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  1. Subscriber no1marauder
    It's Nice to Be Nice
    17 Jan '11 03:19
    This is a spill over from the thread discussing Paul Krugman. Specifically, it's in reference to Pal's assertion that there is little difference between the status of US States and European countries has regards the effects of having a common currency. Krugman in his article in the New York Times magazine convincingly argues why this is not so:

    On the other hand, as Friedman pointed out, forming a currency union means sacrificing flexibility. How serious is this loss? That depends. Let’s consider what may at first seem like an odd comparison between two small, troubled economies.

    Climate, scenery and history aside, the nation of Ireland and the state of Nevada have much in common. Both are small economies of a few million people highly dependent on selling goods and services to their neighbors. (Nevada’s neighbors are other U.S. states, Ireland’s other European nations, but the economic implications are much the same.) Both were boom economies for most of the past decade. Both had huge housing bubbles, which burst painfully. Both are now suffering roughly 14 percent unemployment. And both are members of larger currency unions: Ireland is part of the euro zone, Nevada part of the dollar zone, otherwise known as the United States of America.

    But Nevada’s situation is much less desperate than Ireland’s.

    First of all, the fiscal side of the crisis is less serious in Nevada. It’s true that budgets in both Ireland and Nevada have been hit extremely hard by the slump. But much of the spending Nevada residents depend on comes from federal, not state, programs. In particular, retirees who moved to Nevada for the sunshine don’t have to worry that the state’s reduced tax take will endanger their Social Security checks or their Medicare coverage. In Ireland, by contrast, both pensions and health spending are on the cutting block.

    Also, Nevada, unlike Ireland, doesn’t have to worry about the cost of bank bailouts, not because the state has avoided large loan losses but because those losses, for the most part, aren’t Nevada’s problem. Thus Nevada accounts for a disproportionate share of the losses incurred by Fannie Mae and Freddie Mac, the government-sponsored mortgage companies — losses that, like Social Security and Medicare payments, will be covered by Washington, not Carson City.

    And there’s one more advantage to being a U.S. state: it’s likely that Nevada’s unemployment problem will be greatly alleviated over the next few years by out-migration, so that even if the lost jobs don’t come back, there will be fewer workers chasing the jobs that remain. Ireland will, to some extent, avail itself of the same safety valve, as Irish citizens leave in search of work elsewhere and workers who came to Ireland during the boom years depart. But Americans are extremely mobile; if historical patterns are any guide, emigration will bring Nevada’s unemployment rate back in line with the U.S. average within a few years, even if job growth in Nevada continues to lag behind growth in the nation as a whole.

    Over all, then, even as both Ireland and Nevada have been especially hard-luck cases within their respective currency zones, Nevada’s medium-term prospects look much better.

    What does this have to do with the case for or against the euro? Well, when the single European currency was first proposed, an obvious question was whether it would work as well as the dollar does here in America. And the answer, clearly, was no — for exactly the reasons the Ireland-Nevada comparison illustrates. Europe isn’t fiscally integrated: German taxpayers don’t automatically pick up part of the tab for Greek pensions or Irish bank bailouts. And while Europeans have the legal right to move freely in search of jobs, in practice imperfect cultural integration — above all, the lack of a common language — makes workers less geographically mobile than their American counterparts.

    http://www.nytimes.com/2011/01/16/magazine/16Europe-t.html?pagewanted=3&_r=1&hp


    So who's right: Pal or Krugman?
  2. 17 Jan '11 10:36
    I don't think the differences with respect to the stability of the currency are that big. Ireland's problems are not directly related to the common currency.
  3. Standard member Palynka
    Upward Spiral
    17 Jan '11 10:58 / 1 edit
    Same old fallacies.

    Argument 1: Fiscal troubles (incl. bank bailouts, etc)
    How is depreciation going to help the fiscal troubles? Had Ireland an independent currency, it wouldn't be borrowing in it but in USD, GDP or EUR. This means that a depreciation of the Irish currency would mean the value of the debt would rise making it harder to pay back. Most countries who had currency crisis in times of fiscal troubles had no choice other than default.

    Argument 2: Labour mobility
    A lot is made of the role of labour mobility. How many of Michigan's troubles will out-migration solve?

    While labour mobility helps and it's true the US has more migration across states than the EU across countries, it's role is actually overstated. Differences in US unemployment rates across states are still very persistent and almost as large as across EU countries. Also, net mobility is much lower than the gross inflows and outflows which means most people are moving for other reasons than a higher unemployment rate.

    And, again, I also don't see how this argument means Ireland would be better off without the Euro. If anything, labour mobility has increased significantly among Euro area countries since the adoption of the Euro.

    ------

    So these differences actually matter little in the issue at hand and are not really relevant for the argument that one should have flexible exchange rates and the other a common currency. And note that I'm not advocating the US states to have their own currency, I'm saying that if a state like Michigan had its own currency it wouldn't be in any significantly better shape. Krugman makes it sound like Ireland would be much better off without the Euro. It wouldn't. In fact, Ireland would never have become the investment hub that it is without it and would risk jeopardizing it if they left.
  4. Subscriber kmax87
    You've got Kevin
    18 Jan '11 02:06 / 5 edits
    Originally posted by no1marauder
    This is a spill over from the thread discussing Paul Krugman. Specifically, it's in reference to Pal's assertion that there is little difference between the status of US States and European countries has regards the effects of having a common currency. Krugman in his article in the New York Times magazine convincingly argues why this is not so:
    Paul Keating, former Australian Prime Minister and once voted Worlds greatest Treasurer, a role he performed before taking on the Prime Ministerial role agrees with Krugman...


    The following is an excerpt from an interview he did on Lateline on the ABC on the 2nd of Dec 2010. The interviewer is Tony Jones.

    Full Transcript :http://www.abc.net.au/lateline/content/2010/s3083382.htm
    Vodcast: Real Reform Still possible.....http://www.abc.net.au/lateline/vodcast.htm


    TONY JONES: We've already had near defaults in Ireland and Greece, only staved off by giant rescue packages from the IMF and the EU.

    Spain and Portugal remain in serious trouble. Fracture lines are appearing in Europe between those countries that are doing reasonably well and those countries heading towards disaster. And the Euro's in serious trouble.

    So I'm wondering how you see the coming year.

    PAUL KEATING: Yeah, well, this is a big problem. In a single currency - I mean, the game in Europe in the old days was you had the deutschmark and you had the countries of Europe appreciating and depreciating against it as their economic conditions dictated.

    In a one-size-fits-all monetary regime with a single currency, those competitive depreciations are not available to countries. So what they're getting - there they're now getting credit shocks.


    It's a bit like the Australian economy before the float of the exchange rate here. When the exchange rate was rigid and you had an external shock, the shock went through interest rates and through credit.

    You remember the phrase - the period of Australian history called the credit squeeze? Well the credit squeeze came because of the incapacity of the exchange rate to adjust. This is what these smaller peripheral countries have now got in Europe - Spain, Portugal, Ireland.

    And, so, what's happened - they say, "Well, how do we improve our competitiveness?" Well if they lower prices, including property prices, this makes the credit crunch worse. The banks have got less value on their books, asset prices are falling, yet they have to fall to be competitive. You see what I mean? So they've got this terrible bind.

    Can the European Union, can the Union carry on? I've always tended to think it would, but I'm now having doubts that it might. That is - and we've had the bare transfer of bank debt to public debt, classically in Ireland.

    I notice the journalist from the Financial Times say the other day in the case of the financial - the banks in Ireland, they are not too big to fail, but they're too big to save. Because essentially, the presumption is bank debt is public debt. And so a whole country and a whole community are going to be impoverished essentially by the transfer of bank debt into public debt.

    And so, the question is: what do you save first? Will you save the state? Ireland probably shouldn't - definitely shouldn't have taken on the bank debt. In other words, they should be letting bondholders take the haircut, there's got to be losses without bringing sovereign risk into question.

    So the sovereign risk of Ireland, the sovereign capacity of Ireland is now in question because it's picked up the bank debt.

    So, where do they go? Well, they may have to leave the Union. I mean, which of course their exchange rates will drop, there'll be an attendant increase in interest rates. All this means it's going to be pretty ordinary in Europe for quite a while.

    Yet the German economy's been going strongly. It's been selling things to the rest of Europe, but not ...

    TONY JONES: The big question will be whether they commit themselves permanently to the European Union experiment, or whether at some point they start to get dragged down by it and what a (inaudible).

    PAUL KEATING: See, normally, if you had, as you do in Australia, a single currency, which affects Queensland, NSW, Victoria and Western Australia, we have horizontal fiscal transfers occur within this country. But horizontal fiscal transfers do not occur in Europe; in other words, the idea that German and French taxpayers bail out Irish and Portuguese taxpayers is not part and parcel of that and banks are not regulated on a pan-European basis.

    You know the old saying about banks? They grow abroad, but die at home. They all die at home.

    So, now the presumption is on part of many bankers that the debt is not - the hit is not taken by the shareholders and the bondholders, but the hit is taken by the budget and therefore the taxpayers, which is pretty tough.




    EDIT: These are the Krugman comments that resonate with Keating's
    http://www.nytimes.com/2011/01/16/magazine/16Europe-t.html?pagewanted=3&_r=1&hp

    ......Still, there are obviously benefits from a currency union. It’s just that there’s a downside, too: by giving up its own currency, a country also gives up economic flexibility.

    Imagine that you’re a country that, like Spain today, recently saw wages and prices driven up by a housing boom, which then went bust. Now you need to get those costs back down. But getting wages and prices to fall is tough: nobody wants to be the first to take a pay cut, especially without some assurance that prices will come down, too. Two years of intense suffering have brought Irish wages down to some extent, although Spain and Greece have barely begun the process. It’s a nasty affair, and as we’ll see later, cutting wages when you’re awash in debt creates new problems.

    If you still have your own currency, however, you wouldn’t have to go through the protracted pain of cutting wages: you could just devalue your currency — reduce its value in terms of other currencies — and you would effect a de facto wage cut.

    Won’t workers reject de facto wage cuts via devaluation just as much as explicit cuts in their paychecks? Historical experience says no. In the current crisis, it took Ireland two years of severe unemployment to achieve about a 5 percent reduction in average wages. But in 1993 a devaluation of the Irish punt brought an instant 10 percent reduction in Irish wages measured in German currency. ........


    ....Revived Europeanism: The preceding three scenarios were grim. Is there any hope of an outcome less grim? To the extent that there is, it would have to involve taking further major steps toward that “European federation” Robert Schuman wanted 60 years ago.

    In early December, Jean-Claude Juncker, the prime minister of Luxembourg, and Giulio Tremonti, Italy’s finance minister, created a storm with a proposal to create “E-bonds,” which would be issued by a European debt agency at the behest of individual European countries. Since these bonds would be guaranteed by the European Union as a whole, they would offer a way for troubled economies to avoid vicious circles of falling confidence and rising borrowing costs. On the other hand, they would potentially put governments on the hook for one another’s debts — a point that furious German officials were quick to make. The Germans are adamant that Europe must not become a “transfer union,” in which stronger governments and nations routinely provide aid to weaker.

    Yet as the earlier Ireland-Nevada comparison shows, the United States works as a currency union in large part precisely because it is also a transfer union, in which states that haven’t gone bust support those that have. And it’s hard to see how the euro can work unless Europe finds a way to accomplish something similar.

    Nobody is yet proposing that Europe move to anything resembling U.S. fiscal integration; the Juncker-Tremonti plan would be at best a small step in that direction. But Europe doesn’t seem ready to take even that modest step. ....


    The "transfer union" concept of close fiscal integration is mirrored in Keating's observation of horizontal fiscal transfers that occur between Australia's Federal Commonwealth Government and the individual State Governments. [not explicitly stated but it is implied, given the federal structure of government here]
  5. Subscriber FreakyKBH
    Acquired Taste...
    18 Jan '11 04:12
    Which, in a real sense, explains why gold has gone from a steady state of $300US to $600US, to where-the-hell's-the ceiling-US over the last few years.

    With China holding an inordinate amount of dollar reserve, it's a relatively safe bet to think that the dollar will remain the world reserve. Should the IMF decide to take a two-headed approach, the dollar still doesn't lose much of its punch.

    It's almost as though the teacher has left the class room and mayhem has become the rule--- without a second thought that the teacher is simply taking a short piss.
  6. Standard member Palynka
    Upward Spiral
    18 Jan '11 10:21 / 2 edits
    Originally posted by kmax87
    Paul Keating, former Australian Prime Minister and once voted Worlds greatest Treasurer, a role he performed before taking on the Prime Ministerial role agrees with Krugman...


    The following is an excerpt from an interview he did on Lateline on the ABC on the 2nd of Dec 2010. The interviewer is Tony Jones.

    Full Transcript :http://www.abc.net.au/latelin ed but it is implied, given the federal structure of government here]
    Seriously, I already addressed the argument about the transfer union. The Euro helps countries in fiscal troubles by preventing a fully fledged currency crisis. That it could help "more" if on top you add horizontal transfers is another issue. But not having horizontal transfers nor the Euro would be the worst case scenario. Moreover, although horizontal transfers could help the problem it's not a long-term solution because it incentivizes fiscal irresponsibility. What the EMU needs is fiscal rules. Germany complains a lot now but they were instrumental in watering down the Stability and Growth Pact (along with France).

    Also, the "credit squeeze" was because of the "exchange rate incapacity to adjust"? How does that argument go? Improve competitiveness by decreasing property prices? Errr... you can't actually export non-tradables. Also, a depreciating currency leads to lenders demanding higher interest rates because money tomorrow will be worth less than today. It makes a credit crunch worse. Even he admits that later when he's talking about Ireland!

    People keep repeating the FT's and the Economist's flexible exchange rate mantra as some sort of panacea for competitiveness. If making your wage earners relatively poor is the way you have for solving a structural competitiveness problem, then you'd find your country would be in a sorry state after a few years.
  7. Standard member bill718
    Enigma
    18 Jan '11 19:25
    Originally posted by KazetNagorra
    I don't think the differences with respect to the stability of the currency are that big. Ireland's problems are not directly related to the common currency.
    Agreed
  8. Standard member Lundos
    Back to basics
    19 Jan '11 00:09 / 1 edit
  9. 19 Jan '11 03:02
    Here is an excerpt from Bob Chapman's International Forecaster. He predicts Ireland will default and leave the Euro.

    ----------------------------------------------------------------------------------------
    Like other members of the Euro zone, Ireland discovered they could borrow cheaply under one interest rate fits all. This policy, which we predicted 14 years ago, would be disastrous, was disastrous for Ireland, Greece, Portugal, Spain and Italy, and Belgium. Needless to say, the leverage provided by cheap money brought on speculation, particularly in real estate, that brought on today’s problems. Yes, speculation by individuals was a problem, but as in other countries, the problems really lie with the banks, which are really responsible for these tragedies. They should have never made the loans in the first place. Stupidly, the Irish government bailed out the banks just like Greece did. They should have defaulted and allowed the banks to fail. The banks were more than complacent. Just as we see now in the US the banks have at least temporarily been bailed out and depositors guaranteed that their savings are safe. There are also the stimulus programs everyone else has tried as well, that we have seen ultimately don’t work. That is because they are geared to bail out the financial sector and not the economy.
    Ireland’s budget will be followed by equally harsh budgets guided by the IMF, which will lead to decades of poverty, as bad as the 800 year reign of Britain over the Emerald Isle. PM Brian Cowen and Finance Minister Brian Lenihan sold out the Irish people to British bankers. The vultures are circling the Republic to prepare for years of future enslavement. Many have called it economic treason.
    Allied Irish Bank and Anglo Irish Bank caused all the problems and now the Irish people have to bail them out. A then secret meeting was held at which AG Paul Gallagher sat in as adviser to the government and Dermot Gleeson, AIB Chairman and former AG representing the banks. Both are Illuminists and members of the Bilderberg Group. These two and the PM and FM sold out Ireland to save the banks owned and controlled by the British. They have put the Irish people on the hook for $600 billion. In addition, government bought $70 billion in toxic bonds containing real estate from these banks. These banks are owned by British, French, German banks that are controlled by the Black Nobility and among them the Rothschilds and Queen Beatrix of Holland, an ardent Bilderberg. Her father, Prince Bernard, was a former Colonel in Hitler’s SS.
    The only thing left for Ireland to do is to default and leave the euro returning to the Irish punt. They should also leave the EU. They should also end fractional reserve banking, which would allow government to issue debt free, interest free money with gold backing. They should kick Royal Dutch Shell out of the Irish offshore gas fields and much more. This in part was what we told the Greeks to do.
    We see a rocky year in Europe that could end in bankruptcies. The efforts to bailout Greece and Ireland and now Portugal and Spain, will increase debt throughout Europe and lead to all nations having problems. The deal struck with Ireland to cover bank insolvency will only increase the debt in the long run and not solve the problem. There is no effort of debt restructuring because the banks refuse to take losses. This attitude and policy is carried forward in all governments via fellow Bilderberg connections. The system has to be changed and purged, but they won’t hear of that. Again, we remind everyone it was the banks that were and are responsible for the condition that the Western world is in today and now they want the public to bail them out. The banks are an extension of the Fed in the US and the Fed was the moving party. They lowered interest rates eventually to zero and it was they who increased money and credit by 17% to 18% for an extended period of time. The Fed created the debt bubble and all the damage you see is a result of that. They are now using tactics, which they know will not work, but they do not know what else to do. It is all about buying time and covering up what they have done. As a result not only did banks over leverage, but so did corporations and individuals, not to mention speculators. Now that bank leverage is down from 70 to 1 to 40 to 1, when 9 to 1 is normal. They are getting a high enough return from the Fed that they have cut lending by 25% or more to small and medium sized businesses. Such antics can only impede recovery. We have been told since last June that lending would increase. By the Fed’s own admission it has increased by a very small amount. Thus, our conclusion is that the Fed is deliberately restricting lending in order to keep banks away from risky loans.
    These Fed policies and those of the ECB are designed to extend problems rather than solve them, which tells us there is no solution. Look at what has been done in Greece. No solution, just patchwork and austerity in order to delay the problems. Ireland’s bailout is a carbon copy. Such programs can only bring on default, which we expect to occur later this year. In March or April the Irish election result could turn everything upside down. That could cause a run on other sick economies. This grand design for nations to be interconnected could eventually cause all of them to collapse like dominoes. If the US, the UK and Europe are in trouble the entire world is in trouble.
    QE1 and QE2, as well as TARP and other programs were only designed to bail out the financial sector in Europe as well as the US. As we predicted last May there would be QE2 and then QE3. The aggregate spending $2.5 trillion each time, as we saw in QE1. In QE2 the pork laden extension of the Bush tax cuts supplied the $868 billion to assist the fed in keeping the economy and the financial sector afloat. After expenses the Fed returns its profits back to the Treasury. That then isn’t a major problem. What is the problem is that the owners of the Fed control all aspects of financial and economic life. They do not get inside information; they create it. What these banks and brokerage houses do is make mega-money because they really control the system. That is what the Fed is all about – control. Can you imagine trading departments at major brokerage firms and banks for months never have a losing day trading? We were professional traders for 25 years – that is simply impossible unless it involves illegal activity. The owners of the Fed have a license to steal. They created the credit crisis and the taxpayer now is subsidizing them so they can make even more wealth. All this happens because people do not understand fractional banking and the true role of the Fed, which is to loot America.
  10. Standard member Palynka
    Upward Spiral
    19 Jan '11 11:23
    Originally posted by Metal Brain
    Here is an excerpt from Bob Chapman's International Forecaster. He predicts Ireland will default and leave the Euro.

    ----------------------------------------------------------------------------------------
    Like other members of the Euro zone, Ireland discovered they could borrow cheaply under one interest rate fits all. This policy, which we predicte ...[text shortened]... le do not understand fractional banking and the true role of the Fed, which is to loot America.
    Blaming the Fed for giving high returns when rates are in a range between 0 and 0.25%. I've heard it all.
  11. 19 Jan '11 12:13
    Originally posted by Palynka
    Blaming the Fed for giving high returns when rates are in a range between 0 and 0.25%. I've heard it all.
    What are you talking about???
  12. Standard member Palynka
    Upward Spiral
    19 Jan '11 12:20
    Originally posted by Metal Brain
    What are you talking about???
    Ah... Seems not even you reads this inanity.

    They are getting a high enough return from the Fed that they have cut lending by 25% or more to small and medium sized businesses. Such antics can only impede recovery. We have been told since last June that lending would increase. By the Fed’s own admission it has increased by a very small amount. Thus, our conclusion is that the Fed is deliberately restricting lending in order to keep banks away from risky loans.
  13. Standard member mikelom
    Ajarn
    19 Jan '11 13:36
    Why would this just be titled, 'Europe vs Us' as a common currency?

    Are there no other currency players? If one is going to pose the question of a US/Euro adjoin, then one may as well pose a world currency. It is an impossible request.

    I see the Yuan is totally in control, always.

    The British pound isn't dead, and plays against the Euro with complacency ( c.f http://www.thisismoney.co.uk/exchange-rates .

    Currencies always have been independent and inter-dependent.

    UK is part of Europe by the way, OP.

    -m.
  14. 19 Jan '11 15:27
    Originally posted by Palynka
    Ah... Seems not even you reads this inanity.

    They are getting a high enough return from the Fed that they have cut lending by 25% or more to small and medium sized businesses. Such antics can only impede recovery. We have been told since last June that lending would increase. By the Fed’s own admission it has increased by a very small amount. Thus, our ...[text shortened]... at the Fed is deliberately restricting lending in order to keep banks away from risky loans.
    It says "from the Fed".

    So the fed is giving them a sweet deal. What are you taking issue with? You are going to have to be more specific, although you might be trying to avoid that based on past debating with you.
    Is this another one of your digression tactics to avoid talking about Ireland and the currency it is using. That was what you were discussing.
  15. Standard member Palynka
    Upward Spiral
    19 Jan '11 15:35
    Originally posted by Metal Brain
    It says "from the Fed".

    So the fed is giving them a sweet deal. What are you taking issue with? You are going to have to be more specific, although you might be trying to avoid that based on past debating with you.
    Is this another one of your digression tactics to avoid talking about Ireland and the currency it is using. That was what you were discussing.
    Jesus Christ, you're not even literate.