Debt, The EU, And Greece

Malor wrote:
Printing money adds.

All printing money adds is paper. It doesn't add houses, or cars, or boats, or new energy facilities. It might stimulate the economy to build some of those things, but much of it will built in error because of the artificial demand. As soon as the money printing stops, those sections of the economy will be destroyed. And if the money printing doesn't stop, the real wealth of the economy gradually gets taken away from the productive people making it, and given to the recipients of the money. Those people, by definition, are taking wealth from the economy and handing out paper in exchange.

If that goes on long enough, and it always has to accelerate because of the increasing instability in the economy, you end up in hyperinflation.

How the heck do you think Zimbabwe happened, anyway?


Will you stop ignoring my points. Read my whole post. It all goes together.

Hyperinflation does not take away anything. What it does is add way too much money that is not productive. That productivity was already lost in Zimbabwe. So that money went all to consumption. But as you already know it leads to hyperinflation. Hyperinflation <> inflation either.

Printing money = credit. Credit can be used for productive purposes, consumptive purposes or speculative purposes. So in the end it is policy that matters. Not just printing money.

Printing money is not credit, because it doesn't have to be repaid. It's just injecting new wealth tokens into a system, without adding any new wealth. Printing money subtracts, but it feels like it adds. For awhile.

I mean, look back to the Age of Exploration, when Spain was pulling in many many tons of gold from the New World. That had the exact same effect as printing money. They boomed for a number of years, and then crashed horribly, as soon as the gold supplies dried up. And the ordinary people in Spain had a hell of a time. The explorers and government were able to commandeer food and goods away from the economy, so the people left behind were steadily impoverished. The real economy, the one making food and goods, was starved of wealth.

Your prescription doesn't work. It feels good for awhile, and then the people at the bottom of the economy get eaten alive. The economy goes unstable, and then as the government continues intervention to try to fix problems caused by the prior intervention, the damage gets more and more severe. And when they stop doing it, the economy crashes.

The Weimar Republic and Zimbabwe are two excellent examples of how that works. And that's the direction Venezuela is headed.

Printing money, as a tool of economic manipulation, is just about the worst possible thing you can do.

Hyperinflation only can happen when both productivity and taxing of money is lost.

Printing money is not the same as hyperinflation.

And stop misconstruing what I am saying. I never have said just print money for consumption.

Lack of money also starves people of wealth. This is actually what is going on now. In austerity packages, taxing of working people and the sort.

I also didn't mean that printing money = credit. It can be credit. But can also be hoarded too.

Hyperinflation only can happen when both productivity and taxing of money is lost.

Printing money is not the same as hyperinflation.

Hyperinflation happens when the government wants more resources out of the economy than it can safely provide, and has to print exponentially-increasing amounts of money to get it, as the economy is destroyed by the currency manipulation.

When governments print money for what they want, this means that real wealth (ie, capital) is sucked out of the economy in exchange for nothing. So there are more wealth tokens in the system, at the same time that there's less actual wealth. So prices rise, and the people at the bottom get hammered. Total systemic wealth is destroyed.

When normal people have money and spend it, that's because they've already put something into the system to get the money; they're pulling wealth back out that they have already invested. When the government print money, there's no prior investment; they're putting tokens into the system that say they created wealth, when in fact they didn't.

This gradually reorients the economy to serve the government, because it can outbid any other entity in the economy for what it wants, having no constraints on how much it injects. As things get more and expensive, they can just add zeroes to their bills to take whatever they want. This does progressive damage to the economy. Cycles of inflation wash into the system, drive prices up, and the government increases monetary injection to get the same number of things it bought last year. As the underlying wealth in the economy is destroyed, and the government continues to extract too much via money printing, the amount it must print each year accelerates.

This will always eventually spiral into hyperinflation, if the government is trying to extract more wealth out of the economy than it can actually provide. Typically, with the wealth-destructive effects of inflation, the early cycles don't do much damage, but each cycle does a little more, and each extraction requires more bills. So the real economy gradually rots away, parasitized by non-productive demand. More and more of the economy reorients itself to serve the generators of wealth tokens, while the productive economy can get fewer and fewer resources, outcompeted by parasitic money.

Regular old taxation is much better, because it doesn't cause inflation. It's honest thievery, instead of dishonestly changing the yardstick. It still causes the initial damage of wealth confiscation, but at least it's visible and can be easily measured. When it's done through currency issuance, it's a corrosive poison that eats the economy from underneath.

Lack of money also starves people of wealth

Sure, but the reason we have the big problem we do is because of the all the debt issuance and implicit and explicit guarantees from the Fed and Congress. Worldwide, we simply printed too much money and created too many money-like things, more than the economy can support. Going through the deflation is how you get healthy again. It sucks. It's terribly painful. But we're trying to live beyond our means. We're trying to extract more wealth out of the economy than it can actually provide.

If you want to get off a drug, and debt issuance/money printing are the methamphetamine of economics, you have to stop taking it. Increasing the dose will not make you healthy.

We have, in essence, been doing what you suggest already, and the horrific near-crash we just had was a direct consequence. We increased liquidity by leaps and bounds, and the side effects are much worse than the benefit we got from the liquidity.

Malor - please read the links I post. It is about the what actually goes on with money. Not theoretical musings. If printing money equals hyperinflation then Japan would be in hyperinflation but they are not. Richard Werner above figured it out. He worked in the Bank of Japan and has studied the issue immensely.

We have not been doing what I have said. Why are we still taxing for Social Security, both the employers and the employees?

Getting through deflation is not a magical cure either if money is still not going to be used for productivity but for consumption and especially speculation. That is my point. Markets are not magic. They have to be pointed in the right direction. And they were for the most part until the deregulation/anti-government mantra passed laws like supply side taxes and Gramm-Leach-Bliley.

Historical evidence proclaims Malor the winner, please stop the unnecessary argument.

wanderingtaoist wrote:
Historical evidence proclaims Malor the winner, please stop the unnecessary argument.

No it doesn't. What about Japan? They are not even close to hyperinflation and they have been printing money for years.

It is because of what I said. Lack of taxes + lack of productivity + printing money = hyperinflation. Not printing money = hyperinflation. Don't fall for the simpleton arguments.

Also don't forget being it debt in a foriegn currency. Oh yeah that is what Weimer and Zimbabwe and Hungary all have in common.

The great prosperity of the Developed World is because of Keynesian Economics of 1950-1975 era. Aka the Mixed Economy, High Tax Rate, and Productivity going to Wages.

You want to fix the economy. Stop taxing labor so high and start taxing capital and land. Government Deficit = Non-Governmental Surplus. It is just accounting.

Hayek in 1975 -

I am the last to deny – or rather, I am today the last to deny – that, in these circumstances, monetary counteractions, deliberate attempts to maintain the money stream, are appropriate. I probably ought to add a word of explanation: I have to admit that I took a different attitude forty years ago, at the beginning of the Great Depression. At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy. Perhaps I should have even then understood that this possibility no longer existed. … I would no longer maintain, as I did in the early ‘30s, that for this reason, and for this reason only, a short period of deflation might be desirable. Today I believe that deflation has no recognizable function whatever, and that there is no justification for supporting or permitting a process of deflation.


I was looking very hard for facts (edit: on current state of affairs) in that article and only thing I've discovered in that article is that author likes Hayek very much therefore Hayek is the way to go.
Do you have anything else on current state of Spanish or Portugese economy?

BTW: Did anyone link this? Very informative article on Spiegel, with a lot of German perspective on things.

but goman who aren't comparing apples with apples here. Eurozone countries already pay their workers quite well thanks to the strong labour laws coming from the EU. We also have a large government expenditure programs. Income taxes are a little trickier to define as you have some low tax (Ireland I believe is lower than most States) and some are high tax but citizens don't necessarily want one and begrudge the other. Italy has a problem with tax collection, for example, but the real high tax countries in the North of Europe do not because people there see the benefit of those taxes. France's medical payment is another tax that people actually support.

Putting that to one side, what I'm trying to say is you seem to be proposing an American solution for a European problem. Our problems is not wages (The Greek were paying themselves 14 months for 12 months pay) nor is it the tax policy of each member state. The problem is we have completely overspent and the Germans will not allow us to print our way of this mess. Looking at the abyss the UK is staring into now after devaluing their currency, I side with the Germans.

When your counter argument to the Weimar Republic is Japan, I think our course is fairly clear.

Axon wrote:
but goman who aren't comparing apples with apples here. Eurozone countries already pay their workers quite well thanks to the strong labour laws coming from the EU. We also have a large government expenditure programs. Income taxes are a little trickier to define as you have some low tax (Ireland I believe is lower than most States) and some are high tax but citizens don't necessarily want one and begrudge the other. Italy has a problem with tax collection, for example, but the real high tax countries in the North of Europe do not because people there see the benefit of those taxes. France's medical payment is another tax that people actually support.

Putting that to one side, what I'm trying to say is you seem to be proposing an American solution for a European problem. Our problems is not wages (The Greek were paying themselves 14 months for 12 months pay) nor is it the tax policy of each member state. The problem is we have completely overspent and the Germans will not allow us to print our way of this mess. Looking at the abyss the UK is staring into now after devaluing their currency, I side with the Germans.

When your counter argument to the Weimar Republic is Japan, I think our course is fairly clear.


I did not say Weimer was Japan. Please read what I write. I said Weimer and Zimbabwe and Hungary lost productivity and their debts were in foreign currency. Hence hyperinflation. Japan's debts are in Yen. Hence no hyperinflation and the highest debt/GDP in the world.

The reason for high structural unemployment in Euroland is because of high taxes on labor. But like you said Germans and French do get relatively good benefits for that.

The problem with the Greeks is that they did not collect taxes on their rich. Not that they gave 14 months pay for 12 months, whatever that really means in purchasing power. It still could mean that they get lower pay than a German worker. I bet they do because their per capita GDP is 10% lower and there is more income inequality in Greece than Germany.

Germany has also been in an abyss like Japan for years. Their growth has been anemic at best. I know you don't see that because you think Euro = prosperity for Ireland. I've already pointed out that Ireland grew at a faster pace in the 90s pre-Euro than post-Euro 2000s.

I lol'd, then I was sad, then I lol'd some more.

Right, "just keep answering questions" is a good alegory to how debt-ridden economies roll nowadays.

@Axon - great post

Axon - I reread your post. American problems and European problems and Asian problems are all interrelated since we live in a globalized economy. Printing money is deflationary if that money is not spent but hoarded. Deflation is terrible disease that Euroland is getting themselves into because of they are scared of hyperinflation. Hyperinflation cannot happen as I have already pointed out. Your austerity measures will just lead to more debt. Not less. Why? - because demand is being ignored by the supply siders. Go ahead and convince yourselves that cutting wages will get yourselves out of the mess. What will really happen will be the Japanese experience. Debt will keep on accumulating.

The real solution is that Germans need to give their workers more so they start consuming more. But hey that would be inflationary?!?

Actually, I agree with you there goman. The Germans do need to spend more in future and the spectre of deflation is quite real. We are essentially arguing similar points here. There are ways out of this mess and both have there dangers to them. I happen to think our current course is the less risky.

Just to correct you about the Celtic Tiger and the euro. Our manufacturing and exporting peak was 2001. The euro started in 1997 when all the exchange rates got locked.

Minarchist wrote:
I lol'd, then I was sad, then I lol'd some more.

Its very good. Very similar to the two Johns on Bremner, Bird and Fortune. Mind you it was funny when Funkenpants posted it on the previous page, you filthy skimmer.

D'oh! Admittedly I tuned out for a bit when the hyper-inflation circular arguments popped up.

Axon - In reality it is a combination of both deflationary austerity measures and inflationary bailouts. And it is a mess that I think the Washington Consensus got us in. And you are correct there is no good way out of it. Perhaps there are less bad ways though. I do hope for the best. I think the best solutions though are bottom up demand side ones.

USA needs to lead in this since it is still the world's reserve currency and the world's superpower.

Washington Consensus in practice = socialize the losses and privatize the gains.

Turns out Hungary (or at least their previous administrations) lied about their economic figures as well, and are now facing a "very grave" debt situation. Things are looking more and more dicey across the Atlantic...

The fundamental problem is too much debt issuance, which is a form of inflation.

Issuing more debt does not fix a debt problem.

Its not quite the same. Hungary still uses the Forint and if the news is correct its the Swiss you'll bare the brunt of a default. The Swiss aren't in the EU and therefore the eurozone.

Thing is, the devaluing of the euro is good news for the export led countries like Germany. In Ireland we are quietly cheering the euros parity with the dollar as the we sell a lot to the US and they supply us with a lot of tourists. So, if your coming over remember the protocol and buy the Aran jumpers at the airport so we know who to fleece

Axon wrote:
Actually, I agree with you there goman. The Germans do need to spend more in future and the spectre of deflation is quite real. We are essentially arguing similar points here. There are ways out of this mess and both have there dangers to them. I happen to think our current course is the less risky.

Just to correct you about the Celtic Tiger and the euro. Our manufacturing and exporting peak was 2001. The euro started in 1997 when all the exchange rates got locked.

Minarchist wrote:
I lol'd, then I was sad, then I lol'd some more.

Its very good. Very similar to the two Johns on Bremner, Bird and Fortune. Mind you it was funny when Funkenpants posted it on the previous page, you filthy skimmer.

I just saw this and was about to post it. So awesome.

My knowledge of economics is fairly limited, so apologies if this was answered in the thread somewhere and I failed to understand it:

I can understand that people are striking because they're angry about getting pay cuts etc, but do the governments of Greece and Spain have any other real options at this point?

No, they really don't. The strikes are pure stupidity, entitled people demanding that unsustainable spending continue.

This part isn't really economics, it's just finance. And it amazes me how little people understand. There's a lot of folks who appear to believe that wealth is unlimited, and you can always raise taxes to cover any spending you want to do.

What they're not getting is that if they don't shut the hell up and take the pay cuts, their whole state could collapse.

Idiots.

Thanks!

Malor wrote:
No, they really don't....

Idiots.

Okay, so maybe the strikes aren't very logical or practical, but people might take to the streets. And they'd have a right to. Sure, we all binged on debt. However, governments and corporations share a larger burden of the blame, IMO. Joe the Spanish Plumber may have lived beyond his means, but meanwhile his government was making huge promises and using debt to do it. They knew the fiscal situation better than he did. They knew it was unsustainable. Anyone that says otherwise is a liar. So they share more of the blame from where I sit. Not that anything will come of it, but the frustration isn't misguided. Misdirected maybe, but not misguided.

Ultimately, it doesn't matter. No matter how upset they are, there's no money. They'll be suffering for decades as they pay back the high living standards they got on borrowed money.

Same thing will happen here in the US, although the method of fiscal breakdown may be different.

Malor forgets that the money is not going to the people but to the bankers. Here is a concise paragraph that explains it.

http://www.henryckliu.com/page230.html

Public Debt Crisis caused by Bank Bailouts

The public debt had been pushed up sharply in the last two years by the trillions that governments run by free market policymakers pumped into distressed banks to prevent their collapse from proprietary speculation in deregulated markets. Recent figures from the German Bundesbank showed that in 2008 and 2009, some 53% of Germany’s new public debt was used to rescue distressed financial institutions. The total new public debt rose by €183 billion in those two years; the costs involved in supporting distressed financial institutions amounted to €98 billion.

The money is always there since money is made from thin air. There is no such thing as running out of money.

DSGamer wrote:
Malor wrote:
No, they really don't....

Idiots.

Okay, so maybe the strikes aren't very logical or practical, but people might take to the streets. And they'd have a right to. Sure, we all binged on debt. However, governments and corporations share a larger burden of the blame, IMO. Joe the Spanish Plumber may have lived beyond his means, but meanwhile his government was making huge promises and using debt to do it. They knew the fiscal situation better than he did. They knew it was unsustainable. Anyone that says otherwise is a liar. So they share more of the blame from where I sit. Not that anything will come of it, but the frustration isn't misguided. Misdirected maybe, but not misguided.

Wrong - They are not illogical or impractical. This is just the paradigm of the day. To make it seem "there is no alternative." Wrong wrong and immoral IMO. Jose Plumber know this. The debts and interest that "must get paid back" are bogus. Hence they need to restructured in bankruptcies, nationalizations, defaults, etc. Not paid back. That is just stupid.

BTW Spain was not running deficits during the bubble years, so what you posted is not even true.

The money is always there since money is made from thin air. There is no such thing as running out of money.

This is probably your most dangerous idea. Resources are limited. Money is just a claim on resources. Playing around with the money f*cks up a system, redirecting resources away from those who have earned them to those who print money. Do enough of that, and the system will eventually collapse.

I think this might put a smile on everyone's face. The Eurovision is and always will be very political. Its important to understand that if/when you are watching it. Germany winning it this year is viewed by many as a small gesture for bailing us out of our troubles. Thought you might like that, Malor.