Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojkt
The “Plum Line” itself seems useless to me this morning – its morning discussion points just brought out Obama love/hate. So now for something completely different to chew on:
The euro crisis
Time is running out
Sep 12th 2011, 18:39 by The Economist | BRUSSELS
WHEN Russia worries publicly about the financial stability of the European Union, as opposed to the other way around, you know the euro is in real trouble. There is a sense in Brussels that the defenders of the euro zone have run out of ammunition and out of ideas.
One reason is that the politicians cannot keep up with the markets. The euro zone has yet to implement the decisions of July’s summit, but the next shock wave has already struck. Another is that the performance of Greece under the EU-IMF programme has been so poor that every quarterly assessment to approve the next tranche of loans becomes a cliff-hanger.
So each episode of market panic is worse than the previous one, the weapons in hand look inadequate, contagion spreads, while governments and institutions lose their nerve.
The proposed increase in the firepower of the main bail-out fund, the EFSF, will not be enough to protect Italy should it go under, as it has threatened to do in recent weeks. As one German official put it to me: “Italy will have to deal with its problems on its own.” The ructions at the European Central Bank exposed by the resignation of its German chief economist, Jürgen Stark, raises concern about how much longer the ECB can keep buying up the bonds of vulnerable euro-zone states. The German constitutional court has not blocked the temporary bail-out system, but appears to have all but killed off the idea for now of issuing joint Eurobonds, the one idea that might have arrested the crisis in the short term (though lots of people think they might make the long-term problems worse).
German politicians now talk openly of cutting off Greece’s lifeline and letting it fall out of the euro, causing another seizure in the markets, where French banks have now come into the firing line.
Greece’s departure from the euro, if it happens, will be painful for both Greece and the rest of the euro zone, as Jean Pisani-Ferry, director of the Bruegel think-tank, points out. And there is the question nobody can answer: will Greece’s exit remove the source of contagion, or ensure it spreads? Until now, nobody has dared test the proposition.
It is not impossible that the euro zone will be able to muddle along a bit longer: Greece may have done just enough in its latest plan to cut spending and raise revenues to receive the next tranche; the German parliament may be coaxed into approving the July decisions; the revamped EFSF may then be able to take up the bond-buying task from the ECB and a problem may be found to the problem of Finland’s demand for collateral. Then what?
The situation is so dire that any bit of bad news would easily cause another collapse in the markets. So at the same time as Germany is talking of giving up on Greece, it is also talking about redesigning the euro zone. Done right, a new European architecture may ensure that such a crisis does not recur.
But as Barry Eichengreen points out, the problem is now, not tomorrow. It will take years to renegotiate and ratify new treaties, even assuming there is no blockage of the sort that beset the Constitutional Treaty. But the euro zone faces critical days and weeks.
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I suggest that the “Eurozone crisis” is not a Main Street crisis here or there, but a financial crisis. Thus it can cause panic. But what if nobody panics? Then, what is the effect?
Filed under: Uncategorized |
All Things in Moderation 
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The effect of not panicking is that things will be better (probably much) than they would have been had they panicked. But in a financial crisis, is it important if mainstreet panics, or if the financial industry panics? Those are the folks who seem to be doing the most damage, these days, whether confident that investing in opaque instruments of dubious long term solvency is great, or believing that everything must be sold, and sold now.In a barely related question, what would the effect of the price of gold be on a gold-based currency, right now? If our dollars were worth exactly a dollar of gold, and the price of gold was shooting through the roof, what would that be doing to our investments, and our purchasing power? I ask because it just occurred to me this morning, and I really don't know.
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Since 1980, gold has not outpaced inflation, despite occasional bubbles. Talk about bubble and bust. Fiat currency, based on the productive capacity of a national economy, actually allows for that economy to expand in a way an asset backed currency cannot. Which is more valuable in the long run? Tons of gold, which is heavy and barely portable but hypoallergenic and pretty, or a million engineers? I go for the million engineers every time.
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One more thing, Kev, and closer to an answer to your question:legally it would depend on whether obligations were payable in gold on demand by the creditor. Thus if a contract were made in dollars or current gold equivalent, and at the time the contract was made a dollar was = to 10 grains of gold but at maturity it was worth 5 grains, the creditor could look at the language of his contract and demand double the dollars as the original current gold equivalent.There were cases based on this premise when we went of the gold standard. The Supremes ruled that since we were NOT on the gold standard the creditor would have to accept current dollars, not gold equivalents.
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I, too, go for the productive capacity of the national economy. However, I was curious–I'd assume the effect of a gold based currency on purchasing power would be negative.
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On gold, the notion that anyone in the world can dig up our money anytime is ridiculous. And isn't that a step towards a global currency – which I'd expect Rep Paul to be against?On Europe, who knows? Thoughtful media has been reporting lately that we keep returning to the subject, but without resolution. (NPR & Newshour)
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The question isn't whether a gold or other asset backed currency is better than this, the question is what this is. Calling it a fiat is funny, but it isn't true. Money is all contracts nowadays, it is all about promises made. Money and its value is about confidence in the promises people make to one another, just like cowrie shells. The confidence in systemic fungibility, more specifically, is what drives the value of money.
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shrink:Calling it a fiat is funny, but it isn't true.Sure it is. Your description of the value of money is right, but that is just what the term "fiat money" means. It has value simply because the government says it has value, and people believe it.
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Mark:I don't know the answer to your question at the end of your piece, but I did want to address this from the article:Done right, a new European architecture may ensure that such a crisis does not recur.The only restructuring that can be said to be "done right" is total political integration of Europe. And that, I think, is probably impossible.The great flaw in the whole Euro currency experiment was the absence of political union. It still boggles my mind that anyone thought that a common currency could possibly work with 17 different governments acting as sovereigns. (The cynic in me thinks perhaps the architects knew it couldn't work, and figured it would eventually force political union, their real goal.)
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Scott, you never like my jokes, I was making fun of the car. I should have made it more obvious, called it a Fiat 500, or a Lire, or something. Sheesh, you don't think I know what fiat means?
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I noticed the "a" and thought it odd, but figured if you didn't know what fiat money was, you might not even know how to use the term. Sorry. We are a bad combination. You tell bad jokes and I am bad at getting them.
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"The great flaw in the whole Euro currency experiment was the absence of political union."Agreed.
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