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When will Ireland default?
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If we had an ECB guarantee tomorrow, that our debts are always guaranteed and backstopped by the ECB, you can be certain we would have a massive drop in yields - this is why people are pushing for centralization of EU debt.Nonsense. As I already pointed out some EZ member states have lower interest rates in their borrowings than non-EZ states who are free to issue this "guarantee". Clearly the markets disregard the idea.
The markets also have zero choice in the matter, when countries disregard bonds as a method of funding altogether, and start using inflation-targeted money creation.
Most economists don't even understand endogenous money, which means most economists haven't got the first clue about how macroeconomics works in reality. That's not theory, that is how the banking/monetary system works - and if you get that wrong, you get practically all of macroeconomics wrong in subtle far-reaching ways.Clearly countries with their own currencies don't believe this idea as they don't use it. This might be because they just don't believe your theory that economists don't understand economics.
If they have nothing else to do with the money, because the economy is satiated due to adequate supply of money provided by public spending up to inflation targets, then they have no choice, and will take what they are given.Prospective bond holders won't buy bonds in Punts if they don't get the return they want. Why should they if they get more from another country that follows "standard" economics rather than "alternative" economics?
With a country with sovereign currency, they have nobody else to give the money to, who can give them interest on it, once private demand for money is satiated.
If you believe in standard economic theory, in the money multiplier and that money is 'exogenous', that 'free markets' are attainable, that the economy is constantly moving towards equilibrium (as the mainstream claims) - if you believe any of that, then yes, you might as well stick to religious belief, because it is all nonsense.A theory is an explanation for a set of facts - hence your idea is a theory not a fact. You are entering the domain of religious faith if you are claiming it is a fact.
That though leads us to the obvious point though that economists looking at that underlying data prefer another theory to account for it.
Hence they and the governments and banks they work for act they way they do. That is not going to change if we wake up in the morning using the Punt again. Nor are the electorate either in Ireland or elsewhere in the EU going to rush to change that situation - competing economic theories aren't voters most pressing issues.
'Endogenous money' is fact. The accounting rules built on top of that, for tracing the flows of money through the economy and making up the description of the economy that I support, are true as a matter of basic mathematics, as simple as "Assets - Liabilities = 0".
What economics do you support, and does what you support take endogenous money into account? If it doesn't, you have no useful grasp of macroeconomics.0 -
KyussBishop wrote: »The markets also have zero choice in the matter, when countries disregard bonds as a method of funding altogether, and start using inflation-targeted money creation.
Ignoring reality again. The markets wouldn't have zero choice in the matter. They can just do something else with their money.If they have nothing else to do with the money, because the economy is satiated due to adequate supply of money provided by public spending up to inflation targets, then they have no choice, and will take what they are given.
Why would the markets have nothing else to do with their money? Why would they stop looking for real return or to preserve purchasing power?
You should learn when your MMT language looks like useless gobbledygook. How does everything you have written after because follow? It makes no sense.0 -
Where are they going to put the money when private demand for money/loans/investments (and most importantly debt) is already satiated? They are going to stick it wherever they can get the most interest.Ignoring reality again. The markets wouldn't have zero choice in the matter. They can just do something else with their money.
When governments utilize inflation-targeted money creation for funding, government bonds just act to satiate private demand for interest-bearing savings (like people putting money in a savings account) - if nobody wants to take on more debt in the private economy, any excess money will go into these bonds as savings (until the government stops giving them out).
Inflation-targeted money creation, for public funding, completely changes the dynamics of macroeconomics.
If 'the markets' want to gain interest on their money, they either have to do something productive with it (hire people), or convince someone else to take on more debt by lending it to them.Why would the markets have nothing else to do with their money? Why would they stop looking for real return or to preserve purchasing power?
You should learn when your MMT language looks like useless gobbledygook. How does everything you have written after because follow? It makes no sense.
If the economy is at full-employment, and nobody desires more debt (due to there being ample money in the private economy already, or just due to there being far too much private debt already), what are they going to do with the money? Put it where they get the most interest - which means government bonds (which can be at 0.1% interest and still be better than doing nothing with the money).0 -
KyussBishop wrote: »what are they going to do with the money? Put it where they get the most interest - which means government bonds (which can be at 0.1% interest and still be better than doing nothing with the money).
But why wouldn't they put it in British government bonds, and get 2.5%?
Meanwhile, we are printing Punts for money, so Punts drop in value on foriegn markets (why buy punts if the Ireland is printing them freely?), imports rise in price, inflation hits your target, so we have to stop printing Punts or break the inflation target.
Now we can't print more, and no-one will buy our bonds. We have to borrow money in dollars, Euros or Sterling. Hey look, we're back in the 80s!0 -
They would be holding Irish money, not British, and if they exchange the money, what is the bank that accepts the money going to do with it?Zubeneschamali wrote: »But why wouldn't they put it in British government bonds, and get 2.5%?
Meanwhile, we are printing Punts for money, so Punts drop in value on foriegn markets (why buy punts if the Ireland is printing them freely?), imports rise in price, inflation hits your target, so we have to stop printing Punts or break the inflation target.
Now we can't print more, and no-one will buy our bonds. We have to borrow money in dollars, Euros or Sterling. Hey look, we're back in the 80s!
Why also, would the British give them bonds at all, if they don't want to take on more debt? There is a limit to how much in bonds countries will give out (i.e. how much national debt they want), they're not just going to give money away.
You don't devalue a currency just by printing, the value of currency is in large part determined by the level of economic output in your economy, as well as foreign exchange - you want to maximize your economic-output and employment levels, to get the most out of your currency and economy.
If you're spending up to inflation targets, you don't need to borrow anymore (borrowing would in fact, be drawing money from idle savings, causing you to increase inflation even more - so you can't either; they are both equally inflationary actually).
When you hit the inflation target limit when running a Job Guarantee or such, the private sector first starts to reconfigure to cope with the increase in demand (which reduces inflation, as the private economy increases supply to meet demand - resolving supply constraints causing inflation), which then allows more spending before you hit the inflation target, then you hit full-employment (with a lot of the employment in the Job Guarantee); this (full-employment) is the limit where you can't spend anymore, because you will bid up wages and cause inflation beyond targets.
As time goes on, the private sector pays down private debt, and the private economy grows taking on workers back out of the Job Guarantee, until the private sector (and economy) is fully recovered.
Pretty easy to just stay within inflation targets all throughout.0 -
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KyussBishop wrote: »They would be holding Irish money, not British, and if they exchange the money, what is the bank that accepts the money going to do with it?
Eventually, people would be burning it for fuel, since it would be cheaper than coal.0 -
No arguments left, so off to trite hyperinflation scaremongering I see - if you think the policies I advocate would lead to hyperinflation, then you have no idea how even inflation itself works.Zubeneschamali wrote: »Eventually, people would be burning it for fuel, since it would be cheaper than coal.0 -
OK, if you insist:KyussBishop wrote: »Why also, would the British give them bonds at all, if they don't want to take on more debt?
Do the British issue bonds now? There is no reason why they would stop just because we float our own currency and change our borrowing habits.
You say bond-holders would be holding Irish money - but you have to get from here to there. So you relaunch the punt and, what? Convert existing debt to punts at the Official Rate?
That would amount to a near 100% default, making your new currency even more untouchable.You don't devalue a currency just by printing, the value of currency is in large part determined by the level of economic output in your economy,
So, if you stop borrowing and start printing money to make up the billions per year instead, what happens to the value of your currency in foriegn exchange markets? Does it go up or down?
What happens to the cost of oil measured in punts?
What does that do to the economy?When you hit the inflation target limit when running a Job Guarantee or such, the private sector first starts to reconfigure to cope with the increase in demand
What is your inflation limit? Because I think you are going to pass it instantly, without spending any money at all, just by devaluing the Punt and trying to buy oil in dollars.0 -
Bonds mean national debt - why would they do that exactly? They're not just going to give money away.Zubeneschamali wrote: »Do the British issue bonds now? There is no reason why they would stop just because we float our own currency and change our borrowing habits.
You don't understand how demand for currencies work. If people want to make profits from the Irish economy (working and paying taxes), or buy Irish products, they will need Punts.Zubeneschamali wrote: »You say bond-holders would be holding Irish money - but you have to get from here to there. So you relaunch the punt and, what? Convert existing debt to punts at the Official Rate?
That would amount to a near 100% default, making your new currency even more untouchable.
The value of a currency isn't determined by psychology - confidence doesn't just magically 'disappear' and then "whoops, hyperinflation", people still need to pay taxes and do business.
You don't understand how the valuation of currency works, or how it relates to economic output and employment levels, or how international trade works.Zubeneschamali wrote: »So, if you stop borrowing and start printing money to make up the billions per year instead, what happens to the value of your currency in foriegn exchange markets? Does it go up or down?
What happens to the cost of oil measured in punts?
What does that do to the economy?
You spend based on inflation targets, then that means (surprise) you don't breach the inflation targets - the rest, is just letting the markets decide how to allocate resources, to avoid resource bottlenecks and overly expensive resources.
When the rest of the world voluntarily chooses to kill economic output by engaging in austerity, when alternatives are available, you don't follow the same path of insanity and destroy your own economic output, causing massive unemployment, waste of labour potential (i.e. waste of real wealth), welfare problems and engage in internal devaluation (with workers losing real spending power).
You take care of the welfare of your people and share the burden, with currency valuation returning to previous levels as the rest of the world economies recover.
Your policies promote internal devaluation, which already effectively 'devalue' workers earnings - so it is the utmost hypocrisy to promote that much longer lasting devaluation, which harms workers far more, than to accept a temporary devaluation caused by the rest of the worlds problems, which is less painful and shared equally.
Even the vaguest understanding of international trade, would show also, that all economies increasing economic output in this manner at the same time, would also result in no change (bar minor fluctuations) in currency valuation either - so currency valuation is only a problem for the length of time the rest of the world is avoiding restoring output.
I never said anything about devaluing the Punt, so you're fighting a straw-man there.Zubeneschamali wrote: »What is your inflation limit? Because I think you are going to pass it instantly, without spending any money at all, just by devaluing the Punt and trying to buy oil in dollars.0 -
KyussBishop wrote: »Bonds mean national debt - why would they do that exactly?
Do they do it now, or not?0 -
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Its a bit more than I first thought.0 -
Heh, do they want even more debt than they already have, is the question - why on earth would they do that, just to satisfy bankers/financiers desire to have an interest-bearing place to put money?Zubeneschamali wrote: »Do they do it now, or not?
Once the penny drops here, and these policies start getting adopted widescale, you're going to see an effective end to the free money being thrown at banks/financiers in the form of bond interest payments - they will be forced to do something productive with the money instead, or to take what little interest they can get from government.0 -
KyussBishop wrote: »they will be forced to do something productive with the money instead, or to take what little interest they can get from government.
So you admit lending to governments is unproductive.0 -
KyussBishop wrote: »Heh, do they want even more debt than they already have, is the question - why on earth would they do that, just to satisfy bankers/financiers desire to have an interest-bearing place to put money?
I am not asking what they want to do or why they would want to do it.
Do the British routinely issue Government bonds?0 -
I said that governments won't be giving out bonds on-request, when they don't want more debt - though yes, when government has the ability to fund spending without requiring debt, I do think it is unproductive to be giving bondholders free money in the form of interest payments (it is actually more inflationary than just straight-out money creation as well).So you admit lending to governments is unproductive.0 -
If they want to increase their national debt, sure - if they don't, they are just going to be renewing the same amount of debt, or just reducing the overall debts.Zubeneschamali wrote: »I am not asking what they want to do or why they would want to do it.
Do the British routinely issue Government bonds?
I would take you as the type that views government debt as a bad thing, no? If so, you would be expecting them to constantly be reducing the amount of government bonds out there.0 -
KyussBishop wrote: »If they want to increase their national debt, sure - if they don't, they are just going to be renewing the same amount of debt, or just reducing the overall debts.
I'm not asking a hypothetical "what if" question. Do the British routinely issue Government bonds?
It's a simple yes or no question, and this is the fourth time I've asked.0 -
It's not a yes or no question. The UK is not going to routinely issue bonds, if they don't want to be expanding or rolling over their national debt.0
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KyussBishop wrote: »It's not a yes or no question. The UK is not going to routinely issue bonds, if they don't want to be expanding or rolling over their national debt.
Kyuss, please stop trying to avoid an inconvenient fact. The UK routinely issues government bonds, and no amount of "it's not a simple question" makes it anything less than a simple question whose simple answer you are avoiding.
This is a Politics/Political Economics forum, and people are absolutely entitled to their own particular politico-economic theories, but people are not entitled to soapbox or any other form of bad argument, and you're increasingly taking up thread space doing these things.
There's a limit to how many threads in the forum we're willing to see filled up with you preaching to the unconverted, and we're at or very close to that limit already.
moderately,
Scofflaw0 -
Let's look again at what you have been saying on this thread.KyussBishop wrote: »Again that's not contradicting anything I've said (much of it doesn't even relate to anything I've said)
No, actually it hasn't. It has been a disaster in certain member states. The EU/EZ system is not the answer to domestic problems, although it can encourage states to move towards proper governance.The last half decade has been an utter disaster in EU economic mismanagement, and the trainwreck looks like it could potentially continue on like this for another decade.
It's quite ridiculous to expect a system in its historic infancy to come up with panaceas for quite a diverse range of national problems. And quite ridiculous to expect EZ instruments to deal with problems they are not designed to solve.
Anything is 'potentially' possible. By a similar token, the EU could 'potentially' have sorted out its most serious problems of macro-economic governance and financial regulation.
There is no treaty provision making such a claim. I can't think of a single EU member which even aspires to such a scenario. This is a pure straw man on your part.The way Europe is headed, is towards a fully unified nation
Not necessarily. There is nothing irrevocable about the transfer of monetary competences to the EZ. Any country can pull out of the EU if it wants to. Competency transfers are based on agreed treaty law and can be reversed. So nothing essential has been lost. Indeed, by volunteering to enter into a common monetary system, countries are giving that system a chance to develop into something more stable and powerful than what each had heretofore. So there's a potential net sovereignty gain down the road.monetary sovereignty (a country having control over its own currency), is actually an essential part of what makes up a countries overall sovereignty.
This is simply incorrect. mistakes made in the 'good' times equally define the state of a country's economic control. Perhaps you weren't paying attention to what happened in Ireland during the Ahern bubble years. Although we had plenty of tools at our disposal to control our runaway economy, we chose to do nothing. That truly helps define the quality of our sovereignty, as much as the responses in the bad times.it is the bad times that truly defines the state of a countries economic control
And don't forget, we have been here before at least once under the Lynch-Haughey administrations.
This is an ex post facto generalisation on your part. First of all, the EZ is a unique initiative in economic history, and its development has not even remotely played itself out. Second, you're completely discounting the ability of the EZ to adapt politically and economically to [unforeseen?] problems as they present themselves.When you adopt a single currency among countries as we have, without adequate protections against economic crisis, then every economic crisis encountered will grind down the weakest of the participating countries, and will allow the more politically powerful countries to block the weaker countries access to needed money - this goes on until the currency dissolves, or the countries agree to a central federal government that handles fiscal policy co-ordination
I could just as easily adapt your specious reasoning to make the claim that you can adopt a single currency in principle developing adequate protections as crises appear, assisting the weakest countries in harmonising their economic standards up to an acceptable common level, using the resources of the more politically powerful countries - this going on until the currency has found a solid regulatory balance and an international critical mass based on legal agreement within treaty provisions specifically addressing identified issues.
Pure assertion. Despite the trials and tribulations of some deeply incompetent national governments, the Euro is still in operation and the problems states are taking steps to rectify at least some of their bad practices.but Europe are not competent and the single currency [...] has been a disaster, and it should probably at this stage be aborted, since there are no signs of real reform and recovery policies coming.
How on earth do you know that? Come back in, say, 18 months and make the same statement.no recovery policies seem to be on the way
Perhaps in the Anglo-Saxon world, but not everywhere else. There has been much resistance to deregulation in many European countries, not least Germany and France. And the Maastricht criteria lay down key principles which force states to take an active role in controlling public debts. State intervention played a central role in the recovery of the German economy. And you can expect regulation of banking and finance to pay a central role in the resolution of the EZ crisis.The last 30 years of economics has been all about dismantling regulations0 -
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Seeking lower-interest debt? How aspirational of you!KyussBishop wrote: »We have far less control over fiscal policy when the limits of our fiscal policy is dictated by our inability to seek lower-interest debt (and other funding methods), which are not available to us because we don't have sovereign control over our currency.
That fact is 100% unavoidable. If we had our own currency, we would not be paying such high interest rates on debt, because a country with sovereign control over its currency can always guarantee the debt - we can't, because we don't have that control.
There is no magic money tree out there to fund countries which have run up enormous budget deficits and national debts. Indeed the closest we have to such a magic money tree is the relatively low interest rates we've been getting under the Troika arrangements.
If you seriously believe we could guarantee our massive debt as a standalone economy, you're as deluded as who those thought we could guarantee the deposits and loans in all Irish-based banks.
Once again, I can't emphasise enough that we could have controlled the excesses of our bubble using domestic taxation and legislative instruments. The fact that we didn't when it mattered most exposes the utter shallowness of your assertion that we need sovereignty to undo the damage we inflicted on ourselves. Stable door, bolted horse and all that.0 -
Most of that I don't think I can reply to on this thread without a warning, but if you want to continue that discussion, split it off to a different topic and I'll reply there.0
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KyussBishop wrote: »If the economy is at full-employment, and nobody desires more debt (due to there being ample money in the private economy already, or just due to there being far too much private debt already), what are they going to do with the money? Put it where they get the most interest - which means government bonds (which can be at 0.1% interest and still be better than doing nothing with the money).
There was loads of money about during the boom and employment was at practically zero (or at least as close as you're going to realistically get) yet we here in Ireland still took on mountains of debt. It wasn't just for property or investment in businesses, a lot of it was for things that will quickly depreciate in value like cars, tvs, etc. or for funding people's lifestyles. So ample money in the private economy does not reduce desire for debt.
Also, how can we print money up to the inflation targets for government spending when for most of the past 20 years the UK has been above its inflation target of 2% and same with the ECB?0 -
Irish government bonds are a scam. At the very best they are junk. Government bonds should be directed to private companies to develop a sector of the economy like renewable energy for example. However, invariably the Irish government take charge of the invested money directly and it invariably gets "lost" in the system or to put it another way, it is used to prop up the pensions and perks of politicians. Its a bit like the household tax which is supposed to be for local services but instead it goes direct to the government.0
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I agree that Ireland should not default but if it takes picking spuds to live within our means then that is precisely what should be done.Its in Ireland's interest also to prevent a Euro collapse. If you think its bad now, it would be a hell of lot worse with a devalued worthless currency, and the inability to borrow. We'll be back picking spuds within a year.0 -
Hi McDave,
A while back you said:I've explicitly stated that I expect the EU/EZ to take substantial corrective action within 12 to 18 months. I think the European body politic is capable of holding out until then.
to which I askedWhat in your opinion would constitute this corrective action? Fair play to you for putting your cards on the table, but I think you are being a bit optimistic here.
I was wondering if you could elaborate on your idea of what you mean by substantial corrective action and also what you think might happen if no such action is forthcoming.0 -
Thanks for this dlouth.Hi McDave,
A while back you said:
to which I asked
I was wondering if you could elaborate on your idea of what you mean by substantial corrective action and also what you think might happen if no such action is forthcoming.
Over on the 'Why are the British so anti Europe?' thread, you asked me a similarly open question, to which I went to some lengths to respond. See: http://www.boards.ie/vbulletin/showpost.php?p=85724846&postcount=800
You didn't show any inclination to reply to that post.
As this is a discussion board, it would be at least good manners to show some willingness to engage. So, if you don't mind, I'll hold off on satisfying your request on this thread for the present.0 -
If you're responding to me, I'm not quite sure where the problem lies. The post concerned contains opinion and assertions of fact, both of which can be responded to within the letter and spirit of the forum.KyussBishop wrote: »Most of that I don't think I can reply to on this thread without a warning, but if you want to continue that discussion, split it off to a different topic and I'll reply there.0 -
Sorry I missed that. You said on that threadThanks for this dlouth.
Over on the 'Why are the British so anti Europe?' thread, you asked me a similarly open question, to which I went to some lengths to respond. See: http://www.boards.ie/vbulletin/showpost.php?p=85724846&postcount=800
You didn't show any inclination to reply to that post.
As this is a discussion board, it would be at least good manners to show some willingness to engage. So, if you don't mind, I'll hold off on satisfying your request on this thread for the present.- Agreements on banking regulation and supervision
- Major EU investment programmes on infrastructure and energy
Fair play to you for stating something definite that you feel might remedy the situation somewhat and that you believe will happen. Personally I can't see this being more than a token gesture of a few billion (sound like a lot but when you consider the debt run up by the programme countries and others, won't amount to much).0 -
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Thanks for that.Sorry I missed that. You said on that thread
Fair play to you for stating something definite that you feel might remedy the situation somewhat and that you believe will happen. Personally I can't see this being more than a token gesture of a few billion (sound like a lot but when you consider the debt run up by the programme countries and others, won't amount to much).
As to the substantive question on this thread!
Corrective action? OK, this is how I see it.
1. The financial and sovereign debt crises accumulated over decades of budget deficiting and deregulation-induced private sector misallocation of resources has been recognised within the the EU and particularly the EZ body politic.
2. The constructive reaction to these crises has been led primarily by Germany. The Schroeder administration in particular rectified imbalances in their economy.
3. Germany has regained international competitiveness and accumulated massive trade surpluses. It has led the way towards broad Maastricht compliance and is now in a position to fund investment, but not until the problem countries have recognised their part in the overall scheme.
4. Once the German elections are over, and there is broad EZ political agreement on the resolution of the crisis as it affects the Euro, and certain regulatory measures are agreed, there will be a pretty massive and coordinated infrastructural programme at EU and national level which will not be a couple of piddling billions, but likelier to be closer to an actual trillion. We're talking about transport infrastructure, particularly where there are deficits, i.e. to the south-east and east of Europe. And by Europe I mean towards Turkey and Russia. And telecommunications infrastructure. And this will be aimed at enabling trade. Mostly European exports eastwards. But there will also be some measure of returns from the East.
That's how I see it dlouth. There's huge accumulated wealth in Europe. And enormous productive capacity. And a sense of strategy. Europe is one of the most advanced and balanced regions on Earth, if not the most advanced and balanced. Countries like Germany and France have a true sense of how a relatively integrated economic zone to the Urals, the Black Sea and North Africa can generate wealth and mutual security. The ambitions are by today's standards limitless. And all it takes a few piddling trillions, commitment and luck to make it work in even the most half-assed initial way.
The stakes are huge. Wealth, security, culture. In short, everything meaningful about life as we understand it. IMO, we shouldn't be put off by parochial concerns, or by gobdaws like UKIP or even the Tories. Even with all the depression of recent years, there's so much to be optimistic about in a Europe which now operates through constructive political mechanisms and not jingoistic war.0
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