The Achilles' Heel Of The U.S. Economy [View article]
WMARKW -
Good analysis. The follow up question is to ask why the $2 Trillion to which you refer should take the form of Treasury Bills. Why not have Congress create a further $2 Trillion through legislation, have that legislation require this capital to be deposited and managed as part of the Social Security Trust Fund and specify in this mandate that the Trust Fund should invest this capital in corporations and deposits that develop the US economy (but only at times and to the extent that does not generate inflation). In other words, the $2 Trillion would be bounded in a way that limits its potential to negatively impact the US and global economies but it and the income it generates would be available to fund benefits for the baby boom bulge so that an undue burden will not fall on future generations in the form of either reduced benefits or the need to make inordinately increased contributions.?
Expect denials soon, but sources says Angela Merkel suggested to the Greek president the country hold a referendum on continued use of the euro at next month's elections. Syriza: Merkel is treating Greece as a "Protectorate." New Democracy: Merkel proposal "unfortunate." The German Chancellor has managed to unite the feuding Greek parties. [View news story]
One might add to Simit's first point that, increasingly, new production is from technically difficult and expensive locations and from non-conventional sources. In other words, these sources are only being exploited because the price of oil is increasing )and, in many cases, production from these sources would decrease or cease if prices fell).
The Achilles' Heel Of The U.S. Economy [View article]
Ray,
Would you agree that over the past 30 or so years that societies in North America and the UK have increasingly shifted from the pattern of an expanding middle income cohort (with the high income cohorts paying high taxes and the bottom cohorts receiving significant benefits designed to encourage upward mobility) to a pattern that more closely mirrors that in the underdeveloped societies (i.e. several strata fixed from the very rich oligarchs down to the disposed with the middle strata increasingly squeezed at their margins)? Is this not a trend that should be addressed and reversed?
The Achilles' Heel Of The U.S. Economy [View article]
Simple proposals for the resolution of large and complex problems too often prove to be mirages; such panaceas, by purporting to explain and resolve everything about such a problem most often, on closer inspection, are based on a basic confusion and only obscure the way forward. Despite its obvious attractions, Modern Monetary Theory (MMT) should therefore be approached with caution.
That said, might it not be appropriate to apply MMT in the specific context of funding the Social Security trust fund at the present time to achieve two key goals: (a) increase now the capital under trust so that, properly invested, currently mandated Social Security benefits can be provided for the baby boom generation without depleting the amount under trust so that, with the future contributions of later generations, appropriate Social Security benefits can be made available to these later and smaller cohorts of future contributors, (b) the fact that the contributing cohorts in later years will be significantly smaller than the baby boom cohort will not, in itself, cause inequitable treatment of one cohort as compared with another (i.e. that members of some later cohort might be called upon to contribute more but will receive less by reason only that the later cohort is smaller)? I only raise this proposal to see if others find it of interest and can satisfy themselves that these goals can thereby be achieved in a valid manner.
In other words, what if Congress were to simply vote to create the necessary money to increase the Social Security trust fund now for the purposes just described? This would be an increase in the money supply and not an addition to the national debt. The trustees of the fund would as part of their mandate be instructed to only invest these additional funds to the extent that inflationary pressures were not thereby increased (Given that the US economy is operating well below full capacity, the trustees would have significant latitude at present and for the foreseeable future for prudent investment). Conversely, if and when inflationary pressures increase, the trustees would subordinate their investment activity to the greater goal of preventing inappropriate levels of inflation arising even though this may reduce income (i.e. they might have to realize and hold funds even though these funds would then not be active in the economy or generating income for the trust). Congress might well choose to increase or withdraw funds from the Social Security trust fund at some later date to fine tune the level of capital in the fund in light of the course of future events.
Note that the creation of money and infusion of capital proposed is not intended to replace employee and employer contributions – only to ensure that the burden of contributions from generation to generation remains stable and equitable.
Obviously, under the guise of the scheme described above it would be possible for overgenerous and ultimately inflationary political deals to be created. It follows that such a money creation and capital infusion policy should only be adopted under tight guidelines and after full debate. On the other hand, provided these dangers are directly addressed, is there merit in such a scheme.
Expect denials soon, but sources says Angela Merkel suggested to the Greek president the country hold a referendum on continued use of the euro at next month's elections. Syriza: Merkel is treating Greece as a "Protectorate." New Democracy: Merkel proposal "unfortunate." The German Chancellor has managed to unite the feuding Greek parties. [View news story]
Angel Martin -
Good memory and apply put.
We also should not forget: 1. Angela Merkel sacked her environment minister, Norbert Röttgen, on Wednesday his crime being to have, as leader of the losing CDU campaign in the North Rhine-Westphalia election May 12th, argued that that election was a referendum on the CDU led Federal coalition government. 2. She also endorsed and publicly offered to campaign on behalf of Nicolas Sarkozy, an unwelcome and unsuccessful intervention that only served to embarrass the French President
In short, Merkel is quick to meddle flatfootedly in the political campaigns outside her jurisdiction but is quick to take offense when others do the same to her.
One shouldn't read too much into one early poll in an election campaign that promises to be fueled by high tension and drama but it is encouraging to see that the appear of empty populist bravado has decided limits.
"The centrist parties will rebound" in June elections, contends a Greek businessman, dismissing polls pointing to a victory for the left-wing Syriza party. Toss in the influence of France's new president, and another Greek rescue just might occur this summer. Whatever one thinks of such schemes, another can-kicking deal is not being priced into markets at the moment. [View news story]
Dave -
You'll find the following report from Thomson Reuters published in the National Post of interest:
Obviously the poll in question is simply an early snapshot in an election that promises to be volatile. It is, however, encouraging to see indications that the empty populist bravado of the Syriza Party and especially of its leader is not going over well with the Greek electorate.
Syriza party leader Tsipras tells the WSJ he sees little chance Europe will cut off funding to Greece as his country would then be forced to stop paying its creditors (also Europe). "If I owe the bank $1M it's my problem, if I owe it $100M, it's the bank's problem," once said a man who knew how to navigate the waters of insolvency. [View news story]
Syriza party leader Tsipras is apparently doing his Party, let alone Greece, any favour by his empty bravado. The following National Post report indicates that the Greek electorate is not as enamored of populist pandering as is commonly assumed.
One poll does not an election make and, as is often said, "A week is a lifetime in politics". It will be interesting to see whether this poll predicts a trend.
As you will see from my 10:04 PM reply to Davewmart, my assessment of the EU leadership to date is quite similar to your own. The only real difference is that I think the only productive way forward for the EU is to keep trying but raise their resolve and effort. The alternative promises only deeper failure in my view.
You are correct to note that the EU project was a ' design and build as you go' enterprise that has been overwhelmed by the global financial and economic crises intensified by the 2008 meltdown and the aftermath of that meltdown. You are also correct to note that the EU monetary and fiscal authorities over the past four years have focused upon 'managing' the many crises they face (presumably in the hope that the global economy will improve and that this will make the economic and fiscal issues more manageable) rather than upon devising and implementing needed fundamental reforms to address these crises and their underlying causes.
This failure of leadership may well result in a breakdown of the economic, political, fiscal and monetary institutions and structures upon which the EU and Euro zone depend. Further, this very small mindedness may well tragically impede the capacity of Europe to adapt and address these breakdowns if and when they occur.
That said, I think nothing useful is gained by dwelling upon the arc of failure just described (aside from the need to appreciate that failure is a real prospect that calls for thought and action to be avoided). In short, I think Europe must slog on managing the crises but must also address the need to devise grander solutions and the need for resolve to carry these solutions through in a effective and equitable fashion.
The first questions for the surgeon, however, are what needs to be cut and what ends are to be achieved by the cutting. I'd argue that the EU would be better off if some reasonable portion of the sovereign debt of Greece, Portugal, Ireland, Belgium, Spain, Italy, Malta etc.were in each case defaulted upon in an orderly way with the central banks of each EU country, with appropriate infusion of capital from the ECB, ensuring that the sound banks of all the EU member States were sufficiently indemnified so that these banks were not bankrupted or the flow of credit to EU residents and commerce unduly impeded. I'd also argue that, in conjunction with the first point or independently) many of the unsound banks within the EU (interestingly, Germany has quite a few) would be nationalized or consolidated with sound banks in an orderly way.
On the other hand, I question the utility of simply 'excommunicating' as it were a country like Greece or its people in the manner that your comment might imply. The last thing Europe needs is an economic catastrophe with the political and humanitarian crises that would surely follow. It follows that whether Greece remains or leaves the Euro zone and EU, this will be done in a coordinated way with the concurrence and aid of the EU, IMF etc. to insure that the worse excesses of economic and political crisis are avoided. Interestingly, it also therefore follows that the aid from, and therefore the cost to, the other EU States will probably be vary similar in either case (i.e. whether Greece stays or goes). The cost in every sense to all concerned would, however, be much higher if Greece were to simply collapse because of an impasse between the Greek Government and the EU and other relevant authorities.
I'm rather more an avid reader of Arctic and Antarctic exploration and in that regard suggest that the failure of the Norse settlement in Greenland (arguably caused by a lack of imagination and flexibility to adjust to changing circumstances), the failure of the Scott Expedition (arguably caused by similar failure to adopt techniques employed by the Inuit) and the success of the Stockton Expedition to extract itself (i.e. innovative and cooperative effort) when trapped in the ice have something to teach us here.
I think we can agree that the current fiscal and monetary state of affairs within the Euro zone is untenable and that the Greek situation is only the most egregious example of why this is so. Therefore, if we can see the Euro zone metaphorically as cup of uncooked scrambled eggs, then the unenviable task is to either complete and cook the omelet (i.e. add the further needed ingredients and seasoning and cook to some semblance of perfection - create mechanisms for adequate economic growth stimulation in underdeveloped regions, for proper recording and reporting of national fiscal affairs in each member State, for adequate transfer of fiscal resources from more prosperous States to the underdeveloped ones, or to EU agencies charged with the task of helping to ensure equity in economic growth potential and maintenance of public services throughout the Euro zone, and for democratic institutions capable of overseeing the forgoing) or, if the Euro zone project is truly deemed not reformable, to unscramble the eggs (i.e. somehow, and I've chosen my metaphor here to reflect the difficulty and complexity of the task, orchestrate a coordinated reintroduction of national currencies in place of the Euro in several or all member States and somehow deal equitably with the accumulated sovereign debts of all these States in a way that doesn't entail an uncontrolled implosion of the financial and banking systems throughout the EU with all the grief that would ensue from that.)
Given the grim prospects of actually achieving the 'unscrambling of the eggs' in some manner that will actually work moderately well (and the advantages that could be attained if only the Euro zone could be reformed), I'm not as ready as some to argue for the abandonment of the Euro by piecemeal or other steps. I can only hope (fully realizing the difficulties entailed) that the initiatives of President Hollande of France will lead to the addition of a creditable growth strategy and a moderation of the austerity measures that the EU has embarked upon and that this will give time for the broader reforms I touched upon to be given due consideration.
On balance, I am still persuaded that the Parties favouring Greece remaining in the Euro zone (these include minor Parties on the moderate left and moderate right besides PASOK and New Democracy and concerted efforts are being made to cobble together electoral alliances that will forge the pro-EU groups into a more effective electoral force – and Greeks still overwhelmingly want to remain within the Euro zone but want relief from overzealous austerity) can prevail (but it will be close).
In a nutshell, over the course of the election campaign it should become obvious to the bulk of the Greek electorate (including those that traditionally have voted for parties of the left) that the Syriza Party only offers wishful (almost magical) thinking and in office they would be a disaster waiting to happen. Two recent articles in Spiegel illustrate my point.
In the first one notes the weakness of the arguments advanced by the Syriza Party representative:
In the second the most interesting observations are made in the centre-left and leftist German newspapers. Essentially they both refute any thought that the Syriza Party can be taken seriously as mature leftist party in the modern context.
The Achilles' Heel Of The U.S. Economy [View article]
Good analysis. The follow up question is to ask why the $2 Trillion to which you refer should take the form of Treasury Bills. Why not have Congress create a further $2 Trillion through legislation, have that legislation require this capital to be deposited and managed as part of the Social Security Trust Fund and specify in this mandate that the Trust Fund should invest this capital in corporations and deposits that develop the US economy (but only at times and to the extent that does not generate inflation). In other words, the $2 Trillion would be bounded in a way that limits its potential to negatively impact the US and global economies but it and the income it generates would be available to fund benefits for the baby boom bulge so that an undue burden will not fall on future generations in the form of either reduced benefits or the need to make inordinately increased contributions.?
Expect denials soon, but sources says Angela Merkel suggested to the Greek president the country hold a referendum on continued use of the euro at next month's elections. Syriza: Merkel is treating Greece as a "Protectorate." New Democracy: Merkel proposal "unfortunate." The German Chancellor has managed to unite the feuding Greek parties. [View news story]
You'll find the following interesting:
http://bit.ly/Kxge8k
Apparently there are domestic repercussions to Angela Merkel's flatfootedness.
Why Oil Will Soon Start To Rally [View article]
The Achilles' Heel Of The U.S. Economy [View article]
Would you agree that over the past 30 or so years that societies in North America and the UK have increasingly shifted from the pattern of an expanding middle income cohort (with the high income cohorts paying high taxes and the bottom cohorts receiving significant benefits designed to encourage upward mobility) to a pattern that more closely mirrors that in the underdeveloped societies (i.e. several strata fixed from the very rich oligarchs down to the disposed with the middle strata increasingly squeezed at their margins)? Is this not a trend that should be addressed and reversed?
The Achilles' Heel Of The U.S. Economy [View article]
You think that people don't contribute to qualify for Social Security?
The Achilles' Heel Of The U.S. Economy [View article]
That said, might it not be appropriate to apply MMT in the specific context of funding the Social Security trust fund at the present time to achieve two key goals:
(a) increase now the capital under trust so that, properly invested, currently mandated Social Security benefits can be provided for the baby boom generation without depleting the amount under trust so that, with the future contributions of later generations, appropriate Social Security benefits can be made available to these later and smaller cohorts of future contributors,
(b) the fact that the contributing cohorts in later years will be significantly smaller than the baby boom cohort will not, in itself, cause inequitable treatment of one cohort as compared with another (i.e. that members of some later cohort might be called upon to contribute more but will receive less by reason only that the later cohort is smaller)?
I only raise this proposal to see if others find it of interest and can satisfy themselves that these goals can thereby be achieved in a valid manner.
In other words, what if Congress were to simply vote to create the necessary money to increase the Social Security trust fund now for the purposes just described? This would be an increase in the money supply and not an addition to the national debt. The trustees of the fund would as part of their mandate be instructed to only invest these additional funds to the extent that inflationary pressures were not thereby increased (Given that the US economy is operating well below full capacity, the trustees would have significant latitude at present and for the foreseeable future for prudent investment). Conversely, if and when inflationary pressures increase, the trustees would subordinate their investment activity to the greater goal of preventing inappropriate levels of inflation arising even though this may reduce income (i.e. they might have to realize and hold funds even though these funds would then not be active in the economy or generating income for the trust). Congress might well choose to increase or withdraw funds from the Social Security trust fund at some later date to fine tune the level of capital in the fund in light of the course of future events.
Note that the creation of money and infusion of capital proposed is not intended to replace employee and employer contributions – only to ensure that the burden of contributions from generation to generation remains stable and equitable.
Obviously, under the guise of the scheme described above it would be possible for overgenerous and ultimately inflationary political deals to be created. It follows that such a money creation and capital infusion policy should only be adopted under tight guidelines and after full debate. On the other hand, provided these dangers are directly addressed, is there merit in such a scheme.
Expect denials soon, but sources says Angela Merkel suggested to the Greek president the country hold a referendum on continued use of the euro at next month's elections. Syriza: Merkel is treating Greece as a "Protectorate." New Democracy: Merkel proposal "unfortunate." The German Chancellor has managed to unite the feuding Greek parties. [View news story]
Good memory and apply put.
We also should not forget:
1. Angela Merkel sacked her environment minister, Norbert Röttgen, on Wednesday his crime being to have, as leader of the losing CDU campaign in the North Rhine-Westphalia election May 12th, argued that that election was a referendum on the CDU led Federal coalition government.
2. She also endorsed and publicly offered to campaign on behalf of Nicolas Sarkozy, an unwelcome and unsuccessful intervention that only served to embarrass the French President
In short, Merkel is quick to meddle flatfootedly in the political campaigns outside her jurisdiction but is quick to take offense when others do the same to her.
Why Greece Fears Are Overblown [View article]
http://natpo.st/Kk9NW2
One shouldn't read too much into one early poll in an election campaign that promises to be fueled by high tension and drama but it is encouraging to see that the appear of empty populist bravado has decided limits.
"The centrist parties will rebound" in June elections, contends a Greek businessman, dismissing polls pointing to a victory for the left-wing Syriza party. Toss in the influence of France's new president, and another Greek rescue just might occur this summer. Whatever one thinks of such schemes, another can-kicking deal is not being priced into markets at the moment. [View news story]
You'll find the following report from Thomson Reuters published in the National Post of interest:
http://natpo.st/Kk9NW2
Obviously the poll in question is simply an early snapshot in an election that promises to be volatile. It is, however, encouraging to see indications that the empty populist bravado of the Syriza Party and especially of its leader is not going over well with the Greek electorate.
Syriza party leader Tsipras tells the WSJ he sees little chance Europe will cut off funding to Greece as his country would then be forced to stop paying its creditors (also Europe). "If I owe the bank $1M it's my problem, if I owe it $100M, it's the bank's problem," once said a man who knew how to navigate the waters of insolvency. [View news story]
http://natpo.st/Kk9NW2
One poll does not an election make and, as is often said, "A week is a lifetime in politics". It will be interesting to see whether this poll predicts a trend.
Why Greece Fears Are Overblown [View article]
As you will see from my 10:04 PM reply to Davewmart, my assessment of the EU leadership to date is quite similar to your own. The only real difference is that I think the only productive way forward for the EU is to keep trying but raise their resolve and effort. The alternative promises only deeper failure in my view.
Why Greece Fears Are Overblown [View article]
You are correct to note that the EU project was a ' design and build as you go' enterprise that has been overwhelmed by the global financial and economic crises intensified by the 2008 meltdown and the aftermath of that meltdown. You are also correct to note that the EU monetary and fiscal authorities over the past four years have focused upon 'managing' the many crises they face (presumably in the hope that the global economy will improve and that this will make the economic and fiscal issues more manageable) rather than upon devising and implementing needed fundamental reforms to address these crises and their underlying causes.
This failure of leadership may well result in a breakdown of the economic, political, fiscal and monetary institutions and structures upon which the EU and Euro zone depend. Further, this very small mindedness may well tragically impede the capacity of Europe to adapt and address these breakdowns if and when they occur.
That said, I think nothing useful is gained by dwelling upon the arc of failure just described (aside from the need to appreciate that failure is a real prospect that calls for thought and action to be avoided). In short, I think Europe must slog on managing the crises but must also address the need to devise grander solutions and the need for resolve to carry these solutions through in a effective and equitable fashion.
Why Greece Fears Are Overblown [View article]
The first questions for the surgeon, however, are what needs to be cut and what ends are to be achieved by the cutting. I'd argue that the EU would be better off if some reasonable portion of the sovereign debt of Greece, Portugal, Ireland, Belgium, Spain, Italy, Malta etc.were in each case defaulted upon in an orderly way with the central banks of each EU country, with appropriate infusion of capital from the ECB, ensuring that the sound banks of all the EU member States were sufficiently indemnified so that these banks were not bankrupted or the flow of credit to EU residents and commerce unduly impeded. I'd also argue that, in conjunction with the first point or independently) many of the unsound banks within the EU (interestingly, Germany has quite a few) would be nationalized or consolidated with sound banks in an orderly way.
On the other hand, I question the utility of simply 'excommunicating' as it were a country like Greece or its people in the manner that your comment might imply. The last thing Europe needs is an economic catastrophe with the political and humanitarian crises that would surely follow. It follows that whether Greece remains or leaves the Euro zone and EU, this will be done in a coordinated way with the concurrence and aid of the EU, IMF etc. to insure that the worse excesses of economic and political crisis are avoided. Interestingly, it also therefore follows that the aid from, and therefore the cost to, the other EU States will probably be vary similar in either case (i.e. whether Greece stays or goes). The cost in every sense to all concerned would, however, be much higher if Greece were to simply collapse because of an impasse between the Greek Government and the EU and other relevant authorities.
I'm rather more an avid reader of Arctic and Antarctic exploration and in that regard suggest that the failure of the Norse settlement in Greenland (arguably caused by a lack of imagination and flexibility to adjust to changing circumstances), the failure of the Scott Expedition (arguably caused by similar failure to adopt techniques employed by the Inuit) and the success of the Stockton Expedition to extract itself (i.e. innovative and cooperative effort) when trapped in the ice have something to teach us here.
Why Greece Fears Are Overblown [View article]
I think we can agree that the current fiscal and monetary state of affairs within the Euro zone is untenable and that the Greek situation is only the most egregious example of why this is so. Therefore, if we can see the Euro zone metaphorically as cup of uncooked scrambled eggs, then the unenviable task is to either complete and cook the omelet (i.e. add the further needed ingredients and seasoning and cook to some semblance of perfection - create mechanisms for adequate economic growth stimulation in underdeveloped regions, for proper recording and reporting of national fiscal affairs in each member State, for adequate transfer of fiscal resources from more prosperous States to the underdeveloped ones, or to EU agencies charged with the task of helping to ensure equity in economic growth potential and maintenance of public services throughout the Euro zone, and for democratic institutions capable of overseeing the forgoing) or, if the Euro zone project is truly deemed not reformable, to unscramble the eggs (i.e. somehow, and I've chosen my metaphor here to reflect the difficulty and complexity of the task, orchestrate a coordinated reintroduction of national currencies in place of the Euro in several or all member States and somehow deal equitably with the accumulated sovereign debts of all these States in a way that doesn't entail an uncontrolled implosion of the financial and banking systems throughout the EU with all the grief that would ensue from that.)
Given the grim prospects of actually achieving the 'unscrambling of the eggs' in some manner that will actually work moderately well (and the advantages that could be attained if only the Euro zone could be reformed), I'm not as ready as some to argue for the abandonment of the Euro by piecemeal or other steps. I can only hope (fully realizing the difficulties entailed) that the initiatives of President Hollande of France will lead to the addition of a creditable growth strategy and a moderation of the austerity measures that the EU has embarked upon and that this will give time for the broader reforms I touched upon to be given due consideration.
Why Greece Fears Are Overblown [View article]
The following commentary sets out rather better than Chris’s SA article the case that Chris tried to make.
http://bit.ly/KP0zFm
On balance, I am still persuaded that the Parties favouring Greece remaining in the Euro zone (these include minor Parties on the moderate left and moderate right besides PASOK and New Democracy and concerted efforts are being made to cobble together electoral alliances that will forge the pro-EU groups into a more effective electoral force – and Greeks still overwhelmingly want to remain within the Euro zone but want relief from overzealous austerity) can prevail (but it will be close).
In a nutshell, over the course of the election campaign it should become obvious to the bulk of the Greek electorate (including those that traditionally have voted for parties of the left) that the Syriza Party only offers wishful (almost magical) thinking and in office they would be a disaster waiting to happen. Two recent articles in Spiegel illustrate my point.
In the first one notes the weakness of the arguments advanced by the Syriza Party representative:
http://bit.ly/Jg7Pf5
In the second the most interesting observations are made in the centre-left and leftist German newspapers. Essentially they both refute any thought that the Syriza Party can be taken seriously as mature leftist party in the modern context.
http://bit.ly/K9enIV