Is it easy to guarantee Italian debt?

by on November 27, 2011 at 7:28 am in Economics, Uncategorized | Permalink

No, no no, says I.  Here is a recent post by Karl Smith, another by Brad DeLong.  In those posts there is not enough emphasis on public choice problems and the longer term and the forward-looking nature of markets.  The Italian economy does not have per capita growth over the last twelve years, and it is increasingly thinkable it won’t have growth any time soon, even apart from recent problems with aggregate demand.  Population is aging and shrinking and institutions remain dysfunctional.  In the comments, Morgan Warstler put it well:

There’s no free lunch – this is not about past debts (debt can be written off), it is about accepting the inevitable future…

There is the same problem over time for any ECB strategy; it’s not enough to break the back of the speculators once or twice.  Karl writes:

…Italy doesn’t actually need anyone to transfer real resources to it. It simply needs someone to manage resource distribution among bondholders. The ECB can do this at virtually no direct cost.

I would have written:

Italy is in primary surplus now but the economy is a train wreck which will only worsen; markets see this.  Italian politics still seems quite dysfunctional.  Even managing resource distribution among bondholders is going to be problematic, as this redistributes wealth away from German and other AAA citizens and becomes institutionalized quickly, also cutting off chances for reform in Italy.

If Germany and a few other, smaller AAA countries were to guarantee or monetize the debts of Italy, Spain, and possibly France and Belgium, never mind Greece and Portugal, Germany would not be AAA itself.  The German median voter has very little interest in guaranteeing the above-mentioned debts.  If German yields are flipping upwards, it is, in my view, because investors now see the whole euro deal as unraveling and don’t want to deal with the complexities and flak.  A big chunk of the German auction didn’t sell at all.  You don’t have to think that Germany is ripe to default to see that markets are warning Germany not to take on the whole burden.

Furthermore, there is no “half hearted recovery” in the offing, not even with better AD policy.  A lot of institutional arrangements were set up in an unstable fashion and now they are unwinding, as indeed they had to do, with economic carnage along the way.  The periphery countries all thought they were wealthier than they in fact are, and behaved as such, but now is the painful unwinding, including the collapse of a lot of ultimately unworkable EU governance structures.  Markets now see this, and the ECB cannot so easily reverse it.

Addendum: You don’t need complicated arguments why I am wrong in my europessimism when there is a simple argument.  If countries are willing to dig into their wealth, they can pay off their debts.  Basta.  At the core it is a public choice problem, not an accounting argument.  The optimistic forces can win the accounting argument, but so far the optimistic forces have called the crisis wrong every step of the way.

Kantoos adds comment.

david November 27, 2011 at 7:43 am

Note that this argument is a contention that the level of existing real debt is irrelevant, which is frankly startling. The argument seems to be that even though Italy has a primary surplus now (in an economic crisis!), markets are foreseeing that it will soon no longer have a primary surplus, nor indeed the political will to meet debts at all? Due to terrible government that is worse than current government?

Suffice it to say that this seems a rather large contention!

And of course the flip side of “this is a public-choice problem” is “this is a credibility/commitment problem” and we are back in familiar expectations territory.

David Wright November 27, 2011 at 8:02 am

Running a primary surplus is enough to make you solvent in the long run only if your debts go in the long run. Default is a way to make them go away at least in the short tun. Another way to make them go away in the short run is to have the ECB inflate them away, which is the course of action the other bloggers are suggesting. That does work as a one-time fix, but it in the long run it doesn’t really work any better than default if a country wants to roll over debt or continue to borrow in the future. In that case, the markets will just add their new inflation expectations to the interest rate they demand, making the desired fiscal flows just as impossible as they were before. And Italian demographics, growth prospects, and politics are all pointing to a continued desire for impossible fiscal flows (impossible, at least, without indefinite transfers from Germany).

The right/left split you are seeing in the economic blogosphere on this topic is just another version of the standard light/right economist split: A right-wing economist says get the long-term right and let the short-term take care of itself; a left-wing economist says get the short-term right and let the long-term take care of itself.

david November 27, 2011 at 8:18 am

The ECB doesn’t have to inflate away debts; it can act as LOLR instead, so that the debts (to the ECB/EFSF/other E-cronym) do go to the long run.

I am not seeing the short-run/long-run split you describe, myself; everyone seem s to like to claim both these days.

David Wright November 27, 2011 at 8:29 am

Acting as LOLR is at least threatening to inflate away the debts. Where do you think the ECB would get that money its threatening to indefinitely “lend”?

There seem to be an awful lot of arguments floating around the economic blogosphere lately that try to use “credibility” as a kind of magic trick to claim that some institution can get some desired result without having to do the yucky things it would have to do to, you know, actually get that result. I would love to see a post on this topic from our host.

david November 27, 2011 at 9:51 am

Acting as LOLR is also committing to destroy away any created money in the future, when those debts are paid down, and as we all know inflation expectations are set for the long-run.

Yancey Ward November 27, 2011 at 10:10 am

David wrote:

Acting as LOLR is also committing to destroy away any created money in the future, when those debts are paid down

Paid down with what, exactly?

david November 27, 2011 at 10:24 am

Future revenues, presuming a continued primary surplus.

Yancey Ward November 27, 2011 at 10:52 am

Future revenues, presuming a continued primary surplus.

Precisely what the market appears to be presuming won’t happen.

david November 27, 2011 at 11:01 am

Well, yes, of course. I said as much in the top comment. But that is not David Wright’s argument.

TallDave November 27, 2011 at 3:37 pm

Demographics and GDP trends suggest large amounts of borrowing in Italy’s future. That’s what the markets see.

Also, this is probably going to end up being the mild economic downturn before the crisis. That perceptual problem is part of how we got here — from 2001 through 2008, there was very little recognition that those were actually the good times and we should have been taking the difficult steps toward austerity while it was easier.

But the Krug-eynesians are going to keep insisting we have not just a common-sense duty to the economy but a moral obligation to spend, spend, spend right up until we enter the debt death spiral, and then they’ll say well, we didn’t spend enough, you should have listened to us. They have not learned the right lessons from what’s happening in Europe.

Steven Kopits November 29, 2011 at 4:59 pm

As I understand it, a primary surplus is not a guarantee of sufficient funds for debt service. It only means that the government can meet “operating” obligations (pensions, education, healthcare, etc) without increasing its debt level. It does not, if I understand correctly, imply that the primary surplus is sufficient to meet either interest or debt service obligations.

Peter Schaeffer November 29, 2011 at 5:09 pm

SK,

OECD Glossary of Statistical Terms
Definition: Primary Balance
Government net borrowing or net lending excluding interest payments on consolidated government liabilities.

NAME REDACTED November 27, 2011 at 7:48 am

+1

your noodle November 27, 2011 at 1:09 pm

-1

Noumenon November 29, 2011 at 7:27 am

+i2

prior_approval November 27, 2011 at 8:06 am

‘If countries are willing to dig into their wealth, they can pay off their debts. Basta.’
This sentence is a decent candidate for America’s epitath after it defaults in the eyes of those holding its debt. After all, this almost happened just a couple of months ago – in a process which seemed unimaginable before it occurred.

Cliff November 27, 2011 at 3:04 pm

No, it didn’t.

Cliff November 27, 2011 at 3:05 pm

There was never any chance of default and no one seriously questions that.

David Wright November 27, 2011 at 8:07 am

The link to Politbarometer polling on German public opinion is really striking. Against eurobonds 79% to 15%. Showing significantly growing approval for Merkel’s handling of the euro crisis over the last month, and her conservative party gaining seats in a hypothetical immediate election. That’s an amazing disconnect between what the Germans want and the American commentariat are pushing. And remember that, as a rule, Germans are relatively well-disposed to European integration.

Bill November 27, 2011 at 8:55 am

Doing what is popular to the German public certainly guarantees that there won’t be a Eurocrisis.

Sell Euros.

prior_approval November 27, 2011 at 8:56 am

‘That’s an amazing disconnect between what the Germans want and the American commentariat are pushing. And remember that, as a rule, Germans are relatively well-disposed to European integration.’
Germans are still well-disposed to European integration – they aren’t well disposed to being responsible for other people’s debts.

It must also be pointed out that Merkel has been consistent in pushing for a financial transaction tax for years (in response to the Lehmann collapse, essentially), a position supported by many other European leaders – and one adamantly opposed by the British, whose economy is deeply reliant on the financial sector. Merkel’s position is hardline against a number of things – the City and Wall Street is in her sights, too. East German Lutherans have never been noted for their devotion to capitalist beliefs.

There are changes coming to the EU, and not just the eurozone – the contradictions between various positions (look at Sarkozy’s outburst just a couple of weeks ago) appear to be less amenable than before to compromise while avoiding the underlying problem.

ad*m November 27, 2011 at 2:42 pm

“Germans are still well-disposed to European integration – they aren’t well disposed to being responsible for other people’s debts.”

Let me reply that the Italians are also well-disposed to European Integration provided the North pays for their pensions, and the ECB does not force their government out by manipulating bond yields.

I may be biased because I saw this coming 9 years ago and subsequently voted with my feet, i.e. emigrated from one of these Northern European countries.

1) The euro and the EU as a whole were projects by the elite, for the elite. The euro would not have survived referenda in The Netherlands or Germany before introduction.
2) Anyone who read the Amsterdam Stability Pact, forced on the EU by German and Netherlands governments, supposedly to prevent exactly what is happening now, would have noticed the waffle words, with qualifications about deficits and punishments sprinkled throughout the text.
3) Northern Europe has the same demographic problems that the South just lagging by a few years, and somewhat ameliorated by better work ethics. The German taxpayer cannot take over Allianz liabilities
4) And as Theo van Gogh would explain to you if he could, immigration is no solution, in fact has made this worse.

This is about the whole eurozone, not just the PIGS – BF.

Stanfo November 27, 2011 at 9:08 am

I only think you are wrong on Germany. There is a difference between bond vigilantes being pessimistic about Germany and just not wanting to buy their bonds. The latter is a liquidity problem, and I think we should be looking at this through that lens.

Firat Uenlue November 27, 2011 at 9:49 am

Assuming the debt issues can be resolved that would still leave the tiny matter of lost competitiveness in periphery coutries open. It’s not like China, Brazil or South Korea are standing still and all of a sudden less eager to crush Southern European nations aside. Even if they can miraculously manage their budget, their companies and workers will be ill-exposed to globalization given they had to hide from their forces of it in the non-tradable sector like real-estate and construction and structural issues take time to fix.

Bill November 27, 2011 at 9:50 am

When you frame the issue as “If Germany and a few other, smaller AAA countries were to guarantee or monetize the debts of”….., aren’t you simply dictating the answer by your limited choice of participants and ignoring that they all as a group would be cross guaranteeing each other in a currency union, or that such a cross guarantee would prevent the challenge to the Euro in the first place?.

Let me frame it a different way: If California and a few other larger states were to guaranteee or monetize the debts of the United States…..you would object.

First, look at Tyler’s frame of reference: Germany and a “few other AAA” states doing the acting. Second, look at all the other list of countries that these few would be guaranteeing: France? Second, look at the act: monetize or guarantee the debt of (past loans? current loans? future loans?). Third, the comment presumes there are no other reforms (that the countries continue as they have).

Finally, what is also missing is the alternative universe without cross guarantees: that Germany’s AAA rating will change as it now has to guarantee its banking system, including Deutsche Bank. If your country is a creditor, and you have to guarantee your depostors or their institutions, you do not come out of this AAA.

Gareth November 27, 2011 at 9:57 am

How about this:

1) The ECB sets a ceiling across the entire Italian yield curve by guaranteeing to buy an unlimited amount of bonds if prices fall below a given point at each maturity.

2) We assume the ECB would *not* have to buy any bonds, or at least, very little once the market finds the threat credible. Just as with the SNB: when they did untargeted EUR purchases, they bought tonnes. Since they set a target, they have bought almost nothing. So by setting a credible taget the ECB takes LESS risk onto its balance sheet (and by extension, less exposure for German taxpayers).

3) The ECB *varies* the ceiling in accordance with the Italian fiscal position. Say 8% minus the primary surplus (last year? expected for current budget?) on the 10 year. That would give a circa 5% ceiling at 10 years now, I think; and the incentive for fiscal prudence is retained. Handwaving here as to how to scale the rate across the curve.

Would German taxpayers hate this so much? They must choose a least-bad endgame.

Yancey Ward November 27, 2011 at 10:19 am

What you are seeing right now is the desperate attempt to ignore (and I would say actively obscure) the transfer of real resources to the indebted or those holding bad assets from those not indebted, or holding other, better assets. Smith comes the closest to acknowledging this reality, but then backs off and tries to cover it with his claim about this just being a transfer between bondholders.

david November 27, 2011 at 10:39 am

Someone’s not going to be as rich as they expected; the democratic polity wants to choose who.

Yancey Ward November 27, 2011 at 10:56 am

Then just be open about this- say, for example, “Look, Italy need some non-Italians to support their past and future debts, so we need to socialize those costs across the whole of the Eurozone.”

Don’t try to pretend otherwise.

Also, I think we can now count on you to support the Germans should they continue to say “nein” to ECB, right, since they have the democratic right to do so?

david November 27, 2011 at 11:03 am

Well, it doesn’t have to be non-Italians! One could always tax Italians, or reduce entitlements to Italians, or default on Italians bondholders.

Threatening to default on German banks is liable to produce a degree of German acquiescence should Italy choose that option, although right now they seem to be choosing “stick their heads in the sand and hope the problem goes away on its own”.

NK November 27, 2011 at 11:36 am

Default on all bondholders seems fairest to me

Yancey Ward November 28, 2011 at 12:15 am

David,

If the Germans acquiesce, then it is non-Italians. I support fully the first option with the proviso that all bondholders be included if Italy chooses to default instead. Without outside aid, default is coming, as it should.

Bill November 27, 2011 at 11:19 am

Re: “the transfer of real resources to the indebted or those holding bad assets from those not indebted,”

Are you talking about Germany having to prop up its banks for their bad loans?

Yancey Ward November 28, 2011 at 12:12 am

In some cases, yes. The argument that German better pony up now or have to bail out their banks is a sucker’s offer. Ponying up now is bailing out all of the banks and all the other countries in trouble. I suspect, unlike Tyler, that the Germans will fall for it in the end, though not with their eyes closed, and regret it mightily afterwards, but I admire to date their refusals of the con job being tried on them.

Bill November 28, 2011 at 10:01 am

Would you believe your statement as true if Germany’s behaviour precipitated the crisis?

You shouldn’t let politicians play with loaded guns.

NAME REDACTED November 29, 2011 at 6:07 pm

So you support privatizing war and national defense?

Pat MacAuley November 27, 2011 at 11:01 am

The “Primary Budget Surplus” is an ivory-tower concept that is counterproductive in the real world. A sophisticated lender or rating agency is concerned about the borrower’s ability to cover ALL of his expenses, and especially his loan repayments. The fact that the borrower could be solvent if he didn’t pay back his loan is not reassuring. In fact, this “primary budget surplus” condition puts the borrower in a moral hazard situation, where he might be better commiting an Argentina-style default.

The primary surplus concept is especially abused by professors Smith and DeLong (and Cowen?) when it is assumed that sovereign debt can be permanently rolled over instead of being repaid, even when the debtor is chronically in deficit. As sovereign debt and budget deficits increase, and as the global economy changes, this assumption is increasingly under challenge.

david November 27, 2011 at 11:12 am

As long as RGDP increases, the debtor can always be in deficit. Not by a lot, mind you, but the conceptual point is quite concrete. States expect to live a lot longer than the usual borrower does.

Of course, one gets some funny looks from economists if you go all Paul Ehrlich on them.

derek November 27, 2011 at 11:39 am

But isn’t that the precise issue here? That there is a demographic reality that Italy as a productive society (as far as it is) will no longer exist in the near future? Put simply, there won’t be enough young people to pay for it all?

Rahul November 27, 2011 at 12:38 pm

Immigration?

derek November 27, 2011 at 2:23 pm

Has there been an instance of successful immigration leading to economic renewal in a welfare state?

TallDave November 27, 2011 at 3:24 pm

Unskilled/semiskilled immigrants are net tax consumers. They will only make the problems worse.

Rahul November 27, 2011 at 3:51 pm

@Tall Dave:

Do they have to be unskilled / semiskilled?

JWatts November 28, 2011 at 1:28 pm

You are not likely to get a lot of skilled workers. Where would they come from? And why would they choose Italy when their skills would give them better opportunities elsewhere?

TallDave November 28, 2011 at 8:18 pm

Rahul — Nope. That’s one reason why the U.S. has done well, we’re full of immigrants like my wife, who came here as an IT consultant on an L1 visa.

But the U.S. is the richest large country in the world. The poorer countries in Europe will have a somewhat harder time.

Peter Schaeffer November 29, 2011 at 5:20 pm

From ad*m

“And as Theo van Gogh would explain to you if he could, immigration is no solution, in fact has made this worse.”

Yup. The immigrants Europe actually gets are crushingly bad. They do (far) worse in school that immigrants in the U.S. and are much more welfare dependent. See point 3 of “The amazing truth about PISA scores: USA beats Western Europe, ties with Asia.” (http://super-economy.blogspot.com/2010/12/amazing-truth-about-pisa-scores-usa.html). Welfare dependency is very, very high. See “The ageing, crisis-prone, welfare state is bad news for welfare migration” (http://www.econbrowser.com/archives/2010/10/guest_contribut_9.html).

Predictably, they don’t work much. See “Second generation Immigrants in Europe are de-assimilating” (http://super-economy.blogspot.com/2010/10/second-generation-immigrants-in-europe.html). Quote

“First the data confirms that both first generation and second generation immigrants in all 3 countries work much less than natives, both for men and women.

For women, the second generation is slowly assimilating. Whereas the first generation works 35% less than natives, the second generation works 27% less than natives, an improvement of 8 percentage points. (the figures are the non-weighted, arithmetic mean of the 3 countries, below I have put data in each one).

For men however the trend is the opposite. The second generation non-European immigrants are less likely to work than the previous generation! While the first generation work 10% less than natives, the second generation works 24% less, a deterioration of 14 percentage points. “

Pat MacAuley November 27, 2011 at 12:59 pm

There are a number of issues here. As Derek and Tim Cowen note, Italy’s RGDP may NOT increase, and may very well decrease. Another issue is the moral hazard — whether “primary surplus” countries will decide to default even if they could re-finance their debts. Argentina is a classic example of a country that has decided it’s easier to default, and lenders will forget after about 10 years. Perhaps the most troublesome issue is whether savers are evolving away from the late 20th Century belief that sovereign debt of the OECD countries is “better than gold”.

David Wright November 27, 2011 at 7:20 pm

The sustainability border for indefinite deficits is not the line between primary budget surplus and deficit. It’s the line where your deficit as a percent of GDP equals your growth rate. If your growth rate is zero, a deficit is not sustainable even if you are in primary budget surplus.

mark November 27, 2011 at 11:44 am

Soon, Italy, and Greece as the end

Josh November 27, 2011 at 11:51 am

What if the Italians set immigration targets, and pursued immigrants who have lots of kids? It seems like the EU needs Mexicans or Filipinos in a lot higher numbers yesterday. If you knew that there would be 6 euro an hour labor in abundance in Italy in 10 yrs, would that change your outlook on their long term prospects?

Rahul November 27, 2011 at 12:26 pm

Europe’s resistance to immigration (or rather, their continued promotion of the wrong kind of immigration) is going to be their death knell.

derek November 27, 2011 at 2:27 pm

Maybe the European experience with immigration is lack of opportunity, bureaucratic sclerosis, generous welfare programs and societal barriers creating an underclass with the toxicity that comes along with it.

In other words, the solution to that problem are the same as the economic and debt problem.

Rahul November 27, 2011 at 3:55 pm

I believe Europe has had misguided immigrant selection policies. They let immigration be guided by their guilt (and some sense of global charity) rather than by their self-interest. All immigrants are not good immigrants.

derek November 27, 2011 at 4:37 pm

Funny you say that. I work with a Swedish man and we talk about this stuff all the time. He says that when the discussion of having southern and eastern countries entering the EU and adopting the Euro, one of the arguments was that it would not be fair to have only rich countries.

NAME REDACTED November 29, 2011 at 6:08 pm

@ derek

Thats the kind of idiocy that results from seeing distributional differences as unfair.

farmer November 27, 2011 at 3:23 pm

Ha! MORE immigration as a SOLUTION? NB- the london riots were 40% “minority” arrests out of a cohort of 5% minority residents. Importing recalcitrant helots is NOT a part of the solution set

farmer November 27, 2011 at 3:25 pm

see: clichy-sur-bois, too. see “Multiculturalism has failed” as quoted by Merkle, sarko and Cameron

unblinkered November 27, 2011 at 6:21 pm

What’s a helot…if your giong to spout racist gibberish at least have the balls to say it straight out. You seem to miss the entire swath of modern history, Europeans have infiltrated and transformed every nook and cranny of the planet over the past several hundred years, Europe today is every bit a product of this process, and backwash from colonial and post colonial adventure are part and parcel of that reality, not a policy “choice”.

The Anti-Gnostic November 28, 2011 at 12:48 pm

I’ll say it straight out: non-European immigration is bad for Europe, and for the Anglophone countries as well. The end result will be the re-creation of the same failed states that the immigrants came from.

Rahul November 28, 2011 at 1:49 pm

@The Anti-Gnostic

How’s your claim consistent with the fact that Asian / Indian migrants to the US consistently come in top earning brackets of the entire population. There’s a way to correctly steer immigration policy if only there is the will.

The Anti-Gnostic November 28, 2011 at 3:12 pm

Rahul:

I assume there’s a reason high IQ Asians and Indians don’t want to live in countries run by other high IQ Asians and Indians.

bunker brown November 30, 2011 at 2:58 am

I’d live in any country that provided me with the freedoms and wealth of opportunities that I can get in America.

Miguel Madeira November 27, 2011 at 5:12 pm

London has 30% minority residents.

Peter Schaeffer November 29, 2011 at 5:20 pm

Josh,

From ad*m

“And as Theo van Gogh would explain to you if he could, immigration is no solution, in fact has made this worse.”

Yup. The immigrants Europe actually gets are crushingly bad. They do (far) worse in school that immigrants in the U.S. and are much more welfare dependent. See point 3 of “The amazing truth about PISA scores: USA beats Western Europe, ties with Asia.” (http://super-economy.blogspot.com/2010/12/amazing-truth-about-pisa-scores-usa.html). Welfare dependency is very, very high. See “The ageing, crisis-prone, welfare state is bad news for welfare migration” (http://www.econbrowser.com/archives/2010/10/guest_contribut_9.html).

Predictably, they don’t work much. See “Second generation Immigrants in Europe are de-assimilating” (http://super-economy.blogspot.com/2010/10/second-generation-immigrants-in-europe.html). Quote

“First the data confirms that both first generation and second generation immigrants in all 3 countries work much less than natives, both for men and women.

For women, the second generation is slowly assimilating. Whereas the first generation works 35% less than natives, the second generation works 27% less than natives, an improvement of 8 percentage points. (the figures are the non-weighted, arithmetic mean of the 3 countries, below I have put data in each one).

For men however the trend is the opposite. The second generation non-European immigrants are less likely to work than the previous generation! While the first generation work 10% less than natives, the second generation works 24% less, a deterioration of 14 percentage points. “

cfw November 27, 2011 at 12:27 pm

“The optimistic forces can win the accounting argument, but so far the optimistic forces have called the crisis wrong every step of the way.”

Not sure what this means. If the optimistic forces are the Krugman/Roubini followers – generally, have the ECB act as lender of last resort, have trillions in QE, focus on unemployment more (compared to those who want to protect bond holders) – the forces have not had their advice followed. The austerians have had their advice accepted, and the results to date have not been encouraging.

Maybe a bit more historical context would help from TC – after all there is the great depression as precedent. Lords of Finance seems to be a readable account of what the central bankers did in the depression and years before. TC seems to take a look into the future approach (sort of like sci-fi) without any (or enough) foundation in what has worked in the past. The idea that “nothing has worked in the past, the current situation is unprecedented” is not useful, though not without some truth.

Rahul November 27, 2011 at 12:29 pm

What we really need is a Biblical jubilee year .

farmer November 27, 2011 at 3:20 pm

why, surely those 80,000+ Libyan arrivals to Lampedusa will save the day, no? Why, Italy will thrive once more if only it were 100,000!

NAME REDACTED November 29, 2011 at 6:11 pm

heh.

TallDave November 27, 2011 at 3:22 pm

Now the big news is a new Stability Pact which will require the euro countries to adhere to strict fiscal dicsipline, and this time they will actually adhere to the agreement because… um…

http://www.reuters.com/article/2011/11/27/us-eurozone-integration-ecb-idUSTRE7AQ00F20111127

NAME REDACTED November 29, 2011 at 6:26 pm

LOL! Hyperbolic discounting applies to governments too? WHO WOULD HAVE THOUGHT!

Bill November 27, 2011 at 3:39 pm

All this talk about the core of European countries being unable to backstop their currency is really just a way for them to get IMF, and indirectly US, support for their credit crisis. Of course Germany and another EU creditor country will SAY that they will not do something, or cannot do something, if to say so means that someone else, like the IMF, will.

Tom Grey November 27, 2011 at 5:44 pm

The Italians should, like the Greeks and even the Germans, print up 1-yr 0% bearer bonds, and use these bonds to pay off gov’t wages and pensions.

Also, accept these bonds at 100% par value for taxes, but NOT require other businesses to accept them — they are NOT “legal tender”. But if the Italian gov’t accepts them, and pays in them, they’ll be close.

Then those getting Italian gov’t benefits become the ones who loan to Italian gov’t.
Or the Greeks; or Germans; or Slovaks; or Californians.

unblinkered November 27, 2011 at 6:24 pm

Californians, unlike Germany are compelled to transfer resources to weaker states via the central governments tax code.

TallDave November 28, 2011 at 9:46 am

Their local tax code is doing an even better job of transferring resources to other states. Just ask Texas.

JWatts November 28, 2011 at 1:32 pm

California regulations are probably better at transferring resources to other states than the tax code is, but admittedly they both are having that effect.

NAME REDACTED November 29, 2011 at 6:29 pm

Yet Cali. federal politicians vote for more progressive taxes anyway!

NAME REDACTED November 29, 2011 at 6:11 pm

Bingo!

Floccina November 29, 2011 at 12:25 pm

Same here in the USA, the solutions are technically easy but politically impossible at the current time.
http://un-thought.blogspot.com/2011/09/why-eliminating-deficit-is-easy-but.html

pizarro December 20, 2011 at 3:54 pm

Then again, if there were 50 countries with 50 separate currencies – and borders – compromising “the US zone” North-America could build and sustain an empire (lasting 1000 years?!) unlike Europe now which has committed economic suicide the moment of its “unification” attempt.
It’s called “small-world networks” which happen to be exceptionally stable – while the US and the EU isn’t one of those – and anything other than those is not just a fallacy but is also utterly irrelevant. Such is politics of the “unified”, the tax codes, planned wealth distribution and similar constructs of the generally inapt, fundamentally lazy and the pragmatically retarded. In short, when one tries out those “economic concepts” (EU) it simply becomes “trying to beat the game itself” as opposed to just winning it against other players. How did that work out during 5000 years of well-documented human history? (and someone actually gives out Nobel Prizes for this “science”?! I much rather support one for alchemy. )
Bottom line, if you waltz into a casino and try to martingale your way to wealth at the roulette table… how is that working out for you?
Case and point; The Chinese are a special case, at the moment. After 4000 years of ups and downs they finally wheeled in the technocrats, and political or similar fallacy aside, technocrats are keenly aware of what ***can*** and what ***can not*** work.
You know why? – Because since they have actually bothered to open a math book here and there in the past thus, they are not trying to do the impossible which is to beat the game itself.
All of you seem to be so dead-set to beat the hell out of a long dead horse and with such vigor that its starting to acquire actual entertainment value. Let me get some popcorn and pull up a chair. Carry on…

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