Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did

[JohnfrmClevelan]

....and four of them are MMTers. Five, if you include Wynne Godley. And they should have counted Bill Mitchell, too.

Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did - Bloomberg Business

Maybe there is something to this "monetary sovereignty" thing...

The basis of their complaints is that the EU lacks any mechanism (as currently constructed) that can effect fiscal policy, which prevents Keynesian-style countercyclical deficit spending.

Anybody care to make the case for more austerity?

 

[Crovax]

The singe currency problem is an economic fallacy based on arbitrary dividers. The US has the same issue with individual state budgets that get into debt and cant alter the US currency and they are solved by austerity all the time.

 

[joG]

....and four of them are MMTers. Five, if you include Wynne Godley. And they should have counted Bill Mitchell, too.

Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did - Bloomberg Business

Maybe there is something to this "monetary sovereignty" thing...

The basis of their complaints is that the EU lacks any mechanism (as currently constructed) that can effect fiscal policy, which prevents Keynesian-style countercyclical deficit spending.

Anybody care to make the case for more austerity?

One thing I should say immediately is that Greece would profit very much by taking a number of the steps the lenders are requiring. The country would do much better.

This is not the same as saying austerity is a good idea in these circumstances. Generally a government should be restricted to only sensible spending on what economists call "public goods" https://en.wikipedia.org/wiki/Public_good . When the private sector reduces its activities it can make sense to expand fiscal spending to prevent recessions becoming depressions or to try to stimulate out of a depression to prevent civil unrest. This is certain,y the case in Greece today, where we could easily get a breakdown of society and general uproar.
The problem in Spain, Ireland, Portugal, France and Greece is that the spending on social programs et alias in good times have depleted borrowing availability. So the question is, where should the cash come from. In the case of Euroland the EZB has factually refinanced the ailing countries(, which is illegal BTW but has been allowed by the courts on a theory that buying someones debt is not refinancing her). But to expand government spending enough to save the hungry, sick or unemployed youth (up to 60%) more cash would be required. This can only come from the other members of Euroland. The arguments are rather good to justify it. Among others:
1. The problem is primarily not the Greeks or Spaniards etc. IT is the construction of the Euro the defects of which made later crisis and damage to people all over Euroland unavoidable and which were known at the time of signing the Maastricht Treaty.
2. Demanding the Greeks fulfill the contracts is pure hypocrisy and non general application of law. The Greeks did sign but so did the others. When the Germans broke the Maastricht contract in its first year of existence they were allowed to and the others were left to deal with the problems. The Germans have not complied with the Stability Pact in any year.
3. The Other countries signed the Greek entry off, though, they did know at the time, that the balance sheets were way off.

We are talking of a collective failure and general collusion. This does lend credibility to the argument for the others pitching in.

 

[JohnfrmClevelan]

The singe currency problem is an economic fallacy based on arbitrary dividers. The US has the same issue with individual state budgets that get into debt and cant alter the US currency and they are solved by austerity all the time.

While you can "solve" a state budget shortfall with austerity, that is about the only thing you are solving for that state. Programs suffer, of course, but at the heart of austerity is a loss of jobs. Public sector jobs directly, and private sector jobs indirectly (any significant decline in spending is going to cost the economy some jobs). This shrinks the tax base, etc., and the cycle of misery continues.

The other way to "solve" state budget shortfalls is for money to come into the state from outside, either by running a surplus with other states using the same currency (which just moves the problem somewhere else), or by other money entering that state. Countries that are monetarily sovereign can not only create money outside of the private banking system, they can distribute it as they see fit. So our federal government can run deficits and distribute that money as needed - less to New Jersey, more to Mississippi, and it just adds to the economy. The EU lacks this feature. Operationally, they are perfectly capable of doing the same thing - the ECB is a central bank, just like any other - but they lack the political/legal power to do so. This was a big problem with the Maastricht Treaty that Wynne Godley saw coming.

 

[JP Hochbaum]

The singe currency problem is an economic fallacy based on arbitrary dividers. The US has the same issue with individual state budgets that get into debt and cant alter the US currency and they are solved by austerity all the time.

1) the states are different in that they don't carry trade deficits.

2) while at the state level they practice austerity, they received massive bailouts in 2009.

3) the ones still practicing austerity, WI and KS, are actually seeing increased deficits.

4) Our economy actually produces stuff, kind of like Germany, so austerity effects aren't as bad as in other countries that lack production.

 

[Crovax]

1) the states are different in that they don't carry trade deficits.

2) while at the state level they practice austerity, they received massive bailouts in 2009.

3) the ones still practicing austerity, WI and KS, are actually seeing increased deficits.

4) Our economy actually produces stuff, kind of like Germany, so austerity effects aren't as bad as in other countries that lack production.

You are talking about individual differences between our economy and Greece's. Nothing about thise differences helps Greece any better if they controlled thier own currency. Structurally the state / federal govt system is similar to the country / eurozone system and austerity can work but nothing will work without a sustainable economy and that is Greece's main problem.

 

[JP Hochbaum]

You are talking about individual differences between our economy and Greece's. Nothing about thise differences helps Greece any better if they controlled thier own currency. Structurally the state / federal govt system is similar to the country / eurozone system and austerity can work but nothing will work without a sustainable economy and that is Greece's main problem.

That is really not true, having the ability to print your own currency is a major difference that could help them.

 

[Crovax]

That is really not true, having the ability to print your own currency is a major difference that could help them.

Short term it helps but without a long term recovery plan they end up worse off. The Greeks know this and thats why very few of them want out.

 

[JP Hochbaum]

Short term it helps but without a long term recovery plan they end up worse off. The Greeks know this and thats why very few of them want out.

Yes I agree a good recovery plan would be needed. I mentioned in another thread that a bad situation like this could be made into a great situation. It would take tremendous man hours IT wise to transition to a new currency. With enough proper investment GReece could turn into the Silicon Valley of Europe.

 

[pdog]

The singe currency problem is an economic fallacy based on arbitrary dividers. The US has the same issue with individual state budgets that get into debt and cant alter the US currency and they are solved by austerity all the time.

its a plus that you recognize that the Greek debt is more akin to state debt than US debt. Its a minus if you think we'd consider kicking out a brethren state for being a net taker of federal dollars. The US is NOT the euro zone.

 

[pdog]

Yes I agree a good recovery plan would be needed. I mentioned in another thread that a bad situation like this could be made into a great situation. It would take tremendous man hours IT wise to transition to a new currency. With enough proper investment GReece could turn into the Silicon Valley of Europe.

I agree with this but I struggle to understand the macroeconomic impact to the euro zone. Any investment towards existing industry is a gamble to me. What are the chances that they can compete in that industry? If they are actually successful, aren't they putting economic pressure on other EU countries?

 

[JohnfrmClevelan]

You are talking about individual differences between our economy and Greece's. Nothing about thise differences helps Greece any better if they controlled thier own currency. Structurally the state / federal govt system is similar to the country / eurozone system and austerity can work but nothing will work without a sustainable economy and that is Greece's main problem.

Greece has survived for thousands of years. They are perfectly capable of having a decent economy. But with the euro, they (and most other EU countries) are fighting an uphill battle. They can't devalue their currency to make their products cheaper and more attractive, for one. They can't run a deficit to spend countercyclically, for another. And finally, they are competing with Germany in a system that is totally slanted for the benefit of Germany.

Developing a stable economy is difficult enough when you aren't bleeding euros to your financial master. Greece is being forced to make paying her German creditors Priority #1. Her economy is a distant second. Take a second look at Greece's track record over the last 10 years or so. Look at Spain, Portugal, and the rest of the weak sisters, too - the numbers all stink. Unemployment is rampant. Austerity doesn't fix anything. Economies are contracting, and for what? Where is the benefit?

Euros are being Hoovered out of almost every EU country (and into Germany) like water down a drain. The system is structurally flawed.

 

[JohnfrmClevelan]

I agree with this but I struggle to understand the macroeconomic impact to the euro zone. Any investment towards existing industry is a gamble to me. What are the chances that they can compete in that industry? If they are actually successful, aren't they putting economic pressure on other EU countries?

Under the euro? Chances are about zero, because they won't be a bargain. Under a devalued Drachma? Chances are much better.

 

[austrianecon]

....and four of them are MMTers. Five, if you include Wynne Godley. And they should have counted Bill Mitchell, too.

Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did - Bloomberg Business

Maybe there is something to this "monetary sovereignty" thing...

The basis of their complaints is that the EU lacks any mechanism (as currently constructed) that can effect fiscal policy, which prevents Keynesian-style countercyclical deficit spending.

Anybody care to make the case for more austerity?

There were alot of people who saw this coming. Starting back in 1992, obviously. Everybody secretly knew but didn't want to admit it to themselves that the Euro was doomed to failure under the structure proposed. Euro Zone has had MANY MANY failures since 2008, PIIGS and Cyprus. But everybody wants credit for Greece? Why? Greece in modern history has been in default 50% of the time (90 years) since it's independence from Ottoman Empire.

 

[austrianecon]

1) the states are different in that they don't carry trade deficits.

2) while at the state level they practice austerity, they received massive bailouts in 2009.

3) the ones still practicing austerity, WI and KS, are actually seeing increased deficits.

4) Our economy actually produces stuff, kind of like Germany, so austerity effects aren't as bad as in other countries that lack production.

Yes, and no. The problem is it's the Euro Zone who didn't treat itself as one nation like the United States does for trade purposes. That's actually an easy fix for them to do but something Germany, Netherlands won't do (largest net exporters). There is no Eurobond (like the US treasury) in which all are liable.


States see deficits for many reasons, not austerity only. California has ran a deficit since 2008. Some states require balance budgets and cut spending to match state constitutional rules. Swiss, Germans, Austria, and Poland all have some form of balance budget which means they all take part in some form of austerity.

What does the US economy produce? People were foaming form the mouth at the 20% reduction Republicans were proposing a year or so ago.

 

[austrianecon]

Greece has survived for thousands of years. They are perfectly capable of having a decent economy.

Greece hasn't survived for thousands of years. Greece failed and became part of Rome, then Rome fell and Greece became part of the Ottoman Empire. For almost 2000 years Greece was actually not an independent country and it's bills were paid by Rome and Ottomans. Since Greek independence, Greece has defaulted 90 of the 180 years since independence and during that 180 years was a massive Greek diaspora where 4 million Greeks (safe estimate) left Greece because of economic issues.

 

[Chagos]

Greece hasn't survived for thousands of years. Greece failed and became part of Rome, then Rome fell and Greece became part of the Ottoman Empire. For almost 2000 years Greece was actually not an independent country and it's bills were paid by Rome and Ottomans. Since Greek independence, Greece has defaulted 90 of the 180 years since independence and during that 180 years was a massive Greek diaspora where 4 million Greeks (safe estimate) left Greece because of economic issues.

Not to mention that Germans (although many no longer know) already had similar experiences with Greeks. Well, to be true, Bavarians actually, there being no united Germany at the time.

Born In Debt: Greece's History of Borrowing | GreekReporter.com

I'm referring to the time of Otto, the Bavarian prince that ascended the Greek throne.

 

[austrianecon]

Not to mention that Germans (although many no longer know) already had similar experiences with Greeks. Well, to be true, Bavarians actually, there being no united Germany at the time.

Born In Debt: Greece's History of Borrowing | GreekReporter.com

I'm referring to the time of Otto, the Bavarian prince that ascended the Greek throne.

Yes, one of the rare times the Wittelsbach family ruled outside of Bavaria.