product is one of the lowest among industrialised countries. It has been declining rapidly, from an average of 23%in the 1990s to less than 17 per cent today" </span><a href="http://www.ft.com/cms/s/0/bc17e928-3da7-11e3-9928-00144feab7de.html#ixzz2l2awHpE2" style="background-color: #fefdfa; color: #7d181e; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px; line-height: 18.2px; text-decoration: none;"> </a><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"><a href="http://www.ft.com/cms/s/0/bc17e928-3da7-11e3-9928-00144feab7de.html#ixzz2l2awHpE2" style="color: #1155cc;">Fratzscher 18th Nov 2013</a></span></div>
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<span style="color: black; font-family: 'Times New Roman'; font-size: small; text-align: left;"></span><span face="arial, sans-serif" style="color: #222222; font-size: small; text-align: left;"><span style="font-size: 12.8px;">The 1990s was a story of the impact of German unification and the influx of cheap East German labour. The pursuit of trading surpluses within the Eurozone, by agreements to keep real wages down, re-writes the Schäuble's 1990's "Sick man of Europe" story into a massive expansion pack of 28 volumes. Everyone in the Eurozone, and beyond, becomes sick.</span></span></div>
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<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">The frugal German's housewife's chase for surpluses may be a very cute story, but what is she going to do with those damned surpluses? </span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHJ-DeON6ixfKM-hUUy5th4oLUKSvFLhuG0P1HGNuF5Xe9Hi-ZyZnjNnUcjubnvVf24m6_BMLOGqfRQnPPJJLQ55tO3O1OoODJBe46mcDxAQUMWni58_6zoUwwEYca9XNeOOnoRdiIZQ/s1600/image-807930-thumbflex-jyqy.jpg" style="color: #1155cc; margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHJ-DeON6ixfKM-hUUy5th4oLUKSvFLhuG0P1HGNuF5Xe9Hi-ZyZnjNnUcjubnvVf24m6_BMLOGqfRQnPPJJLQ55tO3O1OoODJBe46mcDxAQUMWni58_6zoUwwEYca9XNeOOnoRdiIZQ/s1600/image-807930-thumbflex-jyqy.jpg" width="248" /></a></div>
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<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;"><br /></span></span></div>
<span face="arial, sans-serif" style="color: #222222; font-size: 12.8px;">Give them to the Greeks or hide them under her matress? They didn't go into real investment. </span><br />
<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;"><br /></span></span><span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">This is unfair on the taxpayers (and the frugal Athenian housewife who economises by scavenging bins) of other economies who pay for the obsession until they go broke. </span></span><br />
<span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;"><br /></span></span><span face="arial, sans-serif" style="color: #222222;"><span style="font-size: 12.8px;">Usually one intervenes, when one's friends is caught up some habitual immoral behaviour. One is almost tempted to show solidarity and ask for the Troika to be sent in.</span></span></div>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com4tag:blogger.com,1999:blog-20893208381126879.post-80444510796334763192015-02-09T15:55:00.003+02:002023-10-04T11:53:45.315+03:00Petering out in Never Never land<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="background-color: #fefdfa;"><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;">Even if the EuroZone and the Greek economy survives the present crisis, there is a madness in its arrangements (fiscal compact) that threatens the Eurozone's long term existence. C</span></span></span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;">rises </span></span><span style="background-color: #fefdfa;"><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;">will reappear whenever there is a period of strong growth in the Eurozone. Internal </span></span></span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">trade imbalances, surpluses and deficits will build up again and creditor countries and Euro institutions will again give the entirely wrong response. This, and the damage this cycle does to investment, threatens the stability of Europe</span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;">.</span> </span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">Remember that Fiscal Multiplier? </span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">see </span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;"><a href="http://www.bloomberg.com/news/articles/2013-01-04/imf-officials-we-were-wrong-about-austerity">http://www.bloomberg.com/news/articles/2013-01-04/imf-officials-we-were-wrong-about-austerity</a></span></span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span style="font-size: 13px; line-height: 18.2px;"><a href="http://www.keeptalkinggreece.com/2013/06/06/imf-review-admits-greeks-we-screwed-you-with-wrong-program-false-multipliers/">http://www.keeptalkinggreece.com/2013/06/06/imf-review-admits-greeks-we-screwed-you-with-wrong-program-false-multipliers/</a></span></span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">Here is a simple school exercise in numbers that seems to be beyond some European governments.</span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">A country has a very large budget deficit and wants to reduce it. GDP is $100 and its budget deficit is 10% of GDP and it is told to reduce it to 5%. So it cuts government spending by $5 and overall spending, GDP, falls by $5. </span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">Someone's spending is someone's income, and they too are forced to spend less which in turn affects other incomes. After a small cycle of after-effects (the multiplier) overall spending falls by, for example, by 1.5 times the initial cut. If the tax rate is 25%, then the following changes are</span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> -$5 the initial spending reduction</span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> -($5)(1.5) = $7.5 the overall fall in incomes and spending - as people loss jobs and spend less</span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> Old tax revenues = $25 ;</span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> new tax revenues = $( 100 – 7.5) x 25% = $23.125</span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> -$1.875 = Fall in tax revenues </span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">The deficit falls from $10 to $6.875 (not to $5 as the Troika hoped for).</span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">But what percentage is $6.875 of $95? Hmmm its 7.4% not 5%. of GDP. Someone's cheating, lets apply more cuts. </span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">Surprise, surprise... those nasty Greeks are missing their deficit targets again</span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDdpj7lh0usJCTnFt0CZ1EITzEOuaPOiablyZ-cO-HGyk8v0RwFCGpsXRVJ8EPWA9ymRG02BLtA1tRjuVIOxO0ltWiOi4wYnCUjWko2zU_x4EF8rXDD1G7gIFk9P0-Mq-XBSiBlkVrig/s1600/B9aP-sQCcAAPPW4.jpg:large.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="189" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDdpj7lh0usJCTnFt0CZ1EITzEOuaPOiablyZ-cO-HGyk8v0RwFCGpsXRVJ8EPWA9ymRG02BLtA1tRjuVIOxO0ltWiOi4wYnCUjWko2zU_x4EF8rXDD1G7gIFk9P0-Mq-XBSiBlkVrig/s1600/B9aP-sQCcAAPPW4.jpg:large.jpeg" width="320" /></a></div>
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</span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333; font-size: 13px; line-height: 18.2px;">The IMF assumed /calculated the Fiscal Multiplier was close to one, but it was found to be a lot higher in times of distress than in normal times. Europe's austerity policies were therefore founded on faulty assumptions. They should be reviewed. This is basically what Greece is asking for. The "bailout package" is fundamentally wrong and destroying the real economy. For many Greeks the choice has become very simple: "leave or suffer".</span><br />
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"><br /></span>
<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">So why are some Governments so persistent, even if it means throwing away their own taxpayers' money? </span><br />
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<span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">T</span></span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;">he monetary economy is a "..world made of faith, and trust, and pixie dust" (Peter Pan).</span></span><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="color: #333333;"><span face="Arial, Tahoma, Helvetica, FreeSans, sans-serif" style="background-color: #fefdfa; color: #333333; font-size: 13px; line-height: 18.2px;"> So you need to believe in euro fairies (investors) as every time you don't believe in one, the real economy dies. Now you do believe in euro fairies, don't you .... ?</span><br />
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<i>Never Never Land 2015</i><br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-85988056039430105022015-01-17T15:59:00.002+02:002015-01-18T10:14:47.519+02:00Cloud cuckoo land<div dir="ltr" style="text-align: left;" trbidi="on">
Yesterday I posted a piece <a href="http://www.keeptalkinggreece.com/2015/01/16/guest-post-how-swiss-franc-affects-greek-debt-merkel-and-tsipras-can-do-realpolitik/">here </a>on a cuckoo clock (Swiss Fanc) that chimes for Angela Merkel and Alexis Tsipras (on an election victory) to do "realpolitik". The explanation I liked on yesterday's global spasms (and the Greek story) comes from Paul Mason's Channel 4 <a href="http://blogs.channel4.com/paul-mason-blog/cuckoo-clock-chimes-troubled-swiss-franc/2909">post</a> . American readers might also want to check <a href="https://foreignpolicy.com/2015/01/16/what-the-wild-swiss-franc-appreciation-really-means-currency-wars-federal-reserve/">"Welcome to the Currency Wars"</a> <br />
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"In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.” ― Orson Welles (from "the Third Man")<br />
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.....But now Switzerland is famous for something else. This week its central bank abandoned a currency peg with the Euro with all the suddenness of a film noir plot reversal. <br />
To explain. During the euro crisis, with money flowing into Switzerland driving the value of its currency up, the Swiss National Bank announced a currency cap. It would intervene in the markets, and print money, so that the Swiss franc’s value stayed pegged to the euro. <br />
Given the money of the global rich is stored in Swiss francs, and quite a lot of east European mortgages also, the sudden rise in value after the cap was lifted works like this:<br />
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a) The value of people’s savings held in Swiss francs rises<br />
b) The value of people’s debts in Swiss francs also rises, especially people in east Europe who took out mortgages with Swiss banks<br />
c) The big Swiss manufacturing and export sector will get hammered<br />
d) The central bank itself will lose a lot of money, because some of the money it printed was used to buy assets in euros and dollars, and these are now worth less in Switzerland. And that means Swiss cantons, including Graubunden where the Davos jamboree is held, will lose money – because they lose or gain from central bank profits.......<br />
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....The SNB’s move came, simply, because it could not go on financing the cost of pegging its own currency. The central bank’s balance sheet had grown to 80 per cent of GDP.<br />
Next week, it is probable that the European Central Bank will make an equally dramatic move, announcing between €500bn and €1tr worth of quantitative easing, in a move designed to end stagnation in the eurozone. <br />
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What we’re seeing, then, is three central banks engaged in an attempt to use monetary policy and bank regulation against a tide of deflation and low growth. You could think of it this way: there is very little growth available in this corner of the world and one way of competing for it is by stimulating your economy with QE, and letting your currency fall against others.<br />
The ECB’s gambit next week is a kind of “join the club” move – because everyone else will do it. Switzerland’s move was really an admission that: we can’t do anymore. And the Greek situation is being driven by voters signaling – via the poll lead of the far left Syriza party – that “we can’t do anymore”.....<a href="http://blogs.channel4.com/paul-mason-blog/cuckoo-clock-chimes-troubled-swiss-franc/2909"> "The cuckoo clock chimes for the Swiss franc" </a></blockquote>
As for the EU, and its rationalized* foolishness, here's something from Aristophanes (the Birds ): - "the perfect city in the clouds, named Νεφελοκοκκυγία, (Cloud cuckoo land)" comes crashing down. <br />
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I didn't even mention the crows..<br />
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PS - I was tempted to make a more respectable post with some random terms. These are a few terms that I might have failed* to exclude:</div>
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*rationalized -- the world does not makes sense; make the world smaller until it does.<br />
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endogeneous - nothing exists outside the box <br />
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lower (and zero) bound interest rates - we can't find the box<br />
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exogenous - god help us<br />
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<a href="http://en.wikipedia.org/wiki/Impossible_trinity">The Impossibility Trinity </a> <br />
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<a href="http://en.wikipedia.org/wiki/Black_Wednesday">Black S̶w̶a̶n̶ Wednesdays </a><br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-69100707285068590322013-11-25T16:12:00.001+02:002015-03-18T01:02:53.315+02:00German Macho-economics - Wolf gang pacts 1 and 2<div dir="ltr" style="text-align: left;" trbidi="on">
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"The road up and the road down is one are the same." <i>Heraclitus 535 BC–475 BC </i></blockquote>
Not all countries can run trade surpluses at the same time; someone's exports is someone else's imports.<br />
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"The world should rejoice at the positive economic signals the eurozone is sending almost continuously these days". <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html">Wolfgang Schäuble </a></blockquote>
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<b>G̶e̶r̶m̶a̶n̶ Schäuble Macho-economics Wolf-pact version one - German Surpluses</b><br />
<blockquote class="tr_bq">
"Take Germany. In the late 1990s it was the undisputed “sick man” of Europe – seen by domestic and international commentators alike as uncompetitive and condemned to decline ...... A first wave of adjustment, starting in 2003, focused on strengthening employment incentives, streamlining the public sector, fixing social security and raising consumption taxes. Down to shop-floor level, companies and unions worked together to make labour more flexible........" <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html">Wolfgang Schäuble </a></blockquote>
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Germany’s external balance deficits became substantial surpluses after the creation of the Euro. In effect, this was underpaying the German worker's contribution to output and overcharging the German consumer.<br />
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Why? Here's a slightly classical version.<br />
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When the sales value generated by the demand for a country's exports exceeds the sales value of its demand for imported goods, the excess value appears as surpluses in the country's trading account. The surplus is an excess demand (for exports relative to imports) and, as such, a pressure for prices of exports to rise relative to imports. There is no internal eurozone system of exchange rates to do this in one movement. Hence the argument for economic reforms to ensure perfectly working competitive markets. However, if the price mechanism works then this excess demand transmits a demand that leads to higher prices of resources producing German exports ie it ought to be signaling a rise in wages.<br />
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However, here lies Schäuble's "down to shop-floor level, companies and unions working together to make labor more flexible" - a strange meaning of flexibility that restricts German wages from being upward flexible. <br />
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When the price of labor is suppressed then the demand for other inputs (producing any given level of output) and other production mixes are suppressed, This undermines real investment, distorting the production mix to screw up the economy's 'production function". Keeping wages down below their "market values" damages the efficiency and growth potential of an advanced industrial economy.<br />
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Thus to persistently maintain trading account surpluses is to perpetuate a disequilibrium; one that screws up the price mechanism in a way that doesn't allow the excess demand for German exports to be translated as a demand for investments in technology factories, etc. To do it persistently, is to move the economy towards a cheap labor one and away from the traditional German capital intensive one. <br />
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And so trading imbalances create investment problems (for a different way of looking at this see a previous post <a href="http://redesigning-the-foot.blogspot.gr/2013/09/national-output-and-disintegration-for.html">National Output for Mummies 101</a>) and this is what the statistics show - Germany has a huge private investment gap.<br />
<blockquote class="tr_bq">
"The share of investment in gross domestic product is one of the lowest among industrialised countries. It has been declining rapidly, from an average of 23 per cent in the 1990s to less than 17 per cent today" <a href="http://www.ft.com/cms/s/0/bc17e928-3da7-11e3-9928-00144feab7de.html#ixzz2l2awHpE2">Investment, not the surplus, is Germany’s big problem </a>Fratzscher 18th Nov 2013</blockquote>
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<tr><td class="tr-caption" style="font-size: 13px;"><span style="background-color: whitesmoke; color: #333333; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 18px; text-align: left; white-space: pre-wrap;"> </span><span style="color: #333333; font-family: Helvetica Neue, Arial, sans-serif;"><span style="font-size: 14px; line-height: 18px; white-space: pre-wrap;">via </span></span><a class="twitter-atreply pretty-link" dir="ltr" href="https://twitter.com/LThomas12" style="background-color: whitesmoke; color: #009999; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 18px; text-align: left; text-decoration: none; white-space: pre-wrap;"><span style="color: #66c1c1; font-size: 14.399999618530273px;">@</span><span style="color: #009999; font-family: Helvetica Neue, Arial, sans-serif;"><span style="font-size: 14.399999618530273px;">LThomas12</span></span></a><span style="color: #333333; font-family: Helvetica Neue, Arial, sans-serif;"><span style="font-size: 14px; line-height: 18px; white-space: pre-wrap;"> CA Surplus and investment are highly negatively related. </span></span></td></tr>
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Given how these distortions can impact investment, it is foolish to merely see trading surpluses as an improvement in competitiveness. There's a hidden inefficiency problem The artifical reduction of wages relative to the cost of capital undermines investment and will affect the long term competitives of an economy.<br />
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International competitiveness is measured by the relative prices of domestic goods to foreign goods. When the word 'prices' is then replaced by the word 'wages', the above investment is keep hidden. Even worse, this is something that we really shouldn't being doing when economies are in disequilibrium as a result of a global finiancial crisis. Correcting for problems that appear as a result of a breakdown in global financial markets by interfering in labor markets to reduce wages to restore "competitiveness" is an illusion. Beg-thy-neighbor competitiveness reduces everyone's growth. Short-run gains come at the expense of under investment in capital and lower growth rates. <br />
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German trade surpluses and investment problem spills over into the rest of Europe. An imbalance in one market creates imbalances in others. By definition, Germany's trading account surplus means the country is a massive net lender to others. A surplus in one place implies a deficit in another place. These capital outflows were based on financial returns and guarantees that did not reflect economy's actual economic returns, but were based on balance of payments funding needs. The surplus led to over-lending that fueled property and bond (trading deficits have to be financed) bubbles that burst as unsustainable debt crises in the periphery. When the bubble burst, the risks were were minimized by lenders exerting political control - by doing whatever it takes - to extract measures on the borrowers.<br />
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This is dark side of the trading imbalance. The profits made by maintaining the imbalances are private, but the risks and losses are social, that is passed on to the public ie the tax payers. The public swallows this with the help of a media narrative that plays on national stereo types. The debate is reduced to whether Hans or Costas is to blame. Obviously Costas is to blame. So his wife, children, friends, pets, neighbors, visitors and anything that happens to move within the national borders should pay.<br />
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A second strange idea is the macho idea that surpluses reflect a superior method of production or product: the German brand. There are better cars in the world than Mercedes; but they don't dominant sales. There are worst cars in the world than Mercedes that can outperform it in reveunes. It's all a question of price. If Indian (Land Rovers) and China invest better than Germany, then even Mercedes won't be cheap enough.<br />
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Another way to see the German trading surplus is as loss to the actual Germans who are produce it, as the result of an underpaid effort in producing excess output. In return for this, they are overpaying for the imports they consume. Giving up something now for the future is an investment, this extra sacrifice does the opposite. Trading surpluses leaves the German economy either to disappear down a blackhole or sustain the demand for these surpluses to pay for someone's else deficit. They also represent lost opportunities to provide social and public investments. Schäuble is very proud "in streamlining the public sector, fixing social security and raising consumption taxes".<br />
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Germany is becoming a cheap wage rather than an investment economy. Trade surpluses are not good. They don't represent how well you are doing, but how well you could have been doing.<br />
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<b>Wolf-pact version Two - </b>from German to Euro-wide surpluses (and deficits)<br />
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Surpluses in one part of Europe and idles resources in another is a gross mis-allocation of resources. This cannot - no matter how good the country is at making cars - be an efficient system. <br />
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"Everything flows and nothing stays." <i>Heraclitus of Ephesus </i></blockquote>
When the Eurozone stopped working, instead of dealing directly with the surpluses in the creditor countries, austerity was applied on the periphery. The solution was to do what Germany did. In these economies repressing wages reduced import demand rather than increased exports. (Besides if everyone is exporting, who is importing?) In effect, external trading balances are restored by creating mass unemployment and destroying the economy's internal markets. <br />
<blockquote class="tr_bq">
"A second wave of expenditure restraint and reforms followed once the financial crisis was past its peak....Thanks in part to its education system, which is attuned to the needs of business, Germany has a youth unemployment rate below 8 per cent – the lowest in Europe" <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html">Wolfgang Schäuble </a></blockquote>
Has there been a revolution in the German education system? Or is the Germany economy just sucking talented, skilled labor resources from the periphery economies where youth unemployment hovers around 50%?<br />
<blockquote class="tr_bq">
"The adjustment was ambitious and sometimes painful but its implementation was flexible and adaptive. The European safety nets have provided a well-calibrated mix of incentives and solidarity to cushion the pain." <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html">Wolfgang Schäuble </a></blockquote>
There is no solidarity or European safety net to cushion the pain. Safety nets may exist in the in the core, but they have been systematically ripped out in the periphery. The "well-calibrated mix of incentives and solidarity to cushion the pain" disappears as one moves down from the creditor to the debtor nation. <br />
<blockquote class="tr_bq">
"In just three years, public deficits in Europe have halved, unit labour costs and competitiveness are rapidly adjusting, bank balance sheets are on the mend and current account deficits are disappearing. In the second quarter the recession in the eurozone came to an end." <a href="http://www.ft.com/intl/cms/s/0/e88c842a-1c67-11e3-a8a3-00144feab7de.html">Wolfgang Schäuble </a></blockquote>
Again this is the cheap wage model, where competitiveness is not achieved by investing to improve productivity. "Bank balance sheets are on the mend" but inactive with little lending for investing in businesses. "Current account deficits are disappearing" as this what would happen when consumers become too poor to buy imports. <br />
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There is no end to the recession in the periphery and there is no liquidity where it is needed the most in the periphery.<br />
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Imperfect monetary unions worked by population movements. Populations are being made to suffer or migrant. The periphery economies of the Euro are forced, unwillingly but bonded by debt. to apply internal devaluation. The only real intent (excluding the increasingly but interestingly contradictory IMF) is not a major internal political and market reform of oligarchical and cartel market structures, but wage suppression (unit wage costs).<br />
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The obsession to create surpluses emphasizes cheap wages rather than sound economic investment. As a result the core economies have a greater and greater appetite for labor resources. In paricular<br />
<blockquote class="tr_bq">
"Germany is ageing and shrinking. France and Britain will overtake it soon, in terms of population. Too few women enter the workforce and they have too few children. Germany is over-reliant on industry and underperforms in services. Over half of every generation leaves school after 10 years, often with only a rudimentary knowledge of English and similar cultural skills. Immigrants are still not welcome. Most of these problems could be fixed with quotas for women in senior management and for immigrants in the civil service and the police; allowing dual citizenship; and encouraging kids to stay at school. But these reforms are unlikely to happen." <a href="http://www.theguardian.com/commentisfree/2013/nov/25/germany-strength-illusion-merkel-coalition">Guardian: Why Germany's strength is an illusion</a></blockquote>
This shortage not cleared (by demand and supply) by wages increasing, but by draining and selectivity picking from a large pool of idle labor resources from an increasingly poor periphery.<br />
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Again, not good news for German workers, as it will keep German wages low, but this time by labour resources (immigration) flooding in from the periphery to compete for jobs. Its a toxic mix that will increase nationalism and racial tensions. <br />
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Thus Europe moves, disastrously, en mass towards a cheap wage model economy. Even more disastrous, when one realize that the EU raises taxes from its working population to finance a system (Common Agricultural Policy CAP) that creates artificially high foods prices. A policy of lower wages with 38% of EU budget for the next five years going to CAP. Yet, only 5% of the EU population work on farms. Something has to give. Even without the political chaos and under investment, a cheap wage model of the economy is not sustainable when also coincides with a system that keeps food prices high.<br />
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Suppose somehow it does hold together, and labor flows back and forth between the core and the 'homelands' in the periphery in tune with the demands of core's economy. As cultural and national loyalties and prejudices increase, the pressure (governments are forced to balance their budgets) will increase on richer EU member to tighten up immigrant residency, voting and social benefits rights. It then not that great a step for the European labor market to fragment into a kind of apartheid system with different class of rights and conditions in each of the<b> 'euro homelands'.</b> Unless you are one of the fortunate few that will be reaping profits from such a system, it is good for no one....of any nationality.<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com1tag:blogger.com,1999:blog-20893208381126879.post-86475666255570399432013-11-12T15:19:00.001+02:002013-11-12T15:42:05.782+02:00The four finger government<div dir="ltr" style="text-align: left;" trbidi="on">
Greek PM Samaras' first comments after this week's vote of confidence were: "the Government has been strengthened". In reality they lost a MP and the majority is now only four:<br />
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<a href="http://t.co/8FfEBmziAk">pic.twitter.com/8FfEBmziAk</a><br />
— ζαναξ™ (@Spirosgio) <a href="https://twitter.com/Spirosgio/statuses/398928692702744577">November 8, 2013</a></blockquote>
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A workable majority<br />
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"This is how its gonna to work" MT <a href="https://twitter.com/rykios">@rykios</a> <a href="http://t.co/Ie0gj5Bzgu">pic.twitter.com/Ie0gj5Bzgu</a> <a href="https://twitter.com/search?q=%23Samaras&src=hash">#Samaras</a> <a href="https://twitter.com/search?q=%23Greece&src=hash">#Greece</a><br />
— albertjohn (@albertjohn) <a href="https://twitter.com/albertjohn/statuses/399943612953145344">November 11, 2013</a></blockquote>
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but its quite big </div>
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Last man left smiling in <a href="https://twitter.com/search?q=%23Greece&src=hash">#Greece</a> "Its this big" <a href="http://t.co/52QTivG74t">pic.twitter.com/52QTivG74t</a> <a href="https://twitter.com/search?q=%23FishermanTales&src=hash">#FishermanTales</a> "Disagree? Then come outside" </div>
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— albertjohn (@albertjohn) <a href="https://twitter.com/albertjohn/statuses/399863149970481153">November 11, 2013</a></div>
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Where you can meet Greece's new media (take you for a) spin doctors </div>
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Govt press briefing outside Parliament...your first question? <a href="https://twitter.com/search?q=%23Syntagma&src=hash">#Syntagma</a> <a href="http://t.co/zaRdLxhOQR">pic.twitter.com/zaRdLxhOQR</a> <a href="https://twitter.com/search?q=%23Greece&src=hash">#Greece</a> via <a href="https://twitter.com/RegularGrrrl">@RegularGrrrl</a><br />
— albertjohn (@albertjohn) <a href="https://twitter.com/albertjohn/statuses/399598198253047808">November 10, 2013</a></blockquote>
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Which translates as</div>
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Μετά την ψήφο εμπιστοσύνης που έλαβε ο πρωθυπουργός κ. Αντώνης Σαμαράς, σας εύχετε Καλό Χειμώνα με γρήγορο Wi-fi! <a href="http://t.co/wYrV2wJjFR">pic.twitter.com/wYrV2wJjFR</a><br />
— UNFOLLOW (@unfollow_mag) <a href="https://twitter.com/unfollow_mag/statuses/399677283100672000">November 10, 2013</a></blockquote>
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the one-finger government: as 'partner' Venizelos realizes from the latest PASOK percentage in the polls<br />
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<a href="https://twitter.com/sugardad">@sugardad</a> <a href="https://twitter.com/pitsirikos">@pitsirikos</a> ο Βενιζέλος μαθαίνει το ποσοστό του ΠΑΣΟΚ στις τελευταίες δημοσκοπήσεις. <a href="https://twitter.com/search?q=%23vouli&src=hash">#vouli</a> <a href="http://t.co/43j1EiCAvD">http://t.co/43j1EiCAvD</a> <a href="https://twitter.com/search?q=%23pasok&src=hash">#pasok</a><br />
— Teacher Dude (@teacherdude) <a href="https://twitter.com/teacherdude/statuses/399868362542424064">November 11, 2013</a></blockquote>
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Which is a lesson, as discussions with the Troika tend to devour political parties one by one</div>
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And then there were none</div>
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.....which leaves someone a little Dazed and Confused - Hanging on by a Thread:</div>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-28063110861778485382013-10-14T20:42:00.001+03:002015-02-04T01:51:49.673+02:00Its a miracle!<div dir="ltr" style="text-align: left;" trbidi="on">
The miraculous recoveries of Spain and Greece<br />
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with a little bounce off the bottom. </div>
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And even better, the economies are being stabilized. </div>
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and "aren't we lucky the most expensive machine in the hospital" still goes ping<br />
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but then it was about saving the machinery, not the patient. </div>
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IMF Documents Excerpts May 9, 2010 meeting at which the IMF board approved Greece’s first bailout. (<a href="http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/">published in the Wall Street Journal</a> and copied below) <br />
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<b>Swiss executive director Rene Weber : </b>We have “considerable doubts about the feasibility of the program…<b>We have doubts on the growth assumptions,</b> which seem to be overly benign. Even a small negative deviation from the baseline growth projections<b> would make the debt level unsustainable </b>over the longer term…Why has debt restructuring and the involvement of the private sector in the rescue package not been considered so far?”</blockquote>
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<b>Brazil’s executive director Paulo Nogueira Batista : </b>“The risks of the program are immense…As it stands, the programs risks substituting private for official financing. In other and starker words, <b>it may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions</b>.”</blockquote>
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“Our decision to go along with this problematic and risk-laden program should not be taken to mean that we will support it in the future. Going forward, we will consult with our authorities and other chairs to make sure that the fund is not led along the path of endorsing a program <b>that may prove to be ill conceived and ultimately unsustainable</b>.”</blockquote>
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<b>Argentina’s executive director Pablo Andrés Pereira : </b>“The alternative of a voluntary debt restructuring should have been on the table…The European authorities would have been well advised to come up with an orderly debt restructuring process. The bottom line is that the approved strategy would only have a marginal impact on Greece’s solvency problems…<b>It is very likely that Greece might end up worse off after implementing this program</b>.”</blockquote>
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<b>Iranian executive director, Jafar Mojarrad : </b>“We would be interested in staff clarification regarding the option of debt restructuring. We would have expected such an option to be discussed in the staff report, even if the intention were not to retain it.”</blockquote>
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<b>Egyptian director Shakour Shaala</b>n : “We would be grateful for further elaboration on the assumptions…underlying staff’s medium-term growth projections. <b>They appear to us to be rather optimistic</b>…We would be interested to learn from staff whether debt restructuring was among the options considered in the assistance package. Debt restructuring may be looked upon disfavorably, but it should be envisaged.”</blockquote>
<blockquote class="tr_bq">
I<b>ndia’s executive director Arvind Virmani : </b>“The scale of the fiscal reduction without any monetary policy offset is unprecedented…(It) is a mammoth burden that the economy could hardly bear. Even if, arguably, the program is successfully implemented, <b>it could trigger a deflationary spiral of falling prices, falling employment, and falling fiscal revenues that could eventually undermine the program itself</b>. In this context, it is also necessary to ask if the magnitude of adjustment…is building in risk of program failure and consequent payment standstill…There is concern that default/restructuring is inevitable.”</blockquote>
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<b>China executive director He Jianxiong : </b>“The risks to the program are significant…The growth projection appears optimistic.”</blockquote>
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</blockquote>
</blockquote>
Also from the minutes of the May 9, 2010 board meeting on the Greek bailout:<br />
<blockquote class="tr_bq">
<blockquote class="tr_bq">
“The exceptionally high risks of the program were recognized by staff itself, in particular in its assessment of debt sustainability.”</blockquote>
<blockquote class="tr_bq">
“... according to the <b>Brazilian ED</b>, ‘a bailout of Greece’s private sector bondholders, mainly European financial institutions.’ </blockquote>
</blockquote>
<blockquote class="tr_bq">
<blockquote class="tr_bq">
<b>The Argentine ED</b> was very critical at the program, as it seems to replicate the mistakes (i.e., unsustainable fiscal tightening) made in the run up to the Argentina’s crisis of 2001. </blockquote>
</blockquote>
<blockquote class="tr_bq">
<blockquote class="tr_bq">
Much to the ‘surprise’ of the other European EDs, the <b>Swiss ED</b> forcefully echoed the above concerns about the lack of debt restructuring in the program, and pointed to the need for resuming the discussions on a Sovereign Debt Restructuring Mechanism.”</blockquote>
<blockquote class="tr_bq">
“<b>The Swiss ED</b> (supported by Australia, Brazil, Iran) <b>noted that staff had ‘silently’ changed in the paper</b> (i.e., without a prior approval by the board) the criterion No.2 of the exceptional access policy, by extending it to cases where there is a ‘high risk of international systemic spillover effects.’”</blockquote>
<blockquote class="tr_bq">
<b>Christine Lagarde,</b> IMF Managing Director, in June 2013:</blockquote>
<blockquote class="tr_bq">
“In May 2010, we knew that Greece needed a bailout, but not that it would require debt restructuring…We had no clue that the overall economic situation was going to deteriorate as quickly as it did.”</blockquote>
</blockquote>
And where's that "<a href="http://redesigning-the-foot.blogspot.gr/2012/10/plan-9-from-outer-space.html">Le Grand European Investment plan"</a>?<br />
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And that super big recovery? ... Remember the medicine.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1Y9evOLcODSXZtf7umGvH35i0yyyS3B5FicmwGmQMrDP2zrlVNmxR1OBbbDSPDZq4Tn5538EXbEJhmcecUbTdLX1O1Cgd1N6UlMsIyMxTfVzlkr30DmfQ_NfeuJkeK2fXufCHrrb33w/s1600/drink-me1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1Y9evOLcODSXZtf7umGvH35i0yyyS3B5FicmwGmQMrDP2zrlVNmxR1OBbbDSPDZq4Tn5538EXbEJhmcecUbTdLX1O1Cgd1N6UlMsIyMxTfVzlkr30DmfQ_NfeuJkeK2fXufCHrrb33w/s1600/drink-me1.jpg" /></a></div>
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<span style="text-align: left;">Got the picture?</span></div>
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<a class="zemanta-pixie-a" href="http://www.zemanta.com/?px" title="Enhanced by Zemanta"><img alt="Enhanced by Zemanta" class="zemanta-pixie-img" src="http://img.zemanta.com/zemified_e.png?x-id=102f6470-d585-431d-ad65-2b4cb932fd77" style="border: none; float: right;" /></a></div>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com3tag:blogger.com,1999:blog-20893208381126879.post-82385330281017142462013-09-30T23:00:00.000+03:002015-02-04T14:03:24.596+02:00National Output and Disintegration For Mummies<div dir="ltr" style="text-align: left;" trbidi="on">
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1. Mummified and Buried with debt<br />
2. National Output for Mummies 101<br />
3. Europeaness and the Bubble-gum card<br />
4. Bleak House</blockquote>
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<span style="text-align: justify;">Recent economic news seems to justify optimism. The summer saw well-behaved sovereign interest-rate spreads, a strengthened euro and a recovery in equity markets. Very superficial. </span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWvoRJx3wxRYmX1v5XAtEWkkzkG7CLuPyRGY91exxq2JLUV_ouqlOKHQnNo9HQD-OMYnxSyWFe0QbJcqtqeK81hV-tlIhN3sNpa_bSa8G4YJ5oc6h2DL75OUuwPUF8gid65AXgpfR86Q/s1600/mummy-returs.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWvoRJx3wxRYmX1v5XAtEWkkzkG7CLuPyRGY91exxq2JLUV_ouqlOKHQnNo9HQD-OMYnxSyWFe0QbJcqtqeK81hV-tlIhN3sNpa_bSa8G4YJ5oc6h2DL75OUuwPUF8gid65AXgpfR86Q/s640/mummy-returs.jpg" height="480" width="640" /></a></div>
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<b style="text-align: left;">Part one: - <span style="text-align: justify;">mummified and buried with debt for the afterlife:</span></b></div>
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<div style="text-align: justify;">
The underlying crisis in the euro-zone is still there and very real. Many economies in the Euro-zone face very poor growth prospects. Debt overhang and balanced-book repression still haunts investment - private 'capital' that could go to productive investment remains 'flighty'.<br />
<br />
Euro-zone's self-inflicted macroeconomic disequilibrium will persist - a cycle of internal trading imbalances, bubbles, financial repression, deflation and uneasy peace (global upturns and elections). Press one button to restore a member's import-export trading balance and create internal imbalance. Press the other to restore its internal balance and create an external trade imbalance.<br />
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Without growth prospects, unfortunate economies are mummified and entombed. A one trillion euro Pyramid (that give liquidity to banks to buy government bonds) to ensure a safe journey to the afterlife (in 2020) is not enough. Euro tribes may still revolt and seek a new promised land.<br />
<br />
Solving the euro-zone trading imbalances (caused by misspecified fixed 'terms of trade') by destroying trade (depression) is (fiscal compact) madness. There is still no flexible mechanism to adjust a members' terms of trade to the constantly changing conditions of global trade. Instead, adjustment is by sluggish corruptible unfair structural reforms and population movements that (works in the USA but) destabilizes euro member's political systems.<br />
<br />
The resolution to this very European economic disequilibrium (reoccurring internal trading imbalances and more potential 'debt overhang') is politically unfeasible. It doesn't take much to stir up a new crisis. Successful monetary unions follow political unions, not the other way around.<br />
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<br /></div>
<b style="text-align: left;">But "We are all Europeans. I'm European. You're European"</b><br />
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<i style="text-align: left;">"</i><i style="text-align: left;">We're all mad here. I'm mad. You're mad." </i><i style="text-align: left;">How do you know I'm mad?" said Alice. </i><i style="text-align: left;"> "You must be," said the Cat, "otherwise you wouldn't have come here."</i><i style="text-align: left;"> </i><i style="text-align: left;">Alice-in-Wonderland</i></blockquote>
Germany elected a Mummy ('<a href="http://www.bbc.co.uk/news/world-europe-24201813">Mutti' Merkel </a>), trusted by her voters to handle Euro crises. The 'Home' and "Mummy knows best" comes first. But why should Germans care about Greeks more than Germans? How can European policies <u>not</u> be dominated by national media and prejudices? How can voters <u>not</u> worry more about their own economy and livelihoods than elsewhere? How can voters, suffering years of economic repression, <u>not</u> worry about their livelihoods, <u>not</u> resist and <u>not</u> change policies and <u>not</u> create another Euro-zone crisis? Does Greece having a primary budget surplus make it bolder, more independent and freer ... to do what?<br />
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Debt repayments: "Two Tens for a Five"</div>
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Greece still needs a real restructuring of its debt, including deep write-offs. To do this in any real meaningful way, Greece will still face a stand-off with the creditors and will again be threatened by euro exit. Without real debt relief and sustained economic recovery, a choice becomes even more clearer to voters. Either leave your country (and move to other increasingly xenophobic countries) or make it leave (euro exit).<br />
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<b>Debt Overhang</b><br />
Greece's debts is currently higher than it was in 2010. Its economy has collapsed by 25% and its debt to GDP approaches 180%. It is maddening ratio that stubbornly refuses to go down. On the other hand, policies that reduce a denominator to (pay and) reduce a numerator (Debt / GDP) will do exactly what to the actual size of the ratio?<br />
<br />
Unmanageable debt burden compromises economic growth. It is a ghost that haunts any Euro-zone country finding itself on the wrong side of the trading balance. It distorts and crowds out investment, with an economy's funds increasingly managed by feudalistic principles rather than by economic returns. "Debt overhang" (debt is so large that it threatens ability to repay its past loans) scares off potential investors who will need to deal with the unpredictable actions of a government prioritizing impossible debt-servicing obligations. The returns from investing in the economy are effectively "taxed away" by the repression imposed by existing creditors who had over-lent. Bad investments, that are not allowed to fail, drives out good investment. When investors do appear, projects with quick returns rather than for long term projects that make growth sustainable are more likely to be chosen.</div>
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<div style="text-align: justify;">
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Debt <i>per se</i> is not a 'bad'. The addition of debt can finance and enhance the country's capital stock and productive capacity and restore a country's competitiveness. In Greece, the additions of debt to maintain (rather than write off) bad debts perpetuates 'bad' lending and a rotting system. It attracts vulture funds more than real investors. Debts should have been written off back in 2010 to restore the confidence of investors in the real economy - not the confidence of 'failed' lenders to a failed system. It was bad capitalism not to write off bad debt and to disable the reboot button.<br />
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<div style="text-align: justify;">
The flaws in the Euro system are still there. There is still no flexible mechanism to replace the role of exchange rates - instantaneous adjustments to a country's competitiveness. Recovery and short to medium term attempts to stimulate the European economy will regenerate new, if not old, trading imbalances. As for long run solutions, Europe does not seem able to coordinate any 'agreed' and meaningful policy. An adjustment (in the absence of internal exchange rates) of economies by population movements or depopulation leads to more political uncertainty, economic and regional inequality and nationalism and political extremism. Poorer regions will lose more of its taxpayers and human capital whilst at the same time be faced with an aging population and rising health and welfare costs. </div>
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Government budgets crisis, even if it is enshrined as the 11th commandment "thou shall not overspend", will not go away</div>
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<br />
<b>Part Two: National Output for Mummies 101</b> (you may want to jump to Part 3)<br />
<b><br /></b></div>
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Or you might read Credit Writedown's <a href="http://www.creditwritedowns.com/2012/05/why-cant-people-understand-national-accounting.html" style="color: #666666;">Why can’t people understand national accounting?</a><br />
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<b>"</b>the whole framing of the problem presented in the media is wrong because it gets cause and effect totally backwards. The question the media asks is "how can government cut the government deficit?" The real question is "why are deficits high to begin with and what should we do about it?" And it’s this question that gets people into trouble."</blockquote>
An economy's output cannot simply be measured by adding the monetary value of each producer's output - the output of one (wheat) is another's input (baker) - but it can be measured by adding the differences between the value of output (bread sales) and inputs (wheat purchases) - "Value Added", <br />
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If a producer's balance sheet profits appear as:
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Profits = Sales - Purchases From others - Depreciation - Wages - Interests</div>
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then a producer's "Value Added" is</div>
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(Sales - Purchases from others ) = Depreciation + Wages + Interest + Profits</div>
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'Value Added" = (S - PF) = DP + W + IN + P</div>
and the "Value Added" for all producers is:<br />
<div style="text-align: center;">
GNP at factor cost = Σ (S - PF) = Σ (DP + W + IN + P)</div>
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Allowing for depreciation, the monetary value of an economy's output (Net National Product NNP)<br />
<div style="text-align: center;">
NNP = GNP - Σ DP = Σ (W + IN + P)</div>
is equal to all the possible ways of earning income - National Income (Y).<br />
<div style="text-align: center;">
NNP = Y </div>
Output, including imports, goes to consumption (C), investment (I), government (G) or is exported (X)<br />
<div style="text-align: center;">
IM + NNP = C + I + G + X</div>
<div style="text-align: center;">
Available resources = Resource use<br />
NNP = C + I + G + (X - IM)</div>
Incomes (wages, profits/interest and rents) are used to pay taxes (T), saved (S) or spent (C)<br />
<div style="text-align: center;">
Y = C + S + T<br />
<div style="text-align: justify;">
<i>Savings is postponed consumption, stored under a mattress, bank account or as "financial investments" (stocks and bonds) with various degrees of liquidity or risk, that lay claim to income from future production.</i> </div>
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The national income accounting identity (NNP = Y) gives<br />
<div style="text-align: center;">
C + I + G + (X - IM) = C + S + T<br />
I + G + (X - IM) = S + T<br />
or</div>
<div style="text-align: center;">
(<b>X - IM) = (S - I) + (T - G)</b></div>
<div style="text-align: center;">
Current Account (Trade) balance = Private sector net savings + Government budget account</div>
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<b>This [ </b><span style="font-weight: bold; text-align: center;">(</span><span style="text-align: center;">X-IM) = (S-I) + (T-G)<b> ] is </b></span><span style="font-weight: bold; text-align: justify;">the Euro-zone default line</span><br />
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Persistent trading deficits <span style="text-align: center;">(X - IM) < 0 </span>will always be accompanied by accumulating (private or public) debts ie <br />
<div style="text-align: center;">
<span style="text-align: center;">(S - I) + (T - G) < 0. </span></div>
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The trade imbalances (<span style="text-align: center;">X - IM)</span> do not easily clear, as there is no simple mechanism to adjust relative prices (domestic to foreign prices). There is no exchange rate, nor domestic currencies, to do this job. The impact of these surpluses and deficits (and a political 'tragedy of the common' euro debts), has distorted the European investment mechanism<br />
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<div style="text-align: center;">
I = S - (G - T) - (X - IM)</div>
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<div style="text-align: center;">
<span class="Apple-tab-span" style="white-space: pre;">net investments =</span> private savings + govt budget + trade account</div>
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<div>
In Spain this manifested itself in a construction property bubble.; in Greece, net imports was offset by government deficit; and in Ireland the government debt replaced banking debts. </div>
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<div style="text-align: justify;">
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It is the current account balance which drives the flow of wealth and employment within the Euro-zone. The tail that wags the government doggy budget deficits. <span style="text-align: left;">Even if the EU's Fiscal Compact works (T- G = 0), trading deficit will be accompanied by private sector debts as</span></div>
<div style="text-align: center;">
(X - IM) = (S - I)</div>
<div style="text-align: justify;">
This could be resolved by either exchange rate or by efficient financial markets on the other side of the above equation. Euro-zone has neither: no internal exchange rates, a financial system (that allows the 'bad' not to fail) and, in turn, an inefficient or corrupt investment mechanism. Using internal devaluation to adjust domestic to foreign prices (international competitiveness) fails when the internal markets are themselves monopolistic. Getting a corrupt system to reform itself doesn't get the intended results.</div>
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<div style="text-align: justify;">
Net investment (I) in the national accounts may increase but, in a macroeconomic disequilibrium, this can be an illusion. There are three main components of net aggregate investment: 1) 'real' economic investment (additions to the stock of capital - machinery and equipment) with returns from future output), (2) construction (factories, offices AND residential ) AND (3) inventories (intentional or not eg unsold goods). </div>
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When the system fails, this mix can become very toxic. Real economic investment (1) is overwhelmed by (2) construction and property bubbles that eventual show up as (3) unsold goods and stocks.<br />
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<div style="text-align: justify;">
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<div style="text-align: left;">
<b style="text-align: justify;">Part Three: 'Europeaness' and the original Bubble-gum card </b><br />
<b style="text-align: justify;"><br /></b></div>
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<div style="text-align: left;">
<div style="text-align: justify;">
Bubbles are shared fantasies, pricked by reality. Scrams are getting enough people to believe in the fantasy to pay for it. Euro-zone convergence was myth. The euro crisis has been a story of more and more dealings in government debt, insider trading, bribes to politicians, and debts backed debts to spend on purchasing more debts.<br />
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The trade benefits of convergence turn out to be as mythical as the South American Trade benefits were to South Sea Company (UK early 1700s). The company's stock rose (S. American trade was under Spanish control) with more and more dealings in government debt fueled by insider trading, bribes to politicians, and loans backed by those same shares to spend on purchasing more shares. The renewal of war with Spain in 1718 did not prevent its collapse in 1720. </div>
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<tr><td><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1jgn0LzMOj58qRg-tnumMaPUmvi8gHb-0XrPmjrZ7L1c660rEP9r3ZvqOJ9v4pdxNvvh2PD-jhNqsUHp1wRLDURVGw5W-wA-LklMPkkEGDVlKiwwVayNndyRV2lL06WxV9H5WMUTzEw/s1600/490px-South_Sea_Bubble_Cards-Tree.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh1jgn0LzMOj58qRg-tnumMaPUmvi8gHb-0XrPmjrZ7L1c660rEP9r3ZvqOJ9v4pdxNvvh2PD-jhNqsUHp1wRLDURVGw5W-wA-LklMPkkEGDVlKiwwVayNndyRV2lL06WxV9H5WMUTzEw/s400/490px-South_Sea_Bubble_Cards-Tree.png" height="400" width="255" /></a></td></tr>
<tr><td class="tr-caption" style="font-size: 13px;">The South Sea Bubble Card - 1720 </td></tr>
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<span style="font-size: x-small;"><i>The South Sea Company was created as a public-private partnership to reduce the cost of national debt under the disguise of a monopoly of South American trade (which was under Spanish control). </i></span><span style="font-size: x-small;"><i>In 1718 war broke out with Spain. </i></span><i style="font-size: small;">The bubble burst in 1720. The only real trade that occurred was in people (slaves)</i><span style="font-size: x-small;">. </span></div>
<div style="text-align: justify;">
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<div style="text-align: justify;">
Effective financial markets ought to mean that the returns to investment (future profits and output) are related to borrowing costs (debts) where the risk of failures sold and brought in derivative markets. A rise in net investment ought to indicate an increase in the productive capacity with profit-taking accruing from wealth creation. The risk of returns failing to meet lending/borrowing costs ought to be dealt with by the secondary markets (buying and selling of risk, insurances and the pooling of risk etc). When profit-taking, risk-taking and borrowing costs become increasingly disconnected from the economy's actual returns and risk, increases in aggregate investment are illusory.<br />
<br />
Net investment (and GDP) in the euro zone periphery flowed into bond, construction, real estate and asset bubbles. Trading surpluses were fed into a slot of a bubble-gum vending machine that fed deficit countries forced to operate on 'bad' Terms of Trade. Like Gresham's Law, a debased currency of circulating debts leads bad investment (debts) driving out good investment (debt). </div>
<div style="text-align: justify;">
<br /></div>
<span style="text-align: justify;">Once the bubbles burst, trading deficits (X- IM) fall by the private sector (S-I) imploding - investments, output, consumption (and hence imports) and savings and investors run for cover. The trading deficit economy, is then subject to a viscous circle of underdevelopment, buried by the weight of accumulating debts that become increasing larger in real terms as its future income and GDP falls. </span><br />
<div style="text-align: justify;">
<br />
<b>The Abbott & Costello Multiplier </b></div>
<div style="text-align: justify;">
<a href="http://www.keeptalkinggreece.com/2013/06/06/imf-review-admits-greeks-we-screwed-you-with-wrong-program-false-multipliers/">IMF review admits: Greeks, we screwed you with wrong program & false multipliers</a><br />
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The result is a macroeconomic disequilibrium where consumption, savings, investment, government expenditure and tax plans will collapse upon each other. The economy does not grow but shrinks its way out of financial crises. </div>
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<br /></div>
<div style="text-align: justify;">
<b>Part four: Bleak House</b></div>
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"Suffer any wrong that can be done you rather than come here!"<br />
<i>Jarndyce v Jarndyce a large inheritance entrapped in a case dragging on for many generations that is finally resolved by the legal costs devouring the entire estate.</i> (Charles Dickens' Bleak House)</blockquote>
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Europe is threatened with long-run stagnation. Its investment engine over-flooded with toxicity, the funds of trading surplus economies' channeled into poor investments and pyramid schemes whilst deficit economies are asset-stripped of their human capital. <span style="text-align: left;">A flawed monetary union adjusts by population adjustments (emigration, lower quality of life, lower birth rates, lower life expectancy etc). </span>The periphery's young migrate to the core keeping its wages costs low and its relative competitive advantage. Human capital (education, healthcare, etc) that was paid for in the periphery yields its returns to the core. <span style="text-align: left;">Left behind is an increasingly unskilled, aging and unhealthy population </span><span style="text-align: left;">tied to debt repayments </span><span style="text-align: left;">struggling on third world wages to meet European food prices (distorted by a flaw Common Agriculture Policy). </span></div>
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You cannot have the holy trinity of stable current accounts, sustainable debts and balance government budgets. They could be sustained by a permanent system of European-wide transfers. Something like the original Marshall Plan, that laid the foundations to the original European Community, would do. But this would imply a degree of "European-ness" that does not exit. <br />
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<span style="text-align: center;">Without debt forgiveness and real investments, a small indebted country should keep </span>a euro-exit card up its sleeve and not be afraid to play it.</div>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-92022211281967488982012-10-26T14:09:00.000+03:002013-10-17T01:32:46.396+03:00Bye Bye Democracy Hello Bond-Age<div dir="ltr" style="text-align: left;" trbidi="on">
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<b>Greekistan:</b> latest proposals leaked on how to deal with the troublesome colony <a href="http://www.keeptalkinggreece.com/2012/10/24/german-finmin-wants-greeces-tax-vat-revenues-in-escrow-account-full-text/" target="_blank">German Finance Minister wants Greece’s Tax and VAT revenues place in an Escrow Account. </a><br />
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So i<b>f Greece makes a primary budget surplus then </b>a dedicated receipt (such as part of VAT income) transferred monthly to the trust account. And <b>if Greece doesn't make a surplus, </b>then automatic budget spending cuts equally divided through all spending programs. <b>If it Greece refuses bring in officials</b> who will make them as democracy is a form of cheating. And if all this <b>is unpopular with the natives,</b> throw in some sweeteners.<br />
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<b>But not too sweet. </b>"Growth and job-enhancing measures" (or the further reduction of wages costs livings standards) and "the release of some structural funds dedicated to the 181 projects of high priority,” (feed the local Oligarchs - usual conditions of having funds to match EC funds will probably apply)<br />
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<b>The Road to Serfdom or </b><b>Bond slavery </b><br />
<b><br />The debt / GDP ratio?</b> It gets worse all the time. As long as interest payments on public and private debt remains greater than the rate of investment and the ability to pay, the economy will be entrapped in a dynamic ‘vicious cycle’ of debt. Debts are "excessive" due to the inability to pay (not size per se). Just throw in another forecast, who cares if they miss the targets?<br />
<blockquote class="tr_bq">
<blockquote class="tr_bq">
“Yes, but shouldn't the arrows being getting closer?” asked Alice,<br />
“Off with their heads!” roared the Queen <br />
"... Look, fewer misses"</blockquote>
</blockquote>
<b>So the external balance </b>(Greek exports to imports) was positive. The poor are too poor to buy imports and the middle classes are being eradicated <a href="http://www.nytimes.com/2012/10/25/world/europe/greek-unemployed-cut-off-from-medical-treatment.html" target="_blank">“In Greece right now, to be unemployed means death”</a> - less heads to be counted in the future unemployment statistics. As for Youth employment, call it Youth-anasia. An <b>Export recovery?</b> The latest Industrial orders statistics are not so pretty ("<a href="http://notayesmanseconomics.wordpress.com/2012/10/22/are-there-signs-of-a-turn-in-the-greek-economy/" target="_blank">Are there signs of a turn in the Greek economy?</a>")<br />
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"It is clear that Greece is off track and<b> there is no chance they will cut the debt to 120 percent of GDP </b>in 2020 as envisaged." (<a href="http://www.cnbc.com/id/49563885/" target="_blank">a euro zone official, who insisted on anonymity</a>).<br />
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<b>Austerity undermines the ability to pay,</b> driving more and more people into debt and poverty. "Creating the 'conditions of growth"by doing the opposite. Asset stripping is not economic development. Turning bad debts into a (bad taxes) fiscal problem, and passing debt burdens on to taxpayers, means less income and revenues. A shrinking domestic market, rising cost of subsistence (wages) and an increasing ugly political environment for investment, are not exactly ideal conditions for making a local producer more competitive in global markets.<br />
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<tr><td style="text-align: center;"><a href="http://twitpic.com/b6zl4f" style="clear: right; margin-bottom: 1em; margin-left: auto; margin-right: auto;" title="Share photos on twitter with Twitpic"><img alt="Share photos on twitter with Twitpic" height="320" src="http://twitpic.com/show/thumb/b6zl4f.jpg" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Euro crisis in a bin - note the desperate advertising leaflets<br />
photo via <a href="http://twitpic.com/photos/asteris" style="border: 0px; color: #1c6cce; cursor: pointer; font-family: 'Helvetica Neue', Helvetica, Arial, sans-serif; font-weight: bold; font: inherit; line-height: 24px; margin: 0px; padding: 0px; text-align: -webkit-auto; text-decoration: none; vertical-align: baseline;">@asteris</a></td></tr>
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<b>Anyone really believing in this Austerity nonsense?</b> Even IMF economists show that the damaging multiplier effect of austerity is very severe (<a href="http://www.huffingtonpost.co.uk/ann-pettifor/imf-austerity-_b_2004700.html?" target="_blank">The IMF and the End of Austerity</a>)</div>
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"<a href="http://voxeu.org/article/gauging-multiplier-lessons-history" target="_blank">Not so shocking as this is, of course, just what standard theory would have suggest</a>ed.</div>
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<b>Instead of growth</b>, citizens are burdened and enslaved by debts, who are then told that they are not poor enough to be competitive, are cheats and are then asset-stripped. Local oligarchies can then move their capital back in, buy everything on the cheap. </div>
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<b>A transfer of wealth from those not poor enough to those not rich enough</b>. 'Perfect Markets' are only for the few with 'Rentiers' rather than producers<br />
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All this for our<b> children's children's welfare? </b>Younger generations suffer the most, can't afford children, and more and more families in Greece are forced to surrender their children to charities. (<a href="http://www.soschildrensvillages.org.uk/about-our-charity/archive/2012/01/greek-crisis-forces-families-to-abandon-children" target="_blank">One surplus that Greece is producing</a> - re: Swift's <a href="http://teacherdudebbq.blogspot.gr/2012/11/a-neo-modest-proposal.html" target="_blank">Modest Proposal</a>)<br />
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<b>Generation X debt reduction.</b> The present generation sacrificing supposedly for the next by sacrificing the next (jobless youth/at 58%). Taking away someone's future to secure someone else's today. Inverse / Perverse investment may secure today, but no one safe tomorrow. </div>
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There are three basic ways to reduce the debt-to-GDP ratio/ fraction</div>
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1) reduce the numerator e.g Debt forgiveness / default </div>
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2) increase the denominator e.g. growth or/and inflationary increases in GDP or </div>
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3) remove the statistic - remove the sovereign state. </div>
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When debts cannot be paid or rolled over, foreclosure time arrives and Government is removed. Welcome to "More Europe - less democracy," <b>Don't bother voting on this; you can't. </b></div>
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Economic growth may come with pain, but the idea that pain (<a href="http://www.bbc.co.uk/news/world-20068145" target="_blank">or torture</a>) generates growth is perverse.</div>
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<b>Medicine?</b> "Now the drugs don’t work; They just make you worse" Verve (via <a class="twitter-atreply pretty-link" dir="ltr" href="https://twitter.com/notayesmansecon" style="background-color: whitesmoke; color: #009999; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 17.600000381469727px; text-align: -webkit-auto; text-decoration: none;"><s style="color: #66c1c1; font-size: 14.399999618530273px; line-height: 17.600000381469727px; text-decoration: none;">@</s><b style="color: inherit; font-size: 14.399999618530273px; font-weight: normal; line-height: 17.600000381469727px;">notayesmansecon</b></a>)<br />
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<b>And the goals of economic policies are ?</b></div>
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Human Happiness? Welfare? Efficiency? Competitiveness?</div>
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<a href="http://twitpic.com/b6zl4f" title="Share photos on twitter with Twitpic"><br /></a></div>
<b>Efficiency</b><br />
<span style="background-color: whitesmoke; color: #333333; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 17.600000381469727px; text-align: -webkit-auto;">RT </span><a class="twitter-atreply pretty-link" dir="ltr" href="https://twitter.com/aThumper" style="background-color: whitesmoke; color: #009999; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 17.600000381469727px; text-align: -webkit-auto; text-decoration: none;"><s style="color: #66c1c1; text-decoration: none;">@</s><b style="color: inherit; font-weight: normal;">athumper</b></a><span style="background-color: whitesmoke; color: #333333; font-family: 'Helvetica Neue', Arial, sans-serif; font-size: 14.399999618530273px; line-height: 17.600000381469727px; text-align: -webkit-auto;">: Efficiency is a highly developed form of laziness <<<--or an unit of output produced with the least effort. </span>To be 'efficient' at producing something that no one wants is meaningless. So whose wants/welfare are we referring to?<br />
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<b>The 1% Pareto Optimal rule</b><br />
Efficiency defined as where no gains can be made without making a very wealthy person worse off.<br />
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<b>Competitiveness?</b><br />
Does it now mean increasing the number of poor, reducing numbers of small business enterprises and increasing the relative power of oligarchs and monopolies? Are we (with the help their media outlets) confusing "enhancing the conditions" for making abnormal / excessive profits with 'competitiveness'?<br />
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"Trying to makes ends meet, you're are a slave to money and then you die" Verve - Euro's Bitter Sweet (drug related) Symphony<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-17828739289822271512012-10-22T00:33:00.003+03:002015-06-07T01:35:20.498+03:00Its Capital, not Labour, Stupid<div dir="ltr" style="text-align: left;" trbidi="on">
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The Greeks are not drinking medicine; they are drinking hemlock<br />
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In any monetary area (be it the US, UK or USA or Eurozone) there will always one area or region which will have a competitive advantage over another. Industry, finance and businesses concentrate in areas that confer to each other economics of scale and advantages over others. There is always a risk that disparities between regions (economic growth rates & living standards) will lead to separation and breakup. A monetary area peacefully avoids this by either (1) moving funds from its core to its periphery (2) or by its people and resources willingly moving from the less prosperous to more prosperous regions (prices/costs fall in the periphery and rise in the core). When neither happens, the monetary area descends into war, dictatorship, repression, unrest, civil wars, independence movements and revolutions.</div>
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Europe is a collection of diverse economies and cultures which, by their very nature, imply structural rigidity; a place where common currency is accepted but a common debt cannot be, without some form of deception; a place where labour mobility gets lost in translation and generates racial tensions; a place where member economies do not share a common growth path; a place, which therefore cannot share a common dream or future. There was and will be no real convergence. There is no legitimate central fiscal authority and no democracy at the centre. </div>
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The mechanism for relocating resources and investment funds across the Eurozone members mis-fired from day one (moral hazard, too big to fail over-lending poor investment decisions). <span style="text-align: left;">-- Primer on the Banking crisis: (</span><a href="http://www.karlwhelan.com/IMB/part8.pdf" style="text-align: left;" target="_blank">Prof Karl Whelan's Lecture notes - Incentive Problems in Banking</a><span style="text-align: left;">) </span> Euro-leaders responded with ridiculous rescue attempts to save financial institutions that deserved to fail. The effect: zombie institutions stand; countries fall, facing depression and regional (or country) depopulation. The 'Psuedo Macroeconomics' of debt management and debt collecting policies is destructive and self-defeating. <br />
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Fiscal compact agreements will lead to the break up of the Euro-zone and even the breakup of member countries themselves. Capital does not move to a political unstable declining region. It moves the other way.<br />
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<h4 style="text-align: left;">
<span style="text-align: left;">The Competitiveness buzzz, Aggregates, Averages and Unit Wage Costs</span></h4>
The crisis began as a financial one. But somehow a switch has been done: from market failings of Global and Europe's financial system to the market failing in labour markets, repackaged, dished out as medicine in unit labour costs. Productivity and efficiency are problems, but what are they and where do they lie?<br />
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Aggregates and statistic averages can hide, blur and distort many things. Productivity and efficiency is not just about unit labour costs, the number of hours worked or how hard a Greek or German works. Its what these costs represent, or how productive or non-productive these hours of effort are.<br />
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OECD figures may be questionable - that the Greeks worked in 2008 on average worked 2120 hours per year (second only to Korea in the OECD but then what do all these extra hours produce? Armies of bureaucrats, corruption, lawyers, accountants .... in Greece and in Europe. The system in Greece is inefficient, but it is more than just about the actual persons who clocks in the hours.<br />
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Meet Alex, the ‘Lazy Greek Bastard’ behind this crisis <br />
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58% of youth unemployment is unjustifiable "'Capital" punishment<br />
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<b>Statistics, Lies and Sadistics</b><br />
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Should we speak about incomes in general or wages costs? In Greece, nominal incomes from property rents and dividends (excluding corruption, undeclared offshore accounts) rose four times as fast as wage incomes (and 'real incomes' is another story).<br />
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The average wage is not the wage the 'average person' receives. Income distribution (inequality) is not a 'Normal Distribution with a few poor people, a few rich people and the rest in the center. The averages wage is not what the average person earns. When the distribution is not symmetric, the average can be misleading.<br />
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What does average incomes, wages, costs, etc mean in real terms to the average person? Inflation in Greece has always been significantly higher than many other Euro Zone countries. Rich and poor experience it differently, if basics rise faster than luxury goods and housing and rents soared. The very people that lost out on this, were the first suffered austerity. The aggregates printed in newspaper bury many stories.<br />
<span style="text-align: -webkit-auto;"><br /></span><span style="text-align: -webkit-auto;">One of the main causes of inefficiency in Greece is the lack competition caused by local cartels, monopolies (and a weaker buying power for smaller business in wholesale markets). Yet it is unit labour costs that are first. The leading companies retained or even increased their profits while small businesses collapsed around their feet. Initially consumers suffer higher prices as cartels and monopolies were easily passed on. </span>When deflation set, wages (if paid) fell at a faster rate than prices. Lower wages didn't lead to a more labour being demanded. Instead, unemployment rose rapidly as domestic demand collapsed.<br />
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Greece's entry into the Euro meant that the prices of basics went up, while the prices of luxuries fell. The rich saw the price of their "basket of goods" fall; the poor (and those not employed by the state) had a very different experience of this 'inflation' rate. The percentage of income spend on rent and food by those who had to work increased and, worst, credit cards were thrown them promising the 'European Dream." The basket of the typical Greek Mediterranean lifestyle, so desirable in Western European supermarkets, is now too expensive for most Greeks. It is exported and processed food import (at an fixed exchange rate that generates a balance of trade deficit)<br />
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What exactly is competitiveness? <span style="text-align: left;">A economic textbook explanation would look like </span></div>
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<i>Competitiveness is a measure of a country's advantage or disadvantage in selling its products in international markets. - the price of foreign goods relative to domestic prices.</i></div>
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It is a massive leap of faith to jump to unit labour costs, the ratio of nominal wage growth to labour productivity.<br />
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Confining ourselves to using only unit labour costs would suggest that an economy is more competitive the smaller the share of GDP/National Income that wage earners receive. So countries like Greece must need to implement policies that pressure wages (and without economic growth, living standards) downward. Except, in Greece, it is not only about the wage / profit share divide of the cake but rentier incomes that seem to be almost immune and embedded in a corrupt political system. <br />
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The concept of international competitiveness encompasses many factors that do not lend themselves readily to quantification eg the capacity for technological innovation, degree of product specialization, the quality of the products involved, or the value of after-sales service are all factors that may influence a country's trade performance favorably. Unit labor costs, by themselves do not say much. It is just one factor in the production mix. Efficiency depends on the mix of factors and the scale of the operation - size matters.<br />
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Attaining high rates of productivity is often seen as a way of improving competitiveness, but it does not necessarily mean that the possession of such nice statistics will boost sales. (<i>a silly example: sacking every one apart from the most productive worker in a country would produce very good average productivity figures and an output that no one in the country can afford to buy</i>). Productivity and efficiency, relates also to what people want and the ability and access to buy it. Mass unemployment and idle resources is wasteful and inefficient<br />
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Reducing the income generated by labour by reducing nominal wages may even hamper economic growth. <a href="http://www.scribd.com/doc/51284147/148/Kaldor-paradox" target="_blank">Kaldor’s paradox</a> showed that the fastest growing economies in the post-war period also experienced faster growth in unit labour costs, and vice versa. Low unit labour costs causing higher economic growth rates is far too simplistic.<br />
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Reducing wages share of national income, that is increasing productivity (increasing output per euro spent on a worker) increases profits (and according to neoclassical theory) kicks off recovery and economic growth. If investment does not happen (and remember that the whole mess began in the financial markets) then, like the 1930s , we are in deep trouble. The issues returns back to capital. With everyone playing a 'beggar-thy-neighbour' unit labour cost game, there is no demand and markets to safely invest in.<br />
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European policy makers (and as they are un-elected officials often with connections with the Banking community) too easily assume efficient financial markets and, when things go hopelessly wrong, too easily blame the labour market. 'Correcting' the labour markets will not save a flawed EuroZone financial system. It will not created the economic growth to save it.<br />
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Euro-leaders and politicians sit happily trapped in a euro-bunker of their own making, protected by the best firewalls money (or rather the Euro) can buy (<a href="http://en.wikipedia.org/wiki/Groupthink#Symptoms" target="_blank">symptoms of Groupthink</a>).<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-54950402242124227102012-10-18T19:48:00.000+03:002015-07-11T19:52:08.477+03:00Plan 9 from Outer Space<div dir="ltr" style="text-align: left;" trbidi="on">
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<b><span style="text-align: left;">Euroland Check List</span> </b></div>
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1) Pass toxic debts on to households (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔)</span><br />
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2) Save Zombie financial institutions (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔) </span><br />
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3) Buy time for the capital mobile to escape (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔)</span><br />
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4) Currency overlords to enforce payment on those who can't ship money out (<span style="color: red;">in progress -</span> <a href="http://www.telegraph.co.uk/finance/financialcrisis/9613384/Germany-shocks-EU-with-fiscal-overlord-demand.html" target="_blank">Germany shocks EU with fiscal overlord demand</a>)<br />
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5) Protest - encourage infighting (North/South, Greeks, German, garlic, migrants) (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔)</span> and blame the alien next door (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔) </span>Local media (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔). </span><br />
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6) Compensate for bad investment decisions (<span style="color: red;">in fact don't mention them</span>) by lowering wages (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔) and</span><br />
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7) Export led growth to the alien next door ( <a href="http://www.sciencenews.org/view/generic/id/345756/description/The_alien_next_door" target="_blank">Newly discovered planet is just 4.4 light-years </a> ).<br />
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8) EZ implodes. Neo-nazis try to take over but Eurocrats save the day with the EZ superstate ( <span style="color: red;">Progress (?) Risky, but they want a superstate too </span>).<br />
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8b) EZ unrest (IMF riot variation). Peace-keeper role - expelled rowdy non- complying members (<span style="color: red;">nearly there</span>).<br />
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9) Members say "we are not Greece" (<span style="background-color: white; font-family: sans-serif; font-size: 13px; line-height: 19px; text-align: -webkit-auto;">✔)</span> & sign up for the Super State. <a href="http://rwer.wordpress.com/2012/10/18/klaas-knot-european-central-banker-wants-to-abolish-democracy/" target="_blank">Blame populism and democracy</a> for the crisis and praise Technocrats for restoring order .....<br />
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10) and launch to loud cheers, Le Grand European Investment plan - the ESA's mission to Mars.<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-51791380753806376292012-03-21T03:24:00.000+02:002015-01-29T15:42:04.141+02:00Special Offer: Fage Total Muppet<div dir="ltr" style="text-align: left;" trbidi="on">
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The ever-expanding Evangelos Venizelos ran unopposed in the leadership race of ever-shrinking PASOK party on Sunday. PASOK is for all purposes financially bankrupt with 120 million euros of debt and staff unpaid for months. Voters were required to pay 2 euros (see <a href="http://insidegreece.wordpress.com/2012/03/19/veni-vidi-vici/" target="_blank">Veni, vidi, vici</a>). Some chose to spend their 2 euros more wisely (<a href="http://www.keeptalkinggreece.com/2012/03/10/frustrated-pensioner-hurls-yogurt-against-finmin-venizelos/" target="_blank">Frustrated Pensioner Hurls Yogurt At FinMin Venizelos</a> - "I came, I saw, I got splattered").<br />
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<span style="background-color: white; color: #333333; font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 15px; line-height: 18px; text-align: -webkit-auto;">Get the two for one Venizelos+Fage yogurt. Buy now!</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6NL7UyYx2BksWWImXCxpp_Z09UGdr1m8c2tS58KMq8MGVwUX8vDEia0YN14cQNqGO30dqzwdXkG1esUyA9vv-Av3JLXfhkj3lys-WSuKihCZ9xe-R8r_xm6rl6loifKXmDkQxt_PG5A/s1600/Venniyorghurt.jpg" imageanchor="1"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi6NL7UyYx2BksWWImXCxpp_Z09UGdr1m8c2tS58KMq8MGVwUX8vDEia0YN14cQNqGO30dqzwdXkG1esUyA9vv-Av3JLXfhkj3lys-WSuKihCZ9xe-R8r_xm6rl6loifKXmDkQxt_PG5A/s640/Venniyorghurt.jpg" height="640" width="443" /></a></div>
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<i><span style="font-size: small;">Product Update: Greek dairy company FAGED introduces it's new Total(itarian) </span></i><i><span style="font-size: small;">yogurt. </span>A velvety rich </i><i>yogurt. N</i><i style="text-align: left;">ow with even bigger chunks of raspberries and repression.</i></div>
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<b>Importance Notice (24.01.15)</b></div>
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<i>Due to customer complaints </i><i>this yogurt has now been removed</i><i>. </i><i>Inspectors confirm there were problems with improper cleaning at the plant, but say the yogurt contained only mold. Health officials say there nothing to worry about as they don't eat it. It only affects people with normal immune systems. They were keen to stress that it did not damage the operation of the plant."Though it can make people very sick, it did not damage machinery and therefore there is no reason to stop production. </i></div>
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<i>The matter is now being referred to the European Court of Justice. One elected official complaint "They are not abiding agreed rules. </i><i>It sets a bad example.. Its a question of moral hazard. It means that other customers can get away with not eating it. What do I tell my voters?"</i></div>
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<span style="text-align: left;"><b>Total muppet Book offer</b> (</span><a href="http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html" style="text-align: left;" target="_blank">Why I Am Leaving</a><span style="text-align: left;"> - Goldman Sachs' “muppet" clients). </span><br />
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<span style="text-align: left;">Introducing "Muppet-O-nomics for Dummies" - International Muppet Fund 2012 </span></div>
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1SGc9UaE_fybwnkMWK3wkMZJTeniAVeUjjUNNdclcueC7JKo7jxCLNnCQZAvtYWLDd6Gv6JEDxFETkvCoKpXj0Bh1lkfsQOigkNm003lXidln7hm0-EH2xd6ocfth-7gKmup9w3ad1g/s1600/VEuroDummies.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1SGc9UaE_fybwnkMWK3wkMZJTeniAVeUjjUNNdclcueC7JKo7jxCLNnCQZAvtYWLDd6Gv6JEDxFETkvCoKpXj0Bh1lkfsQOigkNm003lXidln7hm0-EH2xd6ocfth-7gKmup9w3ad1g/s640/VEuroDummies.jpg" height="640" width="510" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="font-size: small; text-align: left;">The International Muppet Fund 2012 update includes a foreword by Venizelos</span></td></tr>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-19367553527901716342012-02-25T19:37:00.000+02:002012-03-26T04:42:59.247+03:00Second Greek Deal: an Exercise in ComPact StuPIGidty<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="background-color: white; color: #333333; font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 14px; line-height: 18px; text-align: -webkit-auto;">Ministry of Truth: Strength is Ignorance; Slavery is Freedom; </span><span style="background-color: white; color: #333333; font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 14px; line-height: 18px; text-align: -webkit-auto;">Austerity is Growth</span><br />
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The Second "Greek 130 billion "euro bailout" is not about saving Greece. The numbers and projections were incredible, designed as counters in a "let's make a deal" PSI game. <br />
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<b>Re-cap</b><br />
The Eurzone is an unbalanced monetary union whose economies are in persistent divergence. The crisis exposes the structural problems of individual economies. If Greece was the only one facing the threat of insolvency, it would have been bailed out by now. In a monetary union of contradictions, the stress of Eurozone economies moving in different directions, comes apart at the weakest link. If it Greece wasn't in the eurozone, it would be some other member of the periphery that would be this position.<br />
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Greece may have a bloated State sector and a clientelism system ruled by political dynasties, but it is not the cause of the Euro crisis. The world is littered with incompetent, corrupt regimes ruling inefficient economies. In the Eurozone, there is no exchanges rate (or alternative) mechanism to adjust competitiveness and compensate for economies that share very little in common with each other. The "too big to fail" dream is not bringing Europe together, but destroying it. Like other failed monetary unions, this one threatens dictatorships, wars and revolutions.<br />
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<b>The Second Greek Bailout Deal</b><br />
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Greece has now been in recession for five years. Greece's GDP fell by 7% last year (17% since 2009) and unemployment now stands at 20%. Youth unemployment (under 25 years) is dangerously close to 50%. Economic growth must be a priority, but it isn't . It only appears in EC communiques.<br />
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Reforms without growth are deforming. Austerity, the reaction to 2008 like that in 1929 is creating a monster. Everything, from democracy, freedom, and even humanity itself is being threatened. For what?<br />
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<b>A 1930s comedy?</b><br />
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<tr><td class="tr-caption" style="text-align: center;"><span style="background-color: white; color: #333333; font-family: HelveticaNeue, 'Helvetica Neue', Helvetica, Arial, sans-serif; font-size: 14px; line-height: 18px; text-align: -webkit-auto;">""Well, here's another nice mess you've gotten me into!"</span></td></tr>
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<b>A 1948 nightmare?</b><br />
with the great powers of global finance in a state of waging permanent war; national cheer leaders (and she who must not be named Tart | <a href="http://www.keeptalkinggreece.com/2012/02/22/greek-journalist-fined-e25000-for-calling-merkel-a-tart/" target="_blank">KTG</a>) demanding greater competitiveness for their national export effort against each other; populations tuning into national TV 'Hate Weeks' blaming each other; officialdom churning out EuroSoc contradictions; and, new historical agreements each day that erase the previous ones.<br />
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<b>Compact StuPIGidty?</b><br />
The new "Stability and Growth Pact. At best it is Stupidity Pact 2.0 riddled with holes, rendered useless as each member breaks the fiscal and deficits rules.<br />
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But, made effective, it a suicide pact that condemns the periphery economies that sign up for it. It renders democratic constitutions and civil rights null and void - a 'Find and Replace' button to zap out the word 'citizens' to replace it with 'creditors' in each nation's constitution.<br />
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It means that in a global downturn (imagine a supply-side shock such as a jump in crude oil prices e.g <a href="http://www.mindfulmoney.co.uk/wp/shaun-richards/why-the-current-rise-in-the-price-of-crude-oil-could-have-a-more-powerful-economic-effect-than-expected/" target="_blank">Iranian crisis</a>), a governments will either have to cheat, or cut and deepened its own economy's recession. Trying to cut the budget deficit will lead to lower tax revenues, increased expenditures (more unemployment payments) and yet more missed targets. The country is then placed in a debtors' jail with their finances placed under stringent watch to enforced deeper more bloodier cuts. And once off-track, if you are a small country, there is no way back.<br />
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Here's a view from Punk Economics<br />
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And a lighter take (from @GTCost on twitter)</div>
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The whole Pact can be replaced by the Hitchhikers Guide with no loss of functionality and like the EU, the Deep Thought never computed the actual question it attempted to answer. </div>
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<b style="text-align: justify;">A Carthaginian deal on Greece? ( </b>H/T <a href="http://fabiusmaximus.wordpress.com/2012/02/24/35814/" target="_blank">Fabius Maximus</a> & <a href="http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9077586/Germanys-Carthaginian-terms-for-Greece.html" target="_blank">Ambrose Evans-Pritchard</a>) <b style="text-align: justify;"> </b></div>
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The Greek deal is a template for the new "Stability and Growth Pact. - a template for an accounting book dictatorship where rules and agreements are made behind closed doors, by unfamiliar officials and technocrats guaranteeing the rights of creditors above those of citizens. It is served as a austere lesson to discipline all other 'sinners'. Hardy any of the "Greek 130 billion "euro bailout" is going to the Greek people. It locks them up in a debtors prison, and then throws away the key.</div>
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As 'Fabius Maximus' (<a href="http://fabiusmaximus.wordpress.com/2012/02/24/35814/" target="_blank">Europe has chosen a harsh future. All the paths for Greece lead into darkness</a>) highlights<span style="text-align: justify;"> </span></div>
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<li><span style="text-align: justify;">Exchanging of existing bonds — issued mostly under Greek law — for bonds issued under creditor-friendly UK law will both diminishes their sovereignty and makes the eventual default far more difficult.</span></li>
<li><span style="text-align: justify;">Exchanging bonds issued to private investors for loans from quasi-governmental agencies will make the eventual default far more difficult.</span></li>
<li><span style="text-align: justify;">The pledging of gold reserves will eliminates a vital resource needed to buy imports during a default and devaluation process.</span></li>
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These will make any future defaulting or exiting of the euro more expensive and more painful.<br />
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Here is the second lesson from Punk Economics</div>
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The reward for the hardships imposed by the "Second Greek bail-out", is that Greece's sovereign debt will become sustainable at debt/GDP ratio of 120% by the year 2020.<br />
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The deal forecasts Greek GDP to fall until some point in 2013 but somehow magically pops up at 2% in 2014 and continues at growth rate that achieves a 120% debt to GDP in the year 2020. Greece is a weak economy that has just suffered five years of hard recession with still more austerity cuts to come. How can it return to growth by 2013? What makes 120% the magical number of debt sustainability? 20/20 EuroVision.</div>
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Within hours a IMF leaked Debt Sustainability Report (find<a href="http://www.macrobusiness.com.au/2012/02/greece-sustainability-report/" target="_blank"> here</a>) stated a worse (more likely) case scenario of the debt being 160% of GDP in 2020. Here is the Greek Debt sustainability analysis as annotated (by G Jenkins, Swordfish Research Ltd via <a href="http://ftalphaville.ft.com/blog/2012/02/24/896051/that-greek-sustainability-analysis-anotated/" target="_blank">FT's Alphaville)</a><br />
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<i><span style="text-align: justify;">“Strictly Confidential”<span style="color: #990000;"> (It has already appeared on Wikileaks so give away as you like)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“Baseline assumptions…the 2011 outturn was worse than expected…the macroeconomic outlook has deteriorated significantly…Medium term potential growth assumptions have been maintained” <span style="color: #990000;">(Yes, I know it doesn’t make any sense not to alter the growth assumptions when all the inputs have deteriorated but unless we keep the figures the same then even we can’t fudge this one)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“Fiscal path has been adjusted…still bring Greece to a primary general surplus of 4.5% of GDP by 2014, although additional measures will need to be identified to secure this outcome”<span style="color: #990000;"> (I can’t get it to add up)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“… uncertain whether market access can be restored in the immediate post-programme years…” <span style="color: #990000;">(I mean, would you lend your own money to this lot?)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“For the purpose of constructing the DSA baseline Greece is assumed to maintain good policies post-programme”<span style="color: #990000;"> (Yeah, knew that one would make you chuckle!)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“…if the primary balance gets stuck below 2.5% of GDP” <span style="color: #990000;">(which it probably will),</span> “then debt would be on an ever-increasing trajectory”<span style="color: #990000;"> (I am working on the Bail-out III paper this weekend...)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“Debt dynamics under an alternative unchanged policies scenario” <span style="color: #990000;">(Think of it like alternative comedy…it all becomes mainstream in the end, so this is the more likely outcome. It’s not the wrost case scenario — jeez, you definitely don’t want to see that…)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned…” <span style="color: #990000;">(Hey, can you blame them? They have to live there…)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“Greater wage flexibility may in practice be resisted by economic agents” <span style="color: #990000;">(Turkeys don’t vote for Christmas…)</span></span><span style="text-align: justify;"><br /></span><span style="text-align: justify;">“Service market liberalisation may continue to be plagued by strong opposition from vested interests” (<span style="color: #990000;">Expect more riots…)</span></span></i></blockquote>
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This was quickly followed by the EC admitting its own prediction from last Nov for 2012 is now "markedly" wrong, with economic activity being much weaker than anticipated. The new EC forecasts (23/02/2012 <a href="http://ec.europa.eu/economy_finance/articles/eu_economic_situation/2012-02-23-interim-forecast_en.htm" target="_blank">click here </a>) exploded the numbers in the Greek bailout deal that had projected the new measure realizing a 120% Debt/GDP ratio for 2020. Just the headings alone in the report reveal how messed up the Eurozone is. The new forecasts now also show negative GDP growth rates for Belgium, Spain, Italy, Cyprus, the Netherlands, Slovenia and Hungary.<br />
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So, after years of suffering, having loss of its independence and being taken over by unelected Trioka officials, the best the Greek economy can hope for is to be in the same unsustainable place as where it is now.</div>
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The agreements to cut minimum wages, health care, pensions and "whatever it takes" will reduce domestic demand and deepen the recession. Cartels and power interest groups, buffered by funds aboard will survive. Small competitive businesses won't. 423,000 businesses have shut down while People live of the garbage and sleep on pavements. Ignore the semantics of default, citizens will default everyday on their mortgages, loans and bills. The Troika does not offer a bailout for ordinary citizens or save small businesses from bankruptcy. Greeks are asked (in fact they are being ordered) to do it for their children....</div>
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Internal devaluation (replacing the role of exchange rates in adjusting international competitiveness) is proving to be a disaster of epic proportions for the Greek economy. Competitiveness in the Greek economy is not simply measured by a macroeconomic 'real wage level' to be adjusted in neoclassical or simplistic Keynesian versions of the world. Wages cannot be cut off from productivity, productivity cannot be cut off from the structural inefficiencies of the Greek economy, and this in turn cannot be cut off from the political regime in Greece. The much needed restructuring of the Greek economy has to go hand-in-hand with a much needed restructuring of the political and legal system.</div>
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Competitiveness in the Greek economy is about cartels, monopolistic market structures and a system of clientelism that kills off development and innovation. Foreign and domestic Cartels, collude, carve up markets, fix prices while regulators look the other way. Innovation retreats to the black and grey economy. Lower incomes groups, struggle to escape a system that tries to make them pay more in an increasingly regressive tax system. The wealthy have off-shore accounts, lawyers and accountants that cut through a complex legal system. Austerity and reforms are applied to the weakest first. A turkey does not vote for Christmas.<br />
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To inflict this monstrous deal, the Greek Constitution has to be changed to give creditors first priority to take any revenues that "Greek" government can squeeze from its own population. The money to pay these creditors must be placed in a so-called "escrow account" so that it can't be diverted to other purposes. Any leftover spare cash raise from government revenues will be used to run whatever remains of the country. Unless Greece manages to achieve primary surplus (tax revenues exceeding expenditures excluding interest payments on debt), which is proving to be practically impossible, it will either have to borrow yet more money or break even more obligations to its citizens. More exasperated taxing and expenditure cuts, will slash against those designed for economic reform as the economy spins further into its death spiral. <br />
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Think of Greece as a 19th Century UK rotten borough in desperate need for more not less democracy. Think of Europe as not even pretending to be one, enforcing rules that make governments accountable to the creditors, not their citizens.<br />
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Here is yet another take on the Greek scam<br />
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Debt servitude not investment is the priority in an up-side-down economic development model that reduces the economy to Third World conditions. Eurocrats land in Athens to ensure the serfs don't cheat in making their tributes. The increasing numbers of people exiting the euro to arrive at soup kitchens, shows how far the third world colonialism has entered into Europe. </div>
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Who is the deal really bailing out? The private holders of Greek sovereign might be hit with a loss (in Net Private Value) of up to about 75%. - but these were junk bonds of an insolvent economy a long time ago. The Institute of International Finance representing 50% of private sector bondholders has agreed to this debt swap, but, as hedge funds and potential vulture funds have resisted participate, the Greek government is trying to enforce participation (Collective Action Clauses, CACs). In effect, it ought to trigger a credit event, so that insurances can be collected on the bonds. The ECB and members Central Banks tries avoid losses by not being in the debt swap. The private sector is rests this and in the end blackmail or coercion will be used. </div>
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This new Greek "bail out " and the Stability and Growth Pact is really an attempt to bailout of the Euro dream. All means possible are used to prevent its break-up. Democracy and freedom do not count.<br />
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.... the sacrifices demanded of ordinary people to preserve the single currency are a huge threat to European union. As externally-imposed austerity bites, not only in Greece but in other countries too, there is a real risk that Europe will fracture along historic lines and people will seek to settle old scores. The single currency is the biggest threat to European peace since the Second World War................ And then there is Spain.....at which point the wheels come off. Spain is much too big to bail out. (<a href="http://www.coppolacomment.blogspot.com/2012/02/false-dawn.html" target="_blank">Frances Coppola: False Dawn</a>)</blockquote>
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In the same light <a href="http://yanisvaroufakis.eu/2012/02/24/winston-churchill-on-greeces-bailout-mark-2-almost/" target="_blank">Yanis Varoufakis</a> describes the deal as Crisis Appeasement, using the words (apart from one in red) of Winston Churchill's response to the Munich "Peace in Our time" deal: </div>
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<i>"I do not grudge our loyal, brave people, who were ready to do their duty no matter what the cost, who never flinched under the strain of last week – I do not grudge them the natural, spontaneous outburst of joy and relief when they learned that the hard <span style="color: #990000;">default </span>[ordeal] would no longer be required of them at the moment; but they should know the truth. They should know that there has been gross neglect and deficiency in our defences; they should know that we have sustained a defeat without a war, the consequences of which will travel far with us along our road; they should know that we have passed an awful milestone in our history, when the whole equilibrium of Europe has been deranged, and that the terrible words have for the time being been pronounced against the Western democracies:" </i><a href="http://www.winstonchurchill.org/learn/speeches/speeches-of-winston-churchill/101-the-munich-agreement">Winston Churchill on the Munich-Agreement</a> Oct 5, 1938. House of Commons</blockquote>
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Internal devaluation does not work. Greece is not a neoclassical macroeconomic model. Legal, political, and not just economic restructuring are necessary - but ones that move towards democracy to motivate ordinary citizens to participate and share in the reforms. This no longer possible without a regime change. Europe is edging towards war, dictatorship or revolution. The choice is yours. </div>
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Thought I had something more to say
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</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com2Greece40.0833333 22.3539.986142799999996 22.1920715 40.1805238 22.507928500000002tag:blogger.com,1999:blog-20893208381126879.post-43545085287679890452012-01-14T10:46:00.000+02:002013-10-29T19:35:39.651+02:00One and 1/3 speed Europe<div dir="ltr" style="text-align: left;" trbidi="on">
<b>Two-speed Europe? One part trying to go forward, the other part going backwards </b>sentenced to serve as Europe's Third World. Without a simple mechanism to replace exchange rates and to re-cycle surpluses to cover trading deficits, the Euro-zone core and periphery has pulled apart.
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Once an Eurozone member had established a competitive advantage, other members could not easily adjust their competitiveness by lowing exchange rates. This inability to adjust was sustained by an imperfect financial system, with trading surpluses in the core financing the periphery's deficits via French and German banks. One currency, one interest rate provided cheap money to periphery. '<b>Being too big to fail' meant that Banks were willing to over-lend and undertake riskier debts</b>. This could then be leveraged, chopped up into financial salads, by new exotic financial products. The failure of reckless 'investments' could be socialized, passed on via governments to citizens in the periphery and, if that failed, the German taxpayers was the payer of last resort.<br />
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"You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks" <a href="http://blogs.wsj.com/marketbeat/2012/01/04/evidence-the-ecb-could-be-running-backdoor-qe-after-all/" target="_blank">Bridgewater (one of the World's biggest hedge funds</a>)</blockquote>
<b>The Euro was an idea 'too big to fail'</b>. This was shattered in 2009/10. The imbalance in members' trading accounts and the corresponding capital account imbalances were <b>sustained by the illusion that common currency implied a common debt - </b>German and Greek Sovereign debts could be treated equally. Euro leaders resisted any form of an euro-bond that would treat members' deficits equally, unless it were to include the effective removal of deficit countries' governments (Fiscal Compact) - a fiscal authority with fiscal rules dictating terms to the periphery. <br />
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So <b>all debts are equal, but some debts are more equal</b>. Countries, with no control or access to their money 'printing presses', could become insolvent. In the periphery, the costs just to service debts soared whilst attempts reduce debts undermined growth and the ability to repay them. The periphery, Greece in particular, is in desperate need of investment.<br />
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<b>A lack of co-ordination, Lehman type solutions and 'kicking the can down the road</b>' has brought time for the strongest to untangle and pull their capital out. Worse, Euro leaders has misdiagnosed the crisis, addressed the symptoms and focused on fiscal discipline. <b>Austerity programs have driven economies into a debt/GDP death spiral.</b> Euro leaders have 'kicked the can (and the periphery economies) down the wrong road'.<br />
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Greece is country in the fifth year of a recession. The country is insolvent. <b>EU/IMF has succeeded in making Greece is a special case: a third world economy second only to Sudan in global recession </b>(Economist Intelligence Unit). The Greek economy will shrink by 7% in 2012. Austerity has increased the government budget deficit to 21.64bn cancelling out even the desperate emergency taxes. Greece, nevertheless, is instructed to honour its promises.<br />
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<b>Greece has slashed everything.</b> Small businesses are collapsing everywhere. In one year unemployment has jumped from 13.3 % to 18.8 %. The Public hospitals are facing acute shortages of everything. Pregnant women are turned away. Diseases are on the rise. Parents find children too expensive to keep and surrender them to the authorities. 1,000s don't have any form of insurance and access to benefits. Rates of homelessness, suicide, crime, HIV, drugs, crime and domestic violence are increasing. <b>This is still not enough.</b> If this was a war, the country could surrender. I'm not even sure if it is a country anymore.<br />
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Yet, almost 3/4 of government expenditures are spent on <b>serving sovereign debt and "bailout cash" is to be spent on European military purchases.</b> (<a href="http://www.zerohedge.com/news/greece-spends-bailout-cash-european-military-purchases" target="_blank">Zerohedge</a>).<br />
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"If Greece gets paid in March the next tranche of funding of € 80 billion is expected, there is a real opportunity to conclude new arms contracts." says a mysterious man in a cafe new the Defense Ministry </blockquote>
A fixed (internal exchange rate) gave some a competitive advantage in the Euro. <b>Some were just 'fixed'</b><br />
<blockquote class="tr_bq">
Germany is one of Greece's leading trading partners. Last year, Germany exported goods worth €6.7 billion ($8.5 billion) to Greece -- compared to a volume of imports of only €1.9 billion. But what methods are used to achieve this enormous surplus? (<a href="http://t.co/QIAQsdEm" target="_blank">How German Companies Bribed Their Way to Greek Deals</a> -Der Spiegel 5th Nov. 2010)</blockquote>
European leaders tell youth to leave ( <a href="http://blogs.wsj.com/brussels/2012/01/13/eu-to-jobless-youth-leave-home/" style="color: #3465a4;">http://blogs.wsj.com/brussels/2012/01/13/eu-to-jobless-youth-leave-home/</a> ). The youth could tell their leaders to leave, hand over keys and seek work elsewhere. <b>The state may run out of petrol or medical supplies, but it ensures it doesn't run out of tear gas. </b><br />
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The Wealthy and the capital mobile escape. The poor are blamed for not being poor enough. Those left standing have to pay the creditors. The EC is pressing governments to <b>change their constitutions to look like debt-collecting agencies</b>, taking whatever, whenever it can. When collecting taxes revenues fall short the country is asset-stripped.<br />
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<tr><td class="tr-caption" style="font-size: 13px;"><span class="Apple-style-span" style="background-color: rgba(3, 133, 67, 0.0898438); color: #444444; font-family: Arial, 'Helvetica Neue', sans-serif; font-size: 15px; line-height: 19px;"> The Simpsons</span></td></tr>
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To call the administrators of European governments “technocrats” is too polite. There is nothing scientific, in outlawing by constitution all economic policies and beliefs that disagree. Austerity forces the economies deeper into debt, <b>lowering local assets prices that allow local oligarchies to move back in and buy everything cheap</b>. It is a robbery of massive proportions. <br />
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All this is still not enough. Angela Merkel and Nicolas Sarkozy insist turning the screw more. The constitution will be changed and future <b>elections will be designed to be decide whose turn it is to turn the screw</b>. Don't pretend this is a democracy. Don't pretend all this is saving Greece. Don't pretend this is creating growth. Don't pretend it is working. And when that all fails, just say Greece is a special case and admire the beauty...<br />
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'I think the EU remains the most beautiful construction put in place by humanity' Italian PM Monti </blockquote>
Meanwhile another work of art, Picasso’s "Woman’s Head", donated by the artist himself to honour Greek resistance during the World War II, went missing. <br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdvtD4kOiaGoz4gACgIusR05Oui9KOo9o4N0aEIQNcs5W9aqD5mXdSkbRtAB8i2F9__RRFokHsEaHx8GWRCOQ6HbOCYlqW36ydh-UDSnWlG6I5PuuE3D7vBWPtmA1NI_OznmpsmCzpxQ/s1600/Picasso-painting-National-Gallery-Athens.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdvtD4kOiaGoz4gACgIusR05Oui9KOo9o4N0aEIQNcs5W9aqD5mXdSkbRtAB8i2F9__RRFokHsEaHx8GWRCOQ6HbOCYlqW36ydh-UDSnWlG6I5PuuE3D7vBWPtmA1NI_OznmpsmCzpxQ/s320/Picasso-painting-National-Gallery-Athens.jpg" width="248" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Stolen Picasso’s “Woman’s Head“, painted in 1934 and donated in 1949 by the artist himself to honour the Greek resistance against the German occupied forces during the World War II. Estimated to be worth €2-3m.</td></tr>
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<tr><td class="tr-caption" style="text-align: center;">Godfather: "<b>i'll make you an offer you can't refuse"</b></td></tr>
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<span style="text-align: left;">And back in the surreal world of finance, in an Athenian barbershop, voluntary PSI haircuts are .......- someone might remember to bring the scissors. <b>Why would this happen voluntarily</b>?</span></div>
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Even the IMF, it seems has had enough of <b>"counterproductive set of austerity measures' </b>imposed by EU:<br />
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The senior IMF sources in Washington noted that there were "unprecedened delays" in the proper implementation of fiscal and structural reforms linked to the first 110bn euro bailout programme. Instead, "horizontal austerity measures are constantly being adopted that are leading nowhere, whilst further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalisation, the opening of closed professions and productive investments". (<a href="http://www.athensnews.gr/portal/11/52207" target="_blank">Athens News 12/01/12</a>)</blockquote>
Even S&P, in explaining their downgrade of Eurozone Sovereign Governments, argue that Euro leaders have got it wrong:<br />
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“Financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone’s core and the so-called “periphery.” As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.” Credit FAQ: Factors Behind Our Rating Actions On Eurozone Sovereign Governments (<a href="http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245327305715" style="text-align: -webkit-auto;" target="_blank">FRANKFURT (Standard & Poor's) Jan. 13, 2012</a>)</blockquote>
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<b>'Fiscal austerity alone' has been downgraded. </b><br />
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Neoclassical economics would argue that private investment would fill in the space left vacant by government. It would argue that consumer spending would increase anticipating lower taxes in the future. Microeconomics reforms ought to create better conditions for growth - but where's the belief and demand.<br />
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The <b>post-2008 world is one of uncertainty, 'systematic risk', bankruptcies, insolvencies and survival</b>. The NPVs and life cycles theories are have had their horizons chop off. The multiplier rules, triggered by austerity generating successive rounds of falls in incomes and spending. The result is a domino effect with liquidity & quantity constraints knocking everything off their curves.<br />
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Demand does not equal supply. <b>This is what excess supply and the real economy looks like in the EuroZone:</b><br />
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EuroZone under 25 year old unemployment is now at Spain 49.6%, Greece 46.6% Portugal 30.7% Italy 30.1% Ireland 29.3% France 23.8% and Germany 8.1%</blockquote>
Is anyone claiming that this is voluntary unemployment; or is it the fault of millions of European youth for refusing to get on their bikes to cycle to Germany or on the plane to Brazil or Australia ?</div>
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Europe without λόγος - all will flow & nothing will stay (misquoting Heraclitus of Ephesus, c.535 BC - 475 BC).</blockquote>
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<b>We are in disequilibrium</b>. Standard neoclassical theory and solutions do not work in this space.</div>
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Investment and growth is needed. Macroeconomic policy has to create the the right environment to make microeconomics and structural reforms work.<b> It is doubtful that the current European political elite, who have amassed fortunes that created and perpetuated the crisis, are willing to do this.</b> Europe is faced with a political crisis that is blocking any solution to the economic crisis.</div>
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<b>Austerity is not a solution that ends the crisis for ordinary people</b>. It is a solution that only ever considers saving the creditor at the expense democracy, as the majority would reject the payments of debts that they did not create or feel responsible for.</div>
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It is a robbery of massive proportions. Democracy needs to be restored to re-balance the system in favour of debtors. </div>
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com4tag:blogger.com,1999:blog-20893208381126879.post-89601046801917279652011-12-15T01:55:00.000+02:002015-01-18T16:40:07.888+02:00The Hole-ly Trinity<div dir="ltr" style="text-align: left;" trbidi="on">
Another 'historical' European summit fails. Haven't I posted this before?<br />
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Europe’s leaders cannot understand the Eurozone’s economic, banking, and sovereign-debt crises. They cannot resolve them as, in many ways, <b>they are the crisis.</b><br />
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"At the root of the euro upheaval is a balance of payment crisis caused by the cumulative effects of a 13-year-old one-size-fits-all monetary policy and a fixed exchange rate for a collection of disparate countries in very different stages of economic and structural development."
David Marsh, <a href="http://online.wsj.com/article/SB10001424052970203893404577100632525325556.html?mod=europe_home" target="_blank">WSJ</a> December, 2011,</blockquote>
There is a persistent belief that budget indiscipline is the main cause of the crisis (despite <b>Spain and Ireland having budget surpluses in 2007</b>). This makes it impossible for Europeans to accept a fiscal authority that treat all its subjects equally, financed by a simple euro bond with mutual debt sharing. Instead, there is now a Fiscal Compact that <b>paradoxically insists</b> on removing power from both Euro states and European citizens whilst imposing are even more responsibility and guilt for the results of having less power<br />
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The European Union system is <b>dominated by one school of economic thought.</b> It is determined to prevent other schools of thought ever being presented to the electorate. It outlaws them by asking for constitutional changes for balanced budgets and near-zero structural deficits with punishments and outside supervision for states that break, voluntary or involuntary, the agreement. <b>Disagreeing economists will be silenced by the statement: "it's unconstitutiona</b>l". No political party will be allowed to present an agenda that differs. Governments will be not longer accountable to their people but as law-breakers to an 'European court of Justice'. <b>There is nothing just or democratic about i</b>t.<br />
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<b>Europe's very own 'Impossibility Trinity'</b><br />
The Eurozone had an illusion of convergence when it created trading imbalances financed under another illusion that the bonds of the trading deficit economies could be treated as close substitute for those trading surplus economies (Germany). When it became very apparent that individual members were solely responsible for their own sovereign debts, a debt crisis followed.<br />
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To solve this, the compact fiscal pact now tries<b> the 'balanced-book convergence' illusion,</b> in terms of agreed sovereign debt and government budget limits. Those hit harder by a recession will be forced to carry out pro-cyclical policies that deepen their own recession. Those that refuse will be sent to the European court of justice - <b>a 'Death Star' ran by lawyers and bureaucrats zapping out troublesome economies</b>. They will be forced to beg for mercy and understanding from the stronger economies of the euro-zone at a time when they are least able to provide it.<br />
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<tr><td style="text-align: center;"><a href="http://www.flickr.com/photos/teacherdudebbq2/6522774799/" style="margin-left: auto; margin-right: auto;" title="EU Death Star II by Teacher Dude's BBQ, on Flickr"><img alt="EU Death Star II" src="http://farm8.staticflickr.com/7030/6522774799_42844be28f.jpg" height="415" width="500" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">by @teacherdude</td></tr>
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The new Compact Fiscal pact will deepen the original euro flaw. It sets one part the Euro Zone on a completely different development path to that of the other. <b>The Eurozone, peacefully or not, will tear itself apart</b>.<br />
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The plan is that reducing sovereign debt, shrinking an inefficient state, eliminating cartels and vested interests and lowering wage cost and benefits will all improve competitiveness. Reforms can help growth, but austerity and deficit reduction may not be the way to do it. With unequal power relations between creditors and debtors,<b> the only thing that "Expansionary Austerity" expands is austerity</b>.<br />
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The idea that Austerity might work is based on the view that government debt is the cause of everything - recessions, unemployment, inflation, higher interest rates, trade deficits. It is more or less a belief. The links are not that obvious. Early naive simplistic Keynesian models portrayed government budget deficit as a counter cyclical measure to provide a short-run stimulus to economies (neglecting stories on deficit financing). Later macroeconomic models viewed government debt in terms of a public and private sector competition for funds that crowded out private investment. This was then all pushed to one side by a theorem, first mentioned in the 19th Century by Ricardo, that ascribes no effects. If true, it makes fiscal policy redundant.<br />
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<b> Ricardian equivalence </b><br />
The reasoning is quite simple. An increase in government debts imply increases in future taxes. As everyone in the economy recognizes this, an increase in government debt is treated as the same as an increase in taxes. A stimulus to the economy (e.g. a lower of tax rate) increasing the government deficit will be recognized as a future tax increase and have no effect. Individuals do not run out and spend their extra cash as they will need it for the future tax increase. On the other hand. if the increase in debt is created by more government spending private investment is crowded out. As the government is always viewed as inefficient relative to the private sector, this will be seen as as having a negative impact on the economy. Thus reducing the government deficit, by increasing taxes will been seen as having no effect while doing it by reducing government spending will be seen as having a positive effect.<br />
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BUT, with<b> increasing concentrations of wealth and power, access to capital markets becomes increasingly restrictive</b>. The theorem, neoclassical economics and the economies that are ran by them are in deep trouble and fall apart. The ownership of debt and the distribution in wealth determines the relationship of creditors to debtors. The greater inequality, the more of the population that is hit by being unable to borrow or finance. Investment and consumer uncertainty rises. <b>In a recession liquidity constraints run riot</b>.<br />
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<b>Massive inequality really counts:</b><br />
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"These models on why deleveraging matters are all about the net wealth distribution. We shouldn’t be surprised that this recession and the Great Depression were preceded by very large increases in wealth inequality. This is well documented during the 1920s and the 2000s. This is why I get a bit annoyed at the guys who are saying it’s just a pure wealth effect, because it’s something bigger than that" <a href="http://rortybomb.wordpress.com/2011/12/16/an-interview-on-balance-sheet-recession-with-amir-sufi/" target="_blank">An Interview on Balance Sheet Recessions with Amir Sufi</a> (via <a href="http://www.businessinsider.com/a-simple-explanation-of-why-inequality-has-made-the-great-recession-so-much-worse-2011-12" target="_blank">Business Insider</a>)</blockquote>
And so, trying to reduce government deficits in a recession is met by liquidity constraints and investor and consumer uncertainty. It is not offset by an increased consumer spending or investment. The greater the inequality, the worse the recession becomes. Attempts to reduce government debts are frustrated by falling taxes revenues and increased spending on unemployment benefits. Targets are missed and the governments' ability to pay back existing debt is threaten.<br />
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In a sense a better and more direct policy than fiscal stimulus (and for those who hate the state) is <b><u>debt forgiveness</u></b> and writing off debts. <br />
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This crisis persists as<b> too much power lies in the hands of creditors</b> and most governments' policies are heavily influenced by them. Forced payments, and enshrined constitutional arrangements such as those proposed in the Euro-zone, generate liquidity constraints everywhere. This perpetuates and deepens the crisis.<br />
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<b>In Greece clearly this isn't working.</b> An IMF report on 13th December showed the Greek economy even worse than predicted with growth forecast for 2011 wand 2012 as revised downwards yet again. The 2011 deficit, predicted at 7.5% of GDP, has now been revised to 9%. Public debt was 130% of GDP in 2009 and now the it predicted to peak at 187% of GDP in 2013, It might fall to 152% by 2020. It will take 10 years, the IMF reports, for Greece to close the competitiveness gap. It is taking a much shorter period to destroy the country we know.<br />
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Investment in a such an economy is not attractive and bond yields remain high without the backing of a central authority. Private investment does not necessarily make up for the reduction in government spending. There are<b> no investment and growth opportunities in the periphery and capital flies</b> from them. Don't expect investors to return back. The real economies of the euro-zone will not converge. The Wall Street Journal reports:<br />
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"We are seeing this deglobalization, a 'de-Euroization,' of the euro zone," said Andrew Balls of Pimco, head of the big bond shop's European portfolio management. "Investors are going back to their own markets. They may still hold bonds, but they won't have them spread across the euro zone as they had before."</blockquote>
<blockquote class="tr_bq">
"The scale of the shift suggests that the euro zone isn't merely suffering from a short-term confidence crisis but that the financial lifeline of some European states is ebbing away, perhaps not to return for years, leaving some countries exposed and in danger of financial breakdown....One result could be a departure by one or more countries from the monetary union, or even its breakup. <a href="http://online.wsj.com/article/SB10001424052970204083204577078133346907856.html" target="_blank">WSJ December 16, 2011</a></blockquote>
The prospect of an exit from the Euro and dramatic currency depreciation would cause a massive flight of capital. It is more than ironic that it is happening anyway.<br />
<br />
<b>The European Court of Injustice:</b><br />
You will not find forgiveness here. Merkel and Sarkozy are succeeding in binding the institutions of the EU to the so-called 'interests' of the eurozone via the courts and the commission, over the countries in debt. It is very Orwellian to tie this to a European court of justice, as if populations are wholesale criminals with procedures undertaken to decide what penalties are deserved.<br />
<br />
No-one should be force to agreed to a pan-European structure that they don't believed in for the sake of some misconstrued artificial notion of 'European-ness'. The definition of 'European-ness' is not the exclusive property of Euro zone leaders. To divide those who agree and disagree with the fiscal compact as European and un-European is akin to McCarthyism. Nevertheless, <b>there is now one identity that many Europeans are beginning to share</b>:<br />
<br />
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<tr><td style="text-align: center;"><a href="http://www.flickr.com/photos/teacherdudebbq2/6520446761/" style="margin-left: auto; margin-right: auto;" title="We're all Greeks now by Teacher Dude's BBQ, on Flickr"><img alt="We're all Greeks now" src="http://farm8.staticflickr.com/7024/6520446761_f96d40ee66.jpg" height="375" width="500" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span class="Apple-style-span" style="background-color: white; color: #444444; font-family: Georgia, Palatino, 'Helvetica Neue', Helvetica, Arial, sans-serif; line-height: 27px;"><span class="Apple-style-span" style="font-size: small;">Austerity succeeding in establishing a common European identity</span></span></td></tr>
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<b>Footnote:</b><br />
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Father Ted on the difference between inflation and hyperinflation<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-21966778173083082772011-11-24T20:37:00.001+02:002012-04-01T19:40:01.857+03:00A Very European Financial Coup d'état<div dir="ltr" style="text-align: left;" trbidi="on">
The attempt to create a monetary union before a political and fiscal union placed the cart before the horse. Or was it... an attempt to steal the cart?<br />
<br />
To achieve a fiscal union and political union would have required the democratic consent of the voters of each member state. Such an acceptance of this might then have implied an acceptance of a monetary union and its consequences. 'Acceptance' should not be underestimated.<br />
<blockquote class="tr_bq">
Hyman Minsky: “<i>Anyone can create money; the problem lies in getting it accepted</i>”</blockquote>
It was never likely that all Europeans would have accepted the idea of an United States of Europe. The European Monetary Union was essentially an undemocratic method of press-ganging euro members into the Euro ship by financial force without their consent.<br />
<br />
School kids are told that democracy is about listening to the people. When they grow up they are told it is about listening to the markets. Now we are all told to listen to un-elected bank clerks who (in Greece) are then forced to sign another piece of paper for approval by another set of banking clerks residing in the head office. The argument being of course one of 'trust'. Democracy, meanwhile, is forced to hide behind a tear gas mask. In Greece there are now anit-semitic anti-islamic neo-nazies in the government.<br />
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<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5Hgq2OOisrrzZ61fqg4EEnj9TeBThCKz0NIQ6N3W2EqpHife2xHCRIJPruMYlRAeKsK5j4sBPQimNbjSa7VOD2TWB9tMQtSvApsZSXn7BCDkUheMhtB-6ZFdD6wNrN3N2Ccca7SfGlA/s1600/neofasists.jpg" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5Hgq2OOisrrzZ61fqg4EEnj9TeBThCKz0NIQ6N3W2EqpHife2xHCRIJPruMYlRAeKsK5j4sBPQimNbjSa7VOD2TWB9tMQtSvApsZSXn7BCDkUheMhtB-6ZFdD6wNrN3N2Ccca7SfGlA/s640/neofasists.jpg" width="640" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">via @Irategreek on twiiter</td></tr>
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Why should anyone pay their taxes to pay the wages of such men? Indeed everyone has a duty not to pay for a regime that marches, increasing taxation in one step and decreasing representation in the other, towards a repressive dictatorship. It's like paying for your own firing squad.</div>
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<br />
Are economists to blame for this Euro disaster? Ancient economic papers (Monetarists, Keynesian, etc - choose your favourite school of economic thought) go back over 50 years giving detailed reasons why it would fail (see biography in this <a href="http://www.google.gr/url?sa=t&rct=j&q=1972%20corden%20feasible%20currency%20area&source=web&cd=6&sqi=2&ved=0CEMQFjAF&url=http%3A%2F%2Fwww.bankofgreece.gr%2FBogEkdoseis%2FPaper2009102.pdf&ei=8IDRTuyFCZGq-gaOk53kDg&usg=AFQjCNFarhtSksyMiGJvG3Gqda1SOe1DFw&sig2=NiVGHnxJLRnEWAMZIt78iQ" target="_blank">publication</a>). Let me even apply a quote from F. A. Hayek to the Euro:<br />
<blockquote class="tr_bq">
The curious task of economist is to demonstrate to men how little they really know about what they can imagine they can design F. A.Hayek The Fatal Conceit 1988)</blockquote>
To think of 'internal devaluation' and austerity as providing a way of adjusting to shocks that occur in the world beyond the EC borders is very naive. It is akin to a Napoleonic way of standardizing and metricizing economies into homogeneous diary products with fines on diary producers for failing to meeting these standards. Milton Friedman, the monetarist, made the following comment in 'The Times' (19/11/97) on the European project:<br />
<blockquote class="tr_bq">
"..<i>.Europe exemplifies a situation unfavourable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe"</i>. Milton Friedman</blockquote>
The Euro was a political exercise, but lets wipe the dust off more economic texts.<br />
<br />
<b>Brother Can you Spare A Euro.. </b>"They used to tell me I was building a dream"<br />
Or, how do we empty Greece to make the economy work?<br />
<br />
M. <a href="http://www.google.gr/url?sa=t&rct=j&q=1972%20corden%20feasible%20currency%20area&source=web&cd=10&sqi=2&ved=0CGcQFjAJ&url=http%3A%2F%2Fec.europa.eu%2Feconomy_finance%2Fpublications%2Fpublication12081_en.pdf&ei=8IDRTuyFCZGq-gaOk53kDg&usg=AFQjCNGDUtEcLlWuGYH6P6ZQVKH9mm0ijQ&sig2=xYUPwUw-vL7fFKhUa48THA" target="_blank">Corden </a> (1972) warned that, if investment was sensitive to the business cycle, a monetary union would be heavily dependent on labour mobility and involve significant migration costs. United States, in the 1930's Great recession, produced "Hoovervilles"<br />
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In the 1960's, during the post-war American dream this was a more psychedelic experience, with some 'tripping' across states.<br />
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<br />
In Europe, neo-nazism rises, even becoming members of a government, Greeks emigrate to Australia and mobility tends to wear army boots 'making war 'not love'.<br />
<blockquote class="tr_bq">
<i>One of the things that makes the American common currency work across the country is we have a common fiscal authority and high migration - we're willing to allow North Dakota to become empty. </i><i>In Europe, there's no fiscal authority, migration is more difficult and most of the countries are not willing to let themselves become empty</i>. <a href="http://www.bbc.co.uk/news/business-15110053" target="_blank">Joseph Stiglitz: Austerity not the way to go for Europe</a></blockquote>
<b>EuroVision and rigged voting</b><br />
<br />
The European Commission's “One Market, One Money” Report (1990) concocted a modern version of Monetary Union theory. It did not deny that crises would occur but looked forward to them.<br />
<blockquote class="tr_bq">
"<i>I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created</i>." Romano Prodi, EU Commission President. Financial Times, 4 Dec 2001</blockquote>
<blockquote class="tr_bq">
"<i>The future will belong to the Germans... when we build the House of Europe. In the next two years, we will make the process of European integration irreversible. This is a really big battle but it is worth the fight.</i>" Helmut Kohl, German Chancellor 1982-1988</blockquote>
And a strong dislike of referendums and elections<br />
<blockquote class="tr_bq">
"<i>A <b>true </b>European cannot not want a referendum </i>[on the European Constitution]."<br />
Jean-Pierre Raffarin, French Prime Minister from 2002. Quoted in 2003.</blockquote>
<blockquote class="tr_bq">
(The meaning of true? Someone with direct lineage to 'Conon the Accountant' or, culturally, not those who disagree) </blockquote>
<blockquote class="tr_bq">
"<i>Europe's nations should be guided towards the super-state without their people understanding what is happening. This can be accomplished by successive steps each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation.</i>" Jean Monnet, Founder of the European Movement. Former Cognac salesman and bureaucrat at the League of Nations. 30 April 1952. </blockquote>
French and Dutch in 2005 voted against a European Constitution. When Ireland voted no, it was made to vote a second time to get it 'right'. This time changes to European Treaties are being force through by the argument of economic necessity in a crisis; one that is supposedly caused by a small troublesome nation in the periphery.<br />
<br />
<br />
<b>The Ring that binds - the sovereignty debt entrapment </b><br />
<br />
How did this Press Ganging of economies into the euro ship happen?<br />
<br />
Any country that can issue its own currency (and is not pegged to any other currency or precious metal) does not risk default solvency risk. It cannot be <i>forced </i>into debt. It controls its own currency and can always spend, by crediting bank accounts to create money.<br />
<br />
Hence flexible exchange rate economies like Japan can run far higher debt to GDP ratios than Euro-zone members while still having low interest rates on their sovereign debt. Thus there is no default risk premium. <br />
<br />
The Euro maintained a stable currency that destabilized governments with uncontrollable default risk. It achieves this in three ways by: (1) generating trading account deficit with other euro-zone economies without any automatic means (exchange rates) to adjust competitiveness; (2) restricting the controls to finance these deficits and (3) imposing external or self-imposed fiscal discipline that renders the economy helpless in times of crisis. With one global storm economies begin to capsize and sink.<br />
<br />
When an economy is hit by a recession from an unexpected shock in the global economy there are automatic increases in government expenditures (social security and unemployment payments) and reductions in government's tax revenues (as output falls). This part of the government budget deficit is 'unplanned'. <br />
<br />
If it tries to reduce expenditures and/or raise taxes it may exacerbate the impact, by reducing aggregate demand at exactly the wrong time to do so, and deepen the recession. An Euro-zone economy running a budget deficit means that its central bank is using up reserves from its ECB account which it will need to replace. Individual Euro-zone governments do not have the choice of monopoly issuer of currency to create money (by crediting bank accounts) to finance its budget deficit. The Euro-zone government will need to recover this by selling bonds, adding to its sovereign debt. <br />
<br />
Just by maintaining existing government plans, an adverse impact on the economy increases the Euro-zone government's borrowings. Sovereign indebtedness for an Euro-zone country is not a simple choice; it is often beyond its control. <br />
<br />
<b>The Euro Bond-Age .. </b><br />
<br />
Recessions may be beyond the control of governments but a double-dip recession is generated by their collective stupidity and a denial collective responsibly. Ponzi financing (named after a fraudster “pyramid scheme" in the 1920s) occurs when a debtor must borrow just to pay interest, which means debt grows - typically in an unsustainable manner. A government that controls its own currency can never be in this Ponzi position. A euro-zone member can.<br />
<br />
Euro-zone members, with trading deficit accounts, are therefore exposed to debt dynamics. The more they borrow, the more the markets demand higher interest rates to compensate for the increasing risk of insolvency. The more the government attempts to solve its budget deficit, by cutting expenditure and raising its tax, the more it cuts it growth rate and its ability to repay its sovereign debt. Moral hazard by the government comes into play here as the covering up off statistics will aid it to obtain lower interest rates its bond issues.<br />
<br />
At some point it goes critical, as in Ireland and Greece at about bond rates of 7%, and the government spirals into a vicious circle of borrowing more and more to pay ever higher interest rates. The government finds itself locked out of the market. This leads the Euro nation at the mercy of the intervention of the ECB and the Euro-zone credit nations for bail outs.<br />
<blockquote class="tr_bq">
.<i>.. the thought that monetary union may in time force the evolution of a deeper, more fundamentally political level of unification is probably not inconsistent with what the euro’s original architects had in mind.</i> (<a href="http://www.nber.org/tmp/82549-w7420.pdf" target="_blank">Benjamin Friedman</a> (1999))</blockquote>
It is also an invitation for <a href="http://www.reuters.com/article/2011/11/25/us-greece-vulture-funds-ifr-idUSTRE7AO1BG20111125" target="_blank">vultures</a> (funds) to scour for opportunities.<br />
<br />
<b>The Blame Game</b><br />
<br />
The blame is attached to insatiable, bureaucratic, corrupt governments. Greece is an easy target since it is in fact corrupt and bureaucratic. (eg. <a href="http://www.spiegel.de/international/europe/0,1518,693973,00.html" target="_blank">How German Companies Bribed Their Way to Greek Deal</a>s - Der Spiegel). Then it is attached to ethnics, morals and latitude. Germans blame Greeks, Greeks blame Germans and trust breaks down. <br />
<br />
It is then argued that elected governments should not be trusted as they may be guilty actually following the wishes of their electorate and break agreed (by who? nobody was allowed vote on) the fiscal rules. Their powers are therefore removed and administrated by un-elected super authority.<br />
<br />
Elected officials its seems are corrupted by the voters. Unelected officials are not. European Commission President José Manuel Barroso spending a week on the yacht of the Greek shipping billionaire Spiro Latsis (a month before the approval of 10.3 million euro of Greek state aid for Latsis' shipping company). They just like swimming together.<br />
<br />
<br />
<b>The financial coup d'état is completed</b><br />
<br />
with the creation of a euro-zone Ministry of Finance justifying its un-elected authority to oversee national budgets and other economic policies. Germany and France propose new intrusive powers over Eurozone budgets on the moral argument that gains should then to the virtuous and pain should to sinners.<br />
<br />
The defunct electorate or sinners may tell them to go to hell.<br />
<br />
......so there is just the small matter of pacifying the natives (when they stop blaming each other). Supply-side economics is then reduced to a form of crowd control encouraging the demand for new consumer products, such as this one from Taiwan<br />
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<b>Mount Doom:</b><br />
<br />
<span class="Apple-style-span"><span class="Apple-style-span">There is, however, one small problem. The ECB itself. To be effective, a central bank must act as a monopoly."</span></span><span class="Apple-style-span">It, just like Sauron, must control all." (<a href="http://ftalphaville.ft.com/blog/2011/11/24/762651/one-eurobond-to-rule-them-all/" target="_blank">FTalphaville</a>) </span>but...<br />
<br />
The ECB not a real monopoly. It controls euro reserves but there are no common Euro bonds and individual Euro-zone central banks issue their own. Before the 2007-8 global crisis sovereign default risk did not seem to matter. Those with greater dependency on ECB liquidity, as in the case of Greece, found more of their bonds ending up at the ECB. The less bonds available for the market, the smaller the market and the more vulnerable it becomes. Holding a monopoly of them has little value, if no one wants your bonds.<br />
<br />
The solution to this is a common euro bonds with collectively responsibility of sovereign debts. But, in order to be 'saved' by this, each member must not only surrender its sovereignty but also yield to a budgetary slavery that whips financial indiscipline.<br />
<br />
There is a problem, the 'one ring of power' corrupts its owner. The present ring bearer (Germany) does not yet want to yield this power and agree to Eurobonds. The ECB, with the EFSF, is running out of time, and cannot forever support the bonds of Euro-zone states who are insolvent.<br />
<br />
Austerity everywhere cannot last. Once one of the major Euro-zone economies, Spain or Italy, goes pass the point of no return (in its bond rates) everything falls. A bailout for one will trigger a chain reaction.<br />
<blockquote class="tr_bq">
@Nouriel (Nouriel Roubini on twitter): To rescue Italy, Spain & Belgium for 3 years you need at least a €2trillion rescue package. Hard to see how EZ & intl comm can mobilize that</blockquote>
<blockquote class="tr_bq">
@Nouriel It took 4 months to convince core EZ parliaments to approve modified 440bn EFSF. How long - 1year? - to have them vote a €1tr ESM, 2X original?</blockquote>
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Pity the real world doesn't have a pause button.</div>
</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com1Mt Olympus, Olympos 40200, Greece40.0833333 22.3539.986142799999996 22.1920715 40.1805238 22.507928500000002tag:blogger.com,1999:blog-20893208381126879.post-21782458685936802952011-11-18T18:04:00.001+02:002012-04-27T13:51:10.884+03:00A Shot Gun Wedding<div dir="ltr" style="text-align: left;" trbidi="on">
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The Euro-zone is a tragedy. There is no automatic mechanism for adjusting the relative competitiveness of its members and no mechanism to compensate for this gap by recycling surpluses from one part of the Euro-zone to another.<br />
<br />
And so the sovereign debt crisis refuses to go away. There is no more road to kick the can down. The Euro-zone will either quickly move to a political fiscal union backed by Eurobonds or disintegrate. Euro Leaders are loading their shot-guns.<br />
<br />
There is no exchange rate to restore competitiveness and the absence of any sense of 'community' is resulting in the removal of democracy and the brutal repression of wages of citizens unfortunate enough to be living in the Euro-zone's periphery. Uneven competitiveness produced trading account surpluses in the core economies and were matched by trading deficits in the periphery. It is this internal trading imbalance, or fault-line, that splits the Euro-zone and continues to shake its financial institutions to the ground. After a wasting two years in taxpayer financed 'theological' debate on sinning, the crisis will be resolved in a short period of time by separation or by the complete removal of sovereignty.<br />
<br />
<b>A Failed Romance.</b><br />
<br />
This failure is a story of unresolved differences in the relative competitiveness of Euro-zone members, and one re-told by <a href="http://www.issuu.com/bits_n_bytes/docs/final_rmf3" target="_blank">Breaking Up? A Route Out of The Eurozone Crisis</a> (C. Lapavitsas et.al. RMF Occasional report 3 Nov 211). The three graphs below, taken from this report, capture the story.<br />
<br />
Germany's competitive advantage in the Euro-zone did not result from gains in productivity but rather from applying severe wage restraint on German workers.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLl7YvHXEgemQg-VabTWufryki6S58uz4Okfowe_nslECHAFWv_B96JC-buJt3I4bI2a1_7P0R5XVY_L200h_6tw_5mW3jAZzh-ws8DjesCq1uCdhYG-SsGQgXRB7u8WEaoFEFlUeC9w/s1600/Euro+wage+costs.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="255" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLl7YvHXEgemQg-VabTWufryki6S58uz4Okfowe_nslECHAFWv_B96JC-buJt3I4bI2a1_7P0R5XVY_L200h_6tw_5mW3jAZzh-ws8DjesCq1uCdhYG-SsGQgXRB7u8WEaoFEFlUeC9w/s400/Euro+wage+costs.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Wage restraint on German Workers gave Germany a competitive advantage over its Euro partners </td></tr>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgE3UkrH5nvDQq7vFbbhfxERYbFku65ZIIbfi1vyGKGxNFfAexrYsWWbuJgQ2D5nwyf28C00cO-URNbdBs24vzzqzMHZlEYoExa3m-mVoIgtQ6Fc0XaN6rm9l4kQVBwayCsVVTxZn7N8Q/s1600/Evolution+of+productivity+growth.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="210" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgE3UkrH5nvDQq7vFbbhfxERYbFku65ZIIbfi1vyGKGxNFfAexrYsWWbuJgQ2D5nwyf28C00cO-URNbdBs24vzzqzMHZlEYoExa3m-mVoIgtQ6Fc0XaN6rm9l4kQVBwayCsVVTxZn7N8Q/s400/Evolution+of+productivity+growth.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">This graphs indicates a weakness in German productivity. Even Ireland and Greece performed better. </td></tr>
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<div style="text-align: center;">
<div style="text-align: left;">
German competitive advantage in the Euro-zone produced trading surpluses from across the Eurozone. Competitive disadvantage, particularly for Greece, appears in the periphery's trading deficits. Austerity has closed the gap in competitiveness by harshly reducing in wages in the periphery.</div>
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRHcT1_tD7ktmtfPHR9eNS_gszFoYN629Xmp4mg8SUADh54FAqvB3ULS2qXV2uwk1G7QAAJxQG_PyLwt5EufMUEvbwC32nAFS43jKMghmvBG3FhxqzWD066bYVtx3Z4mvPkcvK7JYN4w/s1600/Current+account+balances.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" height="301" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRHcT1_tD7ktmtfPHR9eNS_gszFoYN629Xmp4mg8SUADh54FAqvB3ULS2qXV2uwk1G7QAAJxQG_PyLwt5EufMUEvbwC32nAFS43jKMghmvBG3FhxqzWD066bYVtx3Z4mvPkcvK7JYN4w/s400/Current+account+balances.png" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Trading account imbalance between members: how was this financed? </td></tr>
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The sovereign debt crisis emerges from how these trading imbalances were financed. While ECB kept interest rates low, Euro core banks, particularly French and German banks, maintained the financing. Lending jumped again after the 2008 Lehman collapse. The assumption that sovereigns would not be allowed to default (moral hazard) increased the over-exposure of these banks. </div>
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<br /></div>
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Banks in the periphery also had access to cheap funds to expand their assets. Cheap credit fueled an illusion of high GDP growth rates in trading deficit countries (particularly Greece). The crisis of 2007 exposed the illusion, laying bare the divergence in competitiveness. Periphery countries found themselves heavily in debt and in Greece a large amount of this public debt was now owned by foreign lenders</div>
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<br /></div>
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The 2008 Lehman collapse was a shock to all parts of the Eurozone as exports and investment fell. The recession induced both automatic increases in government expenditure (e.g unemployment benefits) and falling tax revenues, which in turn increased Government deficits. Rescuing private sector banks from the impact of the Lehman's collapse, increased the deficit further. </div>
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<br /></div>
<div style="text-align: left;">
The financing of increasing budget deficits increased the growth sovereign debts in the periphery. When it became clear that the core economies, mainly Germany, would not take any responsible for theses debts, the sovereign debt crisis switched from a liquidity to a solvency crisis. Individual debtor economies no longer had the ability or growth to support such large debts. Austerity measures reduced the ability to pay back debts even further. The core economies instead focused on only the effects a default on an economy's sovereign debts would have on their own banks - the very banks that had become over exposed by taking advantage of the common currency. The welfare of the periphery economies was secondary to the goal of protecting the Euro and the banking system that sat on it. </div>
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<br /></div>
<div style="text-align: left;">
The euro project had failed to achieve any real convergence between its economies. But like a scandal, It is the cover-up that does a great deal of of the damage. Differences in the euro-zone economies, in terms of human, capital and physical resources, were left exposed without an counteracting mechanism to replace exchanges rates. Instead, the Euro-zone economies diverged whilst cheap credit and the Euro banking system financed the illusion. In the case of an inefficient small economy like Greece, the lack of internal competition (localized monopolistic and cartels) translated into a higher rate of inflation than the core Euro-zone economies. The inflation rate hides another further distortion - relative price changes. Since the introduction of the Euro, the costs of basics (food, fuel, rents, mortgage payments, etc) increased sharply while many "luxury" items (TVs, cars, electronics,etc) fell . There is no mechanism to fix this. It also means that the poverty wage line has increased. </div>
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<br /></div>
<div style="text-align: left;">
<b>FISTal consolidation</b>: the beating of an economy into shape. Any shape will do, but it must submit</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Due to the changers in relative prices in basics to luxuries, forcing Greece go back to 2001 wage levels will create third world poverty conditions and political instability. By blaming sovereign debt on sovereign states, treating the symptom and ignoring the cause of the crisis, Euro leaders are playing a dangerous blame game encouraging nationalism and racism whilst exploiting the fear of financial instability to place the Euro-zone under an un-elected centralized authority. The secret hope is that European voters will welcome this as an alternative to austerity. National government will applied the stick and the fiscal authority may promise some goodies.</div>
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<br /></div>
<div style="text-align: left;">
In the meantime, Euro Leaders are loading their shot-guns to forced member states to appear at a new 'Lisbon' marriage ceremony. Divorce is not in the statue book.</div>
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<br /></div>
<div style="text-align: center;">
*******************************</div>
<br />
<b>The Golden Wig Award</b><br />
<br />
The Golden Wig award this year goes to Herman Van Rompey for his uncanny Woody Woodpecker impersonation in..</div>
<div style="text-align: left;">
<br /></div>
</div>
<div style="text-align: center;">
<iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/embed/6Jv3lL6imzU?rel=0" width="420"></iframe>
</div>
<div style="text-align: center;">
<br />
<div style="text-align: left;">
But who cuts the hair of the Barber of Seville?</div>
<div style="text-align: left;">
<span class="Apple-style-span" style="color: #444444; font-family: Arial, 'Helvetica Neue', sans-serif;"><span class="Apple-style-span" style="font-size: 15px; line-height: 19px;"><br /></span></span></div>
<div style="text-align: left;">
<b>And finally ... how does one measure success? </b><br />
<br />
According to the new Technocrat Italian PM Monti "What we're witnessing today is GREAT SUCCESS of Euro and the most concrete demonstration of that SUCCESS is Greece" <br />
<br /></div>
<div style="text-align: middle;">
<a href="http://www.flickr.com/photos/teacherdudebbq2/6357821905/" title=""I'm hungry" - The real face of Greece's bailout deal by Teacher Dude's BBQ, on Flickr"><img alt=""I'm hungry" - The real face of Greece's bailout deal" height="240" src="http://farm7.static.flickr.com/6045/6357821905_420673a9c1_m.jpg" width="181" /></a>
</div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Less hope for less success.</div>
</div>
</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-34725952451947271852011-11-08T23:11:00.000+02:002012-10-22T01:26:59.713+03:00Unfair for one, unfair for all<div dir="ltr" style="text-align: left;" trbidi="on">
The world is in trouble. The Greek parliament is vacant; its members are vacant. Superhuman efforts do nothing. The crisis rolls on. It's out of balance, steering out of control. We need ....<br />
<div style="text-align: center;">
<b><br />
<iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/embed/U01xasUtlvw" width="420"></iframe>
</b></div>
<b><br /></b>
Pumping more air into the tyres isn't going to help get the tandem moving<br />
<b><br /></b>
<b>The German flaw and why Germans should not be happy.</b><br />
<br />
Just as the European Money Union' was being formulated, structural labour reforms were being agreed upon in Germany that would prevent real wages of workers from rising. Increases in productivity were not rewarded by increases in wages.<br />
<br />
This gave German firms a competitive edge over the Eurozone periphery. German exports exceeded their imports from the Eurozone periphery producing an intra-trade surplus and corresponding trading deficits in the eurozone's periphery's. Trading surpluses from the north fed easy credit and bubbles in the south.<br />
<blockquote class="tr_bq">
'Germany lost the advantage of low interest rates after the introduction and in part because of the euro. This led capital to pour into the countries of the periphery, while investment stagnated in Germany or even declined, leading to low growth, low inflation and persistently high unemployment. What Mr Pettis calls “excessively low interest rates” were actually too high for Germany in this monetary union' <i>The Economist</i> (<a href="http://www.economist.com/node/21537060">Germany suffered from its surpluses</a>):</blockquote>
But how was this 'capital' used in the periphery? Capital that poured into the periphery did not spur direct real investment. An increase in German wages could have restored the relative competitiveness of periphery and even encouraged more direct investment. Instead, the surpluses that repressed German wages helped to create fed bubbles in Spain and Ireland and fiscal mismanagement. These bubbles and practices were popped and laid to wastes by the 2007-8 global financial crisis. (see also <a href="http://en.wikipedia.org/wiki/Hyman_Minsky#Understanding_Minsky.27s_financial_instability_hypothesis" target="_blank">Minsky’s financial instability hypothesis</a>)<br />
<br />
The periphery was in desperate need for direct investment to improve competitiveness and catch up with the core. Instead it got debt financing geared to consumption, providing credit facilities and the means to buy exports, corruption, suspicious deals and debt servicing.<br />
<br />
The focus on debt refinancing, instead of direct productive investment in the periphery persists. Trading deficits that had accumulated, now increasingly replaced by debt servicing, continues to damage the periphery long term growth prospects. Instead of allowing German wages to rise, internal devaluation and wage suppression is now being imposed on the periphery. The cost of financing debts has increased, the ability to pay them back is shrinking, and the periphery economies move towards insolvency.<br />
<br />
So the initial benefits to German economy may have had may well turn into long term losses. This is not just due falling eurozone demand for its products from the periphery, but mainly due the eventual bill that is left behind by insolvent countries.<br />
<br />
Europe is actually a rich net capital exporter, and yet the peripheral Euro members cannot get finance due questions concerning solvency.<br />
<br />
The unfairness to the German worker, in terms of being not rewarded their gains in productivity, translates as an unfairness to those in the periphery trying to compete against an unfair German export advantage. Would German workers wouldn't mind having some extra money on a sinful holiday in Greece? Is an 'internal revaluation' any less crazier than internal devaluation?<br />
<br />
The result of the first 10 years of the Euro, is an Eurozone split into two, moving in opposite directions covered by a veneer of financial arrangements. The 2007-8 global financial crisis (an asymmetric shock) exposed this and destabilized Europe. It has not recovered or found the means to re-balance. In the absence of a mechanism to maintain the relative competitiveness of euro economies, EC governments and institutions have stepped deeper and deeper into the murky world of weird toxic financing arrangements. One cannot fix or institutionalize macroeconomic disequilibria by pronouncing laws forbidding them to exist.<br />
<br />
<i><span class="Apple-style-span" style="font-size: x-small;">Two Greeks Phd. holders. One is has a job and the other doesn't have work. They meet. The one without the job asks the one with the job: "Can I have a hamburger without ketchup. please</span></i><br />
<br />
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<div style="text-align: center;">
********************************</div>
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<br /></div>
</div>
Incidentally, in case you are wondering where all that "Greek" Bailout money is going here is a diagram I 'lifted' from <a href="http://www.zerohedge.com/news/where-does-greek-bailout-money-go">Zerohedge</a> blog<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj54qUaLRG3t-uRGtbSnxYbQIYd_sQUrmUWdwuHZDPbk2rOagjRnraXK41lRzqnIkHQGOon7Q5nedbKD6LaDIAAGT8Szx1loTf2iKBRK-v-16wLnxEa8TQr9BTl7ebKV9JSUMGkW49WhQ/s1600/20111108_GREbailoutpie.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="303" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj54qUaLRG3t-uRGtbSnxYbQIYd_sQUrmUWdwuHZDPbk2rOagjRnraXK41lRzqnIkHQGOon7Q5nedbKD6LaDIAAGT8Szx1loTf2iKBRK-v-16wLnxEa8TQr9BTl7ebKV9JSUMGkW49WhQ/s320/20111108_GREbailoutpie.png" width="320" /></a></div>
<blockquote class="tr_bq">
"The bulk of the money that Greece is "getting" comes right back to the rest of the EU. Whatever posturing is going on, Greece will get away without meeting any of its stated goals, or at least it will until the EU decides it has written down enough principal and that the ECB can handle the shock."</blockquote>
<div style="text-align: center;">
********************************</div>
<br />
There is still time to order the new collectible edition of the Euro<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcNweGU77aGEIThMB5mhN8kApL44-f4_91Z-hrB_9q05ciBqQ44ur74wpp-pgLHcDdIT2WFhu4GKUV1B_QjvZZWdytqulx-Ffm3KTabSmJs1gBKFiQ_pM_Y3krJh9fdOwjGydVLw5OIw/s1600/Titantic.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcNweGU77aGEIThMB5mhN8kApL44-f4_91Z-hrB_9q05ciBqQ44ur74wpp-pgLHcDdIT2WFhu4GKUV1B_QjvZZWdytqulx-Ffm3KTabSmJs1gBKFiQ_pM_Y3krJh9fdOwjGydVLw5OIw/s320/Titantic.jpg" width="320" /></a></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
Hurry as the offer in not indefinite</div>
<br />
<br />
Further reading:<br />
<a href="http://blogs.reuters.com/macroscope/2011/11/07/euro-zone-crisis-its-germanys-fault/">http://blogs.reuters.com/macroscope/2011/11/07/euro-zone-crisis-its-germanys-fault/</a><br />
<a href="http://www.zerohedge.com/news/where-does-greek-bailout-money-go">http://www.zerohedge.com/news/where-does-greek-bailout-money-go</a><br />
<br />
<br /></div>
The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-37042810980033322202011-11-03T12:49:00.000+02:002013-12-14T12:44:08.365+02:002011 - Euro Odyssey<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: center;">
<div style="text-align: left;">
Live from the Euro Space Centre</div>
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<br /></div>
</div>
<iframe width="420" height="315" src="//www.youtube.com/embed/i1kOW-luAoI" frameborder="0" allowfullscreen></iframe>
<br />
Koyaanisqatsi: Life Out of Balance, is a 1982 film directed by Godfrey Reggio with music composed by Philip Glass and cinematography by Ron Fricke).</div>
</div>
<br />
<blockquote class="tr_bq">
The launch sequence is magnificent.<br />
Then you slowly notice the rocket is leaning.<br />
Something is wrong.<br />
You realize it when you see it flying almost horizontally...</blockquote>
"If Merkel/Sarkozy dig precious things from Greek land, they will invite disaster".<br />
-<i> variation of the opening line of the Hopi prophecy</i><br />
<br />
<i><span class="Apple-style-span" style="font-size: x-small;">Credit to @stefanbjork</span></i>
</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0Thessalonika, Greece40.63935 22.94460740.542957 22.7866785 40.735743 23.102535500000002tag:blogger.com,1999:blog-20893208381126879.post-7378907786446403982011-10-28T04:55:00.010+03:002019-06-06T14:38:21.533+03:00The Laughter Curve<div dir="ltr" style="text-align: left;" trbidi="on">
- the ability to laugh all the way to the Swiss Bank<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU-8kSVvERQJIQuddJ64Ck0gTNMKPGM9cy-_EmVY1y3NB4HsZBL50zZ-kJdF9rjECymx4Ah-JgJfnYEp0-0f3bjSWidJUtUSVPYaKhgOEpSawS1gkUicGBCiYifKQjMFYA791OTjpsMA/s1600/745px-Laffer-Curve.svg.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="257" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU-8kSVvERQJIQuddJ64Ck0gTNMKPGM9cy-_EmVY1y3NB4HsZBL50zZ-kJdF9rjECymx4Ah-JgJfnYEp0-0f3bjSWidJUtUSVPYaKhgOEpSawS1gkUicGBCiYifKQjMFYA791OTjpsMA/s320/745px-Laffer-Curve.svg.png" width="320" /></a></div>
<div style="text-align: left;">
<br /></div>
The Laughter (Laffer) curve theoretically shows the relationship between government revenue raised by taxation and the taxation rate.<br />
<br />
From the left, government tax revenues increase as the tax rate increases, but at a declining rate. It becomes more worthwhile hiring a accountant to avoid or evade paying tax. Beyond a certain point tax revenues fall as money pours into off-shore accounts. Capital flies out the country, reducing both investment and output, and inducing a further decline in tax revenues. It falls to zero revenue at a 100% tax rate. There is some dispute over what this means. Has the individual moved to Switzerland, died, become street trader or is bartering?<br />
<br />
One can reduce the number of tax cheats and fraudulent claims, by legalizing them. It's not too difficult to imagine a country's tax system becoming unfairer (more regressive) and, at the same time, reducing the number of cheats (and vice versa).<br />
<br />
The Curve was popular with Ronald Reagan who bent it to justify lower tax rates for high incomes in the US in the 1980s. From 1979 more than 40 countries cut their top rates of personal income tax.<br />
<br />
This is what happened in the US:<br />
<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEint0Th9kva9wDWPRLBeDsVO6wyw6rK8RMNDSg7EJooLXcJL3rckr1nWWvEcrhGYdDWxZst-AjBtb1xds_62AwZN4tG-pGnyvFZVnxhfdzV9oOXPXf8DJfmmj-wKE4aa3dA0VnAssQrvw/s1600/inequality-p25_averagehouseholdincom.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="219" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEint0Th9kva9wDWPRLBeDsVO6wyw6rK8RMNDSg7EJooLXcJL3rckr1nWWvEcrhGYdDWxZst-AjBtb1xds_62AwZN4tG-pGnyvFZVnxhfdzV9oOXPXf8DJfmmj-wKE4aa3dA0VnAssQrvw/s400/inequality-p25_averagehouseholdincom.png" width="400" /></a></div>
<div style="text-align: left;">
<br /></div>
<div style="text-align: left;">
and is behind the Wall Street protests. </div>
<div style="text-align: left;">
<br />
<b>Greece</b><br />
<br /></div>
<div style="text-align: left;">
Now the problem with Greek austerity measures and structural reforms is all that money that has gone outside the country. Greek assets, including properties, will become even cheaper and capital will flow back in (hailed as a success) to buy them back up. Citizens, the poor, the ex-middle-classes, will be worse off (hailed a success. Well done Greece, more competitive, fly the flag, bright future etc). The result will be an increase in inequality and a re-vamped oligarchy energized by financial occupiers who would then slip away quietly. </div>
<div style="text-align: left;">
<br />
“To see what is in front of one’s nose needs a constant struggle.” (George Orwell). But injustice lingers with a rotting smell.<br />
<br />
<b>Back to the bunker</b><br />
<br /></div>
<div style="text-align: left;">
I forgot to mention the 27th October historic deal of day? Here why: ('of two minds': <a href="http://www.oftwominds.com/blogoct11/plutonium-life-preserver10-11.html">full post here</a> via <a href="http://www.zerohedge.com/">Zerohedge</a>)</div>
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</div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<b><span style="color: black;"><span style="font-family: inherit; font-style: normal;"><span class="Apple-style-span" style="font-size: x-small;">'</span>EU Leaders Throw Europe a Plutonium Life Preserver</span></span></b></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<i><span style="color: black;"><span style="font-family: inherit; font-style: normal;">The euro system was doomed from inception for fundamental reasons; trying to conjure up "something for nothing" solutions will fail catastrophically, and soon.</span></span></i></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">As Europe flails helplessly in the waves of insolvency, its leadership has tossed it a life preserver.<b> Too bad it's plutonium, and will take Europe straight to the bottom</b></span></span><span style="color: black;"><span style="font-style: normal;">. Plutonium is of course one of the most toxic materials on the planet, and the "rescue" cooked up by the EU leadership is the financial equivalent of plutonium.</span></span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span class="Apple-style-span" style="font-family: inherit;"><b><span style="color: black;"><span style="font-style: normal;">Stripped of propaganda .... "rescue" boils down to this: something for nothing ...</span></span></b><span style="color: black;"><span style="font-style: normal;">. in two ways:</span></span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span class="Apple-style-span" style="font-family: inherit;"><b><span style="color: black;"><span style="font-style: normal;">1. The financial alchemist's favorite magic: leverage</span></span></b><span style="color: black;"><span style="font-style: normal;">.....suddenly backstop 1 trillion euros of banking-sector losses, all with illusory money.</span></span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span class="Apple-style-span" style="font-family: inherit;"><b><span style="color: black;"><span style="font-style: normal;">2. "Guarantees" to cover the first 20% of loan losses</span></span></b><span style="color: black;"><span style="font-style: normal;">.... presented as the equivalent of 100% guarantees, because it is inconceivable that losses could exceed 20%. .... 80% of every bond is somehow "safer" because the first 20% will be paid by EU taxpayers.</span></span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black;"><span style="font-family: inherit; font-style: normal;"><b>..... "something for nothing" magic will turn lead into gold. Abracadabra....</b>oh well, close; it's heavy, it's metallic-<b>-oops, it's plutonium.' </b>(<a href="http://www.oftwominds.com/blogoct11/plutonium-life-preserver10-11.html">of two minds blog -Charles Hugh Smith</a>)</span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span class="Apple-style-span" style="font-family: "lucida grande" , "verdana" , sans-serif; font-size: x-small;"><b><br />
</b></span></div>
<div style="text-align: center;">
<div style="text-align: left;">
Or a "haircut for the banks that will in reality just be a convoluted way to get citizens to pay get it without even realizing it" (<a href="http://www.zerohedge.com/news/banks-get-bailouts-they-dont-give-them">Zerohedge</a>). Compare the above deal with a 11-year-old boy's suggested solution to Greek debt crisis (<a href="http://t.co/IE894GOw">here</a>).<br />
<br />
At least Archimedes knew what to do with leverages. He also invented another device for raising liquidity, but it seems the screw has a different meaning in Europe.<br />
<br />
This is the point in the following video where G. Papandreou returns back from work.</div>
<div style="text-align: left;">
<br /></div>
<iframe allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/1EmmSRRQ8O8?rel=0" width="560"></iframe></div>
<br />
'<span class="Apple-style-span" style="line-height: 17px;"><a href="http://www.oftwominds.com/blogoct11/plutonium-life-preserver10-11.html">of two minds</a></span>' goes on to describe the Euro model (add German taxpayers and workers don't win as well) as:<br />
<br />
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black;"><span style="font-family: inherit; font-style: normal;">....... understanding the <b>increasingly unstable dynamics of the EU</b> is the post-colonial "plantation" model </span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black;"><span style="font-family: inherit; font-style: normal;"><br />
</span></span></div>
<div style="font-style: normal; line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black; font-family: inherit;">1. <b>Low cost labor and low-value materials</b> flow from the periphery (colonies) to the Empire (center), which then ships high-value, <b>high-profit </b>finished goods back to the colonies.</span></div>
<div style="font-style: normal; line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black; font-family: inherit;">2. The colonies must buy the high-value <b>finished goods on credit</b> that is issued and controlled by the Imperial center.</span></div>
<div style="font-style: normal; line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black; font-family: inherit;"><br />
</span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black;"><span style="font-family: inherit; font-style: normal;">....The euro cemented this <b>co-dependency</b>: ..... once the euro raised the cost of production in the periphery nations, then of course nobody could beat Germany's cost advantages. The euro actually <b>lowered Germany's cost of production in terms of foreign exchange rates</b> while <b>raising the costs in periphery nations</b> that were previously able to lower their cost of production via currency devaluations.</span></span></div>
<div style="line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black;"><span style="font-family: inherit; font-style: normal;"><br />
</span></span></div>
<div style="font-style: normal; line-height: 0.18in; margin-left: 0.49in; orphans: 2; widows: 2;">
<span style="color: black; font-family: inherit;">Having surrendered that mechanism to access the deep credit markets of the center, then they had no choice but to buy the high-margin finished goods from Germany, as nobody else could make the same goods for the low German price.</span></div>
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<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">These booming high-profit German exports of finished goods to the European periphery <b>generated vast surpluses of capital that were then loaned to the periphery</b> to enable their further purchases of German goods</span></span><span style="color: black;"><span style="font-style: normal;">. </span></span></span></div>
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<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">It's the classic mercantilist-consumer co-dependency on a gigantic scale, with low-cost credit fueling both increased consumption and production. </span></span><span style="color: black;"><span style="font-style: normal;">....... let's ask: </span></span><span style="color: black;"><span style="font-style: normal;">how many German goods would have been imported by the EU periphery if those nations had been forced to pay cash for everything from the start</span></span><span style="color: black;"><span style="font-style: normal;">? Precious little is the answer; the cash--in the form of actual surpluses available to spend on imports--would have run out immediately after the euro was launched.</span></span></span></div>
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<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">In other words, the debt orgy enabled not just carefree consumption, it also enabled vast German exports to the Eurozone. </span></span><span style="color: black;"><span style="font-style: normal;">Now we start seeing how <b>the once-mutually beneficial co-dependency has become toxic:</b> now that the periphery's debtors have become debt-serfs, German exports to the periphery are contracting.</span></span></span></div>
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<span style="color: black;"><span style="font-family: inherit; font-style: normal;">When it all implodes, German exports to the periphery will be a shadow of their past glory, and the surpluses which enabled the leveraged orgy of credit will dwindle</span></span></div>
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<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">Sovereign currencies are the only mechanism for discounting differences in credit worthiness and production costs</span></span><span style="color: black;"><span style="font-style: normal;">. <b>The euro was established as the currency equivalent of gold</b>, holding the same value in every member country. But the mercantilist/quasi-colonial <b>model requires credit to flow from the center to the periphery</b>, and that is precisely what has happened in the EU.</span></span></span></div>
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<span class="Apple-style-span" style="font-family: inherit;"><span style="color: black;"><span style="font-style: normal;">In the colonial model, the colonists are indebted and poor. </span></span><span style="color: black;"><span style="font-style: normal;"><b>The net value of their labor flows to the Imperial center as interest payments</b>, and the banks at the center set the cost of money and the terms--naturally. </span></span> (Full post at: <a href="http://www.oftwominds.com/blogoct11/plutonium-life-preserver10-11.html">of two minds blog -Charles Hugh Smith</a>)</span></div>
<br />
Germans are also ripped off, since their working poor will either produce trade surpluses or being made unemployed, and then there is eventual tax bill for the entire Euro mess.<br />
<br />
"Prime Minister Papandreou said 'let's hope a new and better dawn emerges". Dusk is more likely, as without economic growth, darkness descends on those unable to pay their lighting bills. Greeks (for those who can find work) will be working for the good of some country/institution/organisation at or near subsistence levels. It is hoped that the Greek sovereign debt will be reduce to 120% by the year 2020. The structural reforms is supposedly an ambitious plan, making the Greek economy more competitive and sending out the right signals. So, students can relax. Don't rush your exams as you won't be needed until 2020. An ambitious deal with the right incentives and signals, indeed.<br />
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<b>No</b><br />
<br />
Its now Oxi day. The day celebrates the Greek rejection of the ultimatum made by Mussolini on October 28, 1940 to be occupied or be invaded. Merkels' remarks, on the eve of this celebration, about refusing to accept the Euro deal would end the peace in Europe was unfortunate timing (<a href="http://t.co/Zu1mKil5">Merkel wants 'permanent' supervision of Greece, warns of war</a>).<br />
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The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com2tag:blogger.com,1999:blog-20893208381126879.post-25500151867276944762011-10-18T20:28:00.005+03:002011-10-24T22:11:44.820+03:00On the Brink<div dir="ltr" style="text-align: left;" trbidi="on"><div dir="ltr" style="text-align: left;" trbidi="on">The previous post concerned economic agents and economic models Lets zoom in a little closer.<br />
<br />
Here is a blog-post (translated and appearing in the <a href="http://greekleftreview.wordpress.com/">Greek left Review blog</a>) that describes the life of a 37-year-old woman in Athens in these days of crisis. Many in Greece are trapped in similar circumstances. I am posting it, as it is also a story that is not so unfamiliar to other parts of the world.<br />
<br />
<i>“I have worked since I was 16 and I have lived in Athens since I was 24. I remember that many times I had to struggle in order to survive with two jobs, but never have I stayed unemployed for too long. During the past eight years there were times when things were tight and difficult and other times when things were more or less ok. But not even in the most difficult period of my life, as a University student, did I find myself in the position I am today. For thirteen years I struggled, I fought, I stood on my feet. But now I can’t take it anymore. I’m giving up."</i><br />
<i><br />
</i><br />
<i>"I’ve been unemployed for ten months. Knowing that I was going to lose my job, I started searching for a new one from as early as the Easter of 2010. By now I’ve send 155 CVs but I only got two replies back, both saying that they didn’t need employees. For the first time in my life I’m facing an eviction order by the end of this month. The landlord says that I have no dignity and that I live on her expense, forgetting the eight years that I have been meeting my obligations regularly or even the improvements I ‘ve made to her house on my own expenses. Still, she’s right. She’s no charity – she wants her money. The movers ask for 1200 euros to take my stuff back to my mother’s city or 150 per month in order to store them in a container. I cannot afford either of the twoscenarios. I will probably have to throw away my household of ten years. The tax service is demanding 300 euro as an emergency levy with a 3% interest for every month I don’t pay. Another emergency tax is expected with the next electricity bill and that’s going to be 420 €. I have to pay 640€ every two months for social security, although the company I worked for explicitly told me that they have no job to offer and that even if they did, they would pay a monthly salary of no more than 420 euro. In short: the city in which I have lived for the past 13 years is spitting me off to the margins like if I’m some kind of trash. For the first time in my life, I have no place to stay and no one to hold on to. Any stock of patience and courage I had has now vanished”.</i><br />
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<div style="text-align: center;">(From the blog Typos Nykhterinos extract from <a href="http://greekleftreview.wordpress.com/2011/10/18/greece-on-the-brink-of-social-explosion/">Greece on the brink of social explosion</a>)</div></div><br />
</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com1tag:blogger.com,1999:blog-20893208381126879.post-59229516525325766242011-10-18T16:52:00.010+03:002012-03-14T01:18:25.082+02:00The Inequality of Economic Theories Part 2<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<b>Where to next? The Lost Map and the Territory</b><br />
<br />
The model that has dominated macroeconomics, DSGE (dynamic stochastic general equilibrium model), has been suffering some heavy criticism. Economics has some very powerful tools. By all means, attack what they build and how they used it but don't throw away the tool box.<br />
<br />
John Kay (<a href="http://ineteconomics.org/blog/inet/john-kay-map-not-territory-essay-state-economics">The Map is Not the Territory: An Essay on the State of Economics</a>) writes:<br />
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<em><span style="color: black;"><span style="text-decoration: none;"><span style="font-family: 'Times New Roman';"><span style="font-size: small;"><i>'Lucas has called structures like these ‘analogue economies’, because they are, in a sense, complete economic systems. They loosely resemble the world, but a world so pared down that everything about them is either known, or can be made up. Such models are akin to Tolkien’s Middle Earth, or a computer game like Grand Theft Auto'</i></span></span></span></span></em></div>
I don't have a problem with this. I have a problem when the only game on the shelf for policy makers to play with is 'Grand Theft Auto'. Politics in Europe decides what can or cannot placed be on the shelf.<br />
<br />
'Economists have tried to do something that even physicists have failed to do - unify the micro and macro cosmos' (<a href="http://redesigning-the-foot.blogspot.com/2011/09/euro-bits-and-pieces.html">Hitch Hiker's Guide to Macroeconomics</a>). This is not as an argument to throw away science, Newtonian Physics or a Theory of Relativity. We retain our the models because of their usefulness, but in Economics we also have to ask useful for who and for what purpose?<br />
<br />
Rational expectations was a powerful breakthrough. Its interesting to know both when and where they do or do not apply, and what happens in these situations. One may build a complex/algorithm or computer model that describes a baby's movements; it does not imply that a baby crawls around with a laptop in his hand. There might be reason to dismiss the model if it predicts that the baby should be bouncing with joy, when in fact it needs toilet training. On there other hand, such a model error might be flashing lights to tell you its time to change the baby.<br />
<br />
So is the efficient market hypothesis a bad model because it not describing the financial markets, or is it good one as it can tell you there is something wrong with the markets (eg imperfect information, uncertainty or moral hazard) that need dealing with? The point being it is a tool not an ideology to believe in.<br />
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What people think they “know” and cannot know and how far they can see into the future is not constant. (<a href="http://www.creditwritedowns.com/2011/10/paul-davidson-state-of-economics.html">also see Paul Davidson: The State of Economics</a>). The world of 2007 is different from that of 2011. Such variables should not be treated as constants. The various families of <a href="http://en.wikipedia.org/wiki/Autoregressive_conditional_heteroskedasticity">ARCH</a> models in various ways recognise this. It is neither 'animal spirits' or perfect information rationality, but something that varies between.<br />
<br />
One problem, or decision to deal with, in macroeconomic modeling is the focus; the degree or over what we abstract. It determines the story that is to be told. This was one of the initial points of Macroeconomics.<br />
<br />
For instance, the case against DSGE models blindly adopting the equivalence property could be made not because it is essentially wrong, but because it buries essential economic information. Ricardian equivalence is often used in a particular way to tell one type of story: a government carrying out austerity measures to reduce government deficits will result in people recognising (rational expectations) the policy to mean lower taxes or higher spending in the future. They feel worse off today, but as they realise that they will be richer tomorrow, they will increase spending.<br />
<br />
This has not happened and something is very wrong. (and even at this level as <a href="http://krugman.blogs.nytimes.com/2011/03/10/ricardian-confusions-wonkish/?gwh=FD64D0E8EDB8E5C5AA24923425F23A8A">Krugman</a> argues Ricardian Equivalence does not imply this outcome). There might be a different story. Reducing deficits (and austerity measures) may be someones pain today and someone's else gain tomorrow.<br />
<br />
In a similar way, I don't have a problem with real wages <i>per se </i>in models. Given a shock that results in the price level and wages going up by 10% and 25%, we may well conclude that there is an increase living standards. This might miss an important story. To say that everyone is better off is to assume the effects on everyone are symmetrical, there are no redistribution effect and that there are no change in relative prices. If the relative price of what the poor consume rises faster than that of the rich, and the numbers of poor have increased, then there is a completely different story to tell. The problem of non-asymmetric shocks happens within an economy as well as the EuroZone - not just geographically but amongst agents themselves.<br />
<br />
Politicians, however, can't seem to separate reality from fantasy, can't understand them and cut and paste them into their own versions of Middle Earth: the 'Euro's one ring to rule them all'. The blindness, or deliberate refusal to turn away from such a world, leads them to select and finance only models that produce the desired answer. Politicians then use maps that have nothing to do with the territory they supposedly represent. Or, as the New York Times puts it, 'Austerity a political ideology masquerading as an economic policy' (<a href="http://www.nytimes.com/2011/10/15/opinion/britains-self-inflicted-misery.html?_r=4&ref=opinion">'Britain’s Self-Inflicted Misery'</a>). Europe is a particular tragedy, as a new road map is issued every two months.<br />
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<b>Some random wonkish thoughts and a little cutting and pasting:</b><br />
<br />
One neglected political business cycle theory, at the time of Keynes is from Michał Kalecki with a 1933 essay and important 1939 work "Essays in the Theory of Economic Fluctuations". He put forward the argument that political decision processes of Oligarchic or Imperfectly Competitive system would not allow the persistence of full employment.<br />
<br />
During the war he work with other Polish escapees for the British War time Government and eventually moved to the US in 1946. McCarthy's witch hunts of his close contacts and friends convinced him to move back to Poland and live behind the Iron curtain where his influence dwindle.<br />
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Kalecki towards the end of life 'made the sad but true observation that the story of his life could be compressed into a series of resignations in protest-against tyranny, prejudice, and oppression' (George Feiwel).<br />
<br />
Whereas Keynes argued that governments could impose their plans on the economy to control the business cycle, Kalecki argued the reverse. The market structure would restrict any management of the economy and the business cycles would impose itself on governments.<br />
<br />
It is of interest because it is built on the oligarchies, cartels and Monopolies and is about inequality.<br />
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Let me describe a story it can tell:<br />
<br />
1) There are two groups in the global economy. Those who need to work earn wages and salaries and those who can just live off profits.<br />
2) One group is defined as those working but cannot save significantly more than what they need to service debts. (eg <a href="http://t.co/67vVTPFI">Debt-Serfdom Is Now The New American Norm</a>)<br />
3) The other group can save and accumulate funds to invest or manage large portfolios that are highly mobile, moving with ease from one part of the world to another.<br />
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Now lets do a different type of Creative accounting. To be provocative, I will use different labels than Kalecki:<br />
<br />
Total Profits + (Total Wages - Debts) = Workers Consumption + (Corporate profits + Creditors)<br />
<div style="text-align: left;">
Consumption + actual Investment</div>
As most workers can't save or are enslaved to there debts we have:<br />
<div style="text-align: center;">
(Total Wages - Debts) = Workers Consumption </div>
And canceling this from both this sides, gives:<br />
<div style="text-align: center;">
Total Profits = (Corporate profits + Creditors) Consumption + actual Investment</div>
<br />
This is his famous profits equation, which simply says that profits are equal to the sum of investment and capitalist’s consumption. Now ask a cause and effect question.<br />
<br />
a) Does corporate owners’s consumption and investment determine profits or<br />
b) Profits determine corporate owners’ consumption and investment?<br />
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Kalecki would argue the answer depends on who can decide. Corporate owners can choose to consume less now and invest for high expected returns in the future. Higher or lower than expected profits leads to an adjustment in their decisions. Here we could introduce all sorts of things (Kareken and Wallace model?). My second quote from Tom Sargent, rational expectations is "helpful in predicting the crisis, not the timing of the crisis because there are random variables, but in terms of predicting the measures that increase the probability of a crisis, and that’s the Kareken and Wallace model." So from above a) is the prime cause and b) the revision: profit rates leads to corrections<br />
<br />
If corporate owners’s consume more, then one would image that they have less funds at the end of the period. This consumption, however, would also feeds backs in each other's profits. In a way, Kalecki views them as masters of their fate. .... <a href="http://en.wikipedia.org/wiki/Micha%C5%82_Kalecki#Theoretical_contributions">http://en.wikipedia.org/wiki/Micha%C5%82_Kalecki#Theoretical_contributions</a><br />
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It is interesting as it can leads use to model, income distribution, inequality and the economy being at inefficient allocations of wealth and income. We could of course look at other alternative models that might be better. Isn't that the point of Econometrics? Or is it just to make sure the data fits our favorite model? </div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-41368551274447505642011-10-18T16:26:00.006+03:002011-10-24T22:09:10.961+03:00The Inequality of Economic Theories Part 1<div dir="ltr" style="text-align: left;" trbidi="on"><b>Inequality and Inefficiency</b><br />
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The monetary base of economies has changed. Global capital, which can refinance, is running circles around governments who cannot refinance themselves. (re: East India Company v's the 'absolute monarch', Louis XVI).<br />
<br />
As the 2011 Nobel economics prize winner Tom Sargent <a href="http://www.eabcn.org/sites/all/files/Andrew_Scott_and_Thomas_Sargent_final.pdf">comments</a>, greedy bankers figure out odds, what’s their interests and increased the risks and probability of a crisis. That’s rational expectations.<br />
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Protesters are against greedy bankers, who they know can out figure the odds, their interests, run rings around the governments and increased the risks of the crisis. Protesters' "we know what you are doing" is also rational expectations. The '1%, by the 1%, for the 1%' (Joseph E. Stiglitz in <a href="http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105">Vanity Fair</a>) is the argument. Global Protests are against a system that makes people study and work hard to produce low or zero returns. They protest against the inefficiency and a cycle, or downward spiral, of inequality. <br />
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Protesters have new social networking tools and technology that makes it both easier and more effective to organise change. (see '<a href="http://www.bbc.co.uk/news/business-15326636">Occupy' is a response to economic permafrost'</a>). 'Horizontalism becomes endemic-techn makes it easy: it kills vertical hierarchies spontaneously'.<br />
<br />
<div>In the meantime governments are suffering coordination failure, or worse from illusions: RT@NickMalkoutzis 'thanks for the behind the scenes footage from the Eurogroup meeting'<br />
<b><br />
</b></div><div style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="http://www.youtube.com/embed/uWlUu54muOs?rel=0" width="480"></iframe></div><div><b><br />
</b></div><div></div>Lets suppose a model where global capital has rational expectations, Governments suffer from coordination failure, political meltdown and protesters have rational expectations. It makes an explosive model. <br />
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The current economic and political systems is tied by a Gordian Knot. In Greece both protesters and analysts agree that the system is inefficient, but who cuts the knot?<br />
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Inequality, and the squeeze on the middles classes, has struck hard at the 'advance' economics. Economic growth has moved eastwards. The room at the top has filled up, only few enter and leave it, and the door is firmly shut. The inequality that it leaves outside kill opportunities, leaving an economy becomes increasingly inefficient (relative to its potential).<br />
<br />
There are two double think theories on inequality that need to canceled themselves out:<br />
<br />
1) Lowering 'low' incomes increases productivity and competitiveness. Cheaper wages, leads to more exports (provided everyone doesn't do the same policy - who buys?), greater growth and the economy is prosperous (for your country, children, your children's children, religion or whatever). 'Be poor or we won't give a job' argument. Great in a perfectly competitive model (homogeneous agents: everyone is equal, wealth does not restrict market entry, equal access, etc) but not in an oligarchic or monopolistic reality.<br />
<br />
2) The opposite argument if you are rich: increasing 'high' incomes increases productivity, as it rewards those for being the most productive in the economy. An 'I deserve to be rich; you deserve to be poor' argument from the 19th Century 'marginal-productivity economic theory. To make sure that the 'powerful' remain powerful, they then monopolise educational, resources and all pathways to power. Thus, financial managers of the crisis are rewarded for their contributions to society. Austerity measures, falling output, poverty, destruction of human capital, whole sale destruction of communities are somehow necessary to keep up these wonderful contributions to society. Contrast this very few rewards received by 100,000s of contributions, ideas, pioneers, social enterprises and creative users on the internet. Unsurprisingly cyber space wants also to also occupy physical space. To what extent was Microsoft's Encarta v's Wikipedia an uneven competition between private entrepreneur property and social entrepreneur property?<br />
<br />
<b>Inequality is inefficient</b>:<br />
1) it restricts opportunity and deprives access to untapped resources. Practices result in dumping (human) resources to maintain or protect inequalities.<br />
2) it reproduces itself, through monopoly power and preferential tax treatment for special interests and loop holes. Financial capital is highly mobile, but restricts the mobility of human capital via opportunities, uneven development, labeling, standardization, product discrimination into race, rationality, gender, age,fashion, etc. <br />
3) it breaks up social and community action do deal with, for example, environment, health, education problems and to coordinate responses to financials crisis. It generates mistrust; a '<a href="http://en.wikipedia.org/wiki/Tragedy_of_the_commons">tragedy of the commons' </a><br />
4) misallocates resources, (buying power is uneven and supply is restricted), benefits are privatised and costs are socialise such as pollution or bank bailout. The most talented young people go into professions that are not actually productive - be it armies of lawyers, bureaucratic or finance - for the economy<br />
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As I write, a twitter: @INETeconomics "Market outcomes need to be modified to create a more even #distribution of incomes" Nobel laureate Michael Spence <a href="http://t.co/U2zUNdFK" style="color: #3465a4;">http://t.co/U2zUNdFK</a>. Such is the speed of change.</div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0tag:blogger.com,1999:blog-20893208381126879.post-11093011851682092882011-10-10T20:12:00.018+03:002012-03-14T20:47:29.622+02:00Zeno's Political Impossibility Paradox<div dir="ltr" style="text-align: left;" trbidi="on">
<span class="Apple-style-span" style="color: #999999;">...... and Reality</span><br />
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You might have noticed that the meetings, crisis, meetings, crisis .. are occurring at shorter intervals. There is a wise old Greek who might help us to understand this and why everyone is being pushed to and off their limits.<br />
<br />
<div style="text-align: center;">
<iframe allowfullscreen="" frameborder="0" height="300" src="http://www.youtube.com/embed/skM37PcZmWE?rel=0" width="450"></iframe><br />
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There is also the Box Bunny's carrot (less stick) version. The IMF <a href="http://www.imf.org/external/pubs/ft/reo/2011/eur/eng/pdf/ereo1011.pdfhttp://www.imf.org/external/pubs/ft/reo/2011/eur/eng/pdf/ereo1011.pdf" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px;"> latest report</a> recommends that countries should reverse their austerity measures. In very damning graphical detail, section 1.1 (Divergent Recoveries, but a Synchronized Slowdown?) shows the Euro as a very sub-optimal monetary union.<br />
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We could ask why Greece is not included in the recommendation to reverse austerity measures. A Zeno swapping arrangement might have helped to explain - but the following may serve better.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRCwM56VG7VX9ROxCSyBnBJDnduopp9cvvwuRU-EqCx-6OqRJ9e60DYEv54yisudgHYHZy9-5A6feHkJ34qeg5KWD4HiflNzdUR2wO51K3SEUs10k7hIF-OJnp3LC4MLxDk24tU4z03A/s1600/Demonstrators-vs-Bankers.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="248" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRCwM56VG7VX9ROxCSyBnBJDnduopp9cvvwuRU-EqCx-6OqRJ9e60DYEv54yisudgHYHZy9-5A6feHkJ34qeg5KWD4HiflNzdUR2wO51K3SEUs10k7hIF-OJnp3LC4MLxDk24tU4z03A/s320/Demonstrators-vs-Bankers.jpg" width="320" /></a></div>
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<span class="Apple-style-span" style="border-collapse: collapse; font-family: arial, sans-serif; font-size: 13px;">It's useful to remember above image when reading about "moral hazard" - it is after all about the control and exploitation of information.</span><br />
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<b>A comment on a Nobel economics prize winner</b><br />
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<b>Macroeconomics and Reality 2.0 – when will it be released?</b><br />
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Thomas Sargent and Christopher Sims won the Nobel economics prize on Monday. <a href="http://blogs.ft.com/money-supply/2011/10/10/what-today%e2%80%99s-nobel-prizewinners-tell-us-about-monetary-policy/#ixzz1aQQWCkS9">Many</a> are speaking about their work on the impact of expectations on policy. I shall take a different line.<br />
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When Chistopher Sims published "Macroeconomics and reality" (Econometrica 1980) a revolution was instigated in macroeconometrics. C. Sims argued that existing macroeconomic models were strangled by "incredible overidentifying restrictions". Models were so prejudiced by the underlying assumptions and pet theories that were in vogue that hypothesis testing, policy analysis and forecasting were virtually rendered meaningless. As Macroeconometric models failed to predict and handle the subsequent events of the 2008 global crisis, we might like to ask the same question today.<br />
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Learning, knowing or worrying about something affects the outcome (here enters Sargent and also the Alice-in-Wonderland Cheshire Cat) but, until Sargent's work on rational expectations, it was very difficult to build into macroeconometric models. Macroeconomics models were static representations of a complex dynamic reality. C. Sims provided a philosophy, co-developed a toolbox and opened the way to a new horizon of possibilities.<br />
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Back in 1980 C. Sims proposed freeing macroeconometric models from its cage by allow 'history' (past values of variables) to determined the shape of models and hopefully, if not visible, allow the causal nature and underlying structure of macroeconomic reality to feed into the models. The result was a revolution and an attempt to shift to move models away from classical statistical models.<br />
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He introduced a theoretical approach based on Vector AutoRegressions and Baynesian methods to allowing the data to speak to the structure of models (variables' past values could be switched on or off by he data) and/or the possibility of beliefs and theories to be imprinted on to the model without imprisoning it. His subsequent contribution to the work on the econometrics package RATS (later CATS!) provided the tools for others join the revolution.<br />
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The possibilities seemed endless – that was also the problem.<br />
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Subsequent work by others, who were also to receive Nobel prizes, gave clues: Granger causality time series (testing if y is more related to x's past than x to y's past - or crudely - which comes first, the fire or fire engine?); Cointegration analysis (suppose a drunk is walking randomly around with his dog. Both are non-stationary. Both pull and tug with each other. Individual movements make no sense but there is a relationship), Error correction. Learning models, etc. New tools seemed to be appearing all the time.<br />
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What went wrong?<br />
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Referring back to previous post: (<a href="http://redesigning-the-foot.blogspot.com/2011/06/blindness-and-deafness-to-modest.html">How can blindness and Deafness be explained?</a>), perhaps this gives an answer: <br />
<dl><dd style="margin-bottom: 0.2in;">'I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying out a rationally designed, long-term plan, occasionally disturbed by unexpected shocks, but adapting to them in a rational, consistent way... The advocates no doubt believe what they say, but they seem to have stopped sniffing or to have lost their sense of smell altogether.'<i> </i></dd><dd style="margin-bottom: 0.2in;">Robert Solow, <a href="http://democrats.science.house.gov/Media/file/Commdocs/hearings/2010/Oversight/20july/Solow_Testimony.pdf" style="color: #249fa3; text-decoration: none;">United States Congress hearings</a> (July, 2010) investigating why macroeconomists failed to foresee the 2008 Financial crisis</dd></dl>
The pioneering work of the 1980s opened up a new terrain. The same neoclassical building was built on it. Only a Walrasian auctioneer or single consistent rational super entity can occupy its premises.<br />
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The award to Christopher Sims comes at a good time.<br />
<br /></div>The Cheshire Cathttp://www.blogger.com/profile/08619547396220504593noreply@blogger.com0