Comments on: When fractured politics kills economic solutions A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: LuisdeAgustin Sat, 10 Sep 2011 12:00:19 +0000 Mr. Salmon makes a comment that money managers and those private investors who read columns such as his are likely shocked by: I don’t know or even particularly care what will happen to asset markets; they’re almost the least important part of the whole equation. It’s the real economy which matters…

It’s the economy, stupid? According to David Ranson, chief economist at macro research advisory, Wainwright Economics, it’s economic policy itself that’s holding back the US and most western economies.

As for the most likely not to succeed among those countries, Greece, Ranson considered Greeks’alternatives, and default must remain a potential alternative.

To withdraw from the euro zone and return to the drachma would not help the Greek economy regain its balance, for two major reasons. The more obvious reason is that most Greek debt is denominated in euros and does not become any easier to pay off if Greece proceeds with a devalued currency.

The other reason is farther reaching. Currency devaluation is a deterrent to private economic vitality. It destroys wealth at a stroke and encourages further private capital outflow by rais¬ing expectations of more currency depreciation down the road. With capital ever harder to hold or attract, the Greek economy would be even less able to create new jobs.

The fastest way out of the Greek mess is to cut the size of its government deeply and quickly on three fronts: spending commitments, manpower and tangible prop¬erty. To the extent this is insufficient, the Greek gov¬ernment should be allowed to default on its debt. Sovereign default is not a good option, but it is much better than de¬valuation. Although it would make it more difficult to fund government spending in the future, it’s something that’s desirable in the short term. It would also lessen the threat of fur¬ther increases in taxation, and that would help make the Greek economy attractive to external capital.

The great underlying feer is if the Greeks do it, i.e., get away with sending the banks packing, who else will take the opportunity of a lifetime?

Luis de Agustin

By: toyotabedzrock Fri, 09 Sep 2011 02:55:58 +0000 Check your geography you can’t cut out Portugal. And to many big companies use Ireland as a phony base, you need to force them to raise their business tax a bit.

By: ottorock Thu, 08 Sep 2011 16:39:52 +0000 I propose Salmon’s Law of blogging: “The more commenter complaints about specific points from a long post, the higher the quality of said post.” This one passes.

BTW, I think yer man Cembalest touched a extra round of nerves thanks to the inspired use of the Lego pig

By: DanHess Thu, 08 Sep 2011 16:09:42 +0000 Obama lost his mandate when he rammed through a health-care overhaul at all costs in the face of overwhelming opposition by the American people. A majority of all states are presently suing to have that law overturned. Americans did not want a massive expansion of government but no matter.

The well was unalterably poisoned then. Bill Clinton had big ideas but he also understood and respected democracy. Even George Bush did not go to war without a majority of the American people, although they later grew sick of it.

Michael Pettis’ latest piece in Foreign Policy is great: 11/09/07/an_exorbitant_burden

The ultimate source of the crisis is China’s (and asia’s, Russia’s etc.) continuous currency interventions. There is a lack of global demand but all the people and cash are in China and other asian countries. They should naturally be completing the trade cycle but they aren’t. If the trade cycle were complete, the jobs situation would be dramatically different. We with the world’s dumbest politicians, are the only ones who don’t get this game.

Here, Mitt Romney is the one who is actually talking sense in all of this. On the biggest economy issue of our generation, global imbalances due to interventions, Obama has been a big fat zero. To be fair, Bush was also AWOL on global imbalances, but we weren’t deep in economic doodoo then.

By: wpw Thu, 08 Sep 2011 15:03:21 +0000 Please Felix! Don’t tell me you believe the SDP and Greens are purely noble! Whatever became of sceptical journalists! Wolfgang Schauble has been every bit as noble but as a member of government is in a much more difficult position. He has to convince his constituency that Germany can, and should, finance much of the cost without entering into excessive longterm transfer obligations. And he has to be part of structuring such an agreement.
As much as it troubles economists and markets, the technocrats are going to have to stand back and let a long messy political process work itself out. In the end the troubled countries will continue with austerity or reforms, while Germany, Netherlands and others finance and manage a stimulus program, and limited Eurobonds.

By: dWj Thu, 08 Sep 2011 14:28:17 +0000 I don’t know what the possible is, even factoring out political constraints, but bailing out all bondholders of banks (again) isn’t entirely attractive. To be honest, I’d like to see depositors in troubled domestic banks get 99 cents on the dollar, just as a Talebian lesson that nothing is perfectly devoid of risk. It may well be that neither of these can be implemented except at even greater cost than keeping creditors whole.

By: ggeorgan Thu, 08 Sep 2011 14:22:34 +0000 Wow ! Felix does not care what happens to asset markets as long as bondholders are kept whole !
As though asset markets can be divorced for long from the real economy. If only one could refarain from pronouncing on days on which he or she has nothing coherent to say …

By: fresnodan Thu, 08 Sep 2011 09:24:04 +0000 “The slump in growth will accelerate, and probably result in another recession; the opportunity cost, in terms of wealth that might have been, will rapidly run into the trillions and won’t stop growing for a decade or more.”

Note previously:
“Dow’s solution involves cutting loose Greece and Portugal, and probably Ireland too. The first two, certainly, need a devaluation if they’re going to regain economic growth — and so they should be allowed to devalue and default. Depositors in domestic banks would of course need to be kept whole; this might be reasonably expensive.”

“….we won’t get the best solution, as dreamed up by technocrats. Mark Dow, for instance, a former Treasury and IMF technocrat turned hedge-fund manager,…”

You know, it was technocrats who put the Euro together to begin with. And there was this other technocrat who said subprime was contained…