Home > Main > Euro Sustainable as is means: The ECB is mean and perhaps slightly evil

Euro Sustainable as is means: The ECB is mean and perhaps slightly evil

September 27, 2011

Warren has a great post up about how the current situation in the Euro can go on forever.   There does not need to be a new solution, a new program, or any voting.  What’s happening in the Eurozone now – the ECB writing checks to buy Sovereign debt whenever they feel like it – can happen forever.

Notice this means they could increase their purchases and drive down rates for Greece or any of the other countries to levels that put them much closer to a path to solvency.

They are choosing not to do this, because they are mean.  Even if they have political constraints, it’s way past the time where Trichet and the other ECB members should have held multiple press conferences on what they have the power to do.

They should be out there saying  “We can buy all of the debt we want in any quantities. We’re not going to do so right now to prevent inflation, but we could buy much, much more debt at the current time without much inflation impact.”

Lots of people are going through intense misery right now, all because the ECB won’t stand up and say the obvious.

The current estimates for 2012 GDP in Greece are about 1%.  Does anyone – anyone at all – really believe they are going to see positive growth?  And this is after 2 years of recession.


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  1. beowulf
    September 27, 2011 at 10:42 am

    Welcome back from your secret mission. While you were on hiatus, I saw that in Peter Orszag’s instantly infamous democracy sucks article (“This is why I believe that we need to jettison the Civics 101 fairy tale about pure representative democracy”) he suggested an on-off switch payroll tax holiday.
    “Other automatic stabilizers are possible as well. For instance, rather than simply extending and expanding the existing payroll-tax holiday, as President Obama has proposed, policymakers should permanently link the tax to the unemployment rate. Consider a system under which the payroll tax would be reduced by 6 percentage points whenever the quarterly average unemployment rate exceeded 7.5 percent or increased by more than 2 percentage points over the previous year. Since a cut in the payroll tax is a powerful form of stimulus, this would be a built-in way to ensure a quick and effective government response to an economic downturn.

    Orszag has the most bizarre bee in his bonnet– the reason he thinks this whole “of the people, for the people, by the people” is for the birds is because he simply can’t fathom why America refuses to embrace deficit hysteria as wholeheartedly as a bride meeting her new husband at a Moonie wedding.

    Let me be more specific in the context of fiscal policy, which was at the heart of the debt-limit debate. Virtually all responsible economists agree that we should be aiming to reduce the deficit in the long-term but not in the short-term. We need an even larger deficit in 2011 and 2012, to support a weak economy—but a much smaller deficit in 2020 and 2050, to put the nation back on a sustainable fiscal course. Yet our polarized political system has proved incapable of reaching a consensus on this common-sense approach.
    What we need, then, are ways around our politicians.

    Oh brother, what’s that great William F. Buckley line… “I’d rather be governed by the first 2000 names in the Boston phone book than by 2000 members of the Harvard faculty”.

  2. Tom Hickey
    September 27, 2011 at 12:21 pm

    I think that debt-aversion is a more a deep psychological problem than an economic issue. This handwringing over debt looks like a moral argument, and moral arguments are always subjective. We like to think of morality in terms of absolutes, but the fact is that there are no absolute criteria, subjective or objective. That supposedly objective absolute criterion bounding the universe — the speed of light — apparently is going the way the rest of the “absolute” criteria of the past went — out the window once the curtains were raised.

    Just as other hot button issues like sexuality have deep psychological origins that are not yet well-understood, it seems that debt falls into that category of psychological bogeymen hiding under the bed of the conscious mind, which “children,” including most economics, are terrified of. The has got to have not only deep historical roots, but evolutionary ones, as well. There must be come evolutionary benefit to fearing debt. For example, from earliest times the concept of debt is bound up with the concept of sin as a debt to “heaven,” however the supernatural is conceived. Perhaps the debt fetish today is a holdover of a bygone time when debt was enforced by appeal to “heaven.” This would explain its heavily moral overtones today. Debt is not only an economic relationship between debtor and creditor, but also a binding of the soul, so to speak.

    Economic anthropologists, as well as economist like Michael Husdon, have written about this. They have pointed out that as long ago as Sumer and Babylon, debt was also bound up with the concept of forgiveness. Ancient systems recognized that eventually debt would become a such an economic burden that something extraordinary would have to be done to relieve the pressure. Thus, the Jubilee was introduced, wherein debts were wiped out, i.e., “forgiven,” at the end of specific periods. The Bible records one such ancient period as seven years. The ancients apparently discovered something that we moderns have forgotten, and it is literally killing us.

  3. September 27, 2011 at 10:25 pm

    The more I think about the Euro, the more hopeless it seems to me. The Germans simply do not want the inflation or the obligation to bail out the periphery, and the Bundesbank and/or the Bundestag is going to continue to reject the types of solutions being advocated.

    And I do mean hopeless. What happens if Greece leaves the Euro and institutes the new Drachma? Don’t they still owe Euros? So they stay and implement austerity programs & default, or exit with a massive currency devaluation and eventually default. And the market continues to pick the periphery off one by one. There is no solution without closer fiscal union and fiscal union is politically impossible. My guess is the periphery stays and defaults and the banks get bailed out. That’s the best that can happen here.

    • TC
      September 30, 2011 at 8:35 am

      I have been thinking there is not an entity who can force a margin call on Europe for the last few weeks. The ECB is able to go on forever like it is, and this means they can extend and pretend they are on the verge of a crisis for a long time.

      What this means is that Europe will be held in a state of eternal emergency for years. They are hopeless like you say, but there is not any way to kill the beast. It’s like a zombie currency, neither alive or dead. So the current status quo will probably last for a long time.

      But that said, I fully agree – this isn’t a solution and can’t last forever. I have no idea how this is going to turn out, or when real action will happen. Anything is possible.

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