Monday, October 26, 2015

Bill Mitchell — The tale of two nations – democracy dies in Portugal and lives in Canada

The tale of two nations – two monetary systems – two continents – Canada and Portugal. It is reasonable to assume that when voters in so-called free democracies elect members to their parliaments who then freely coalesce across ‘party’ lines to form an absolute majority that they will be given the right to govern irrespective of the ideology they represent and the policies that they have put forward to the voters to win their approval. That seems to happen in Canada. It definitely doesn’t happen in Portugal. The Portuguese President dropped his so-called “bomba atómica” last week when he refused to endorse the coalition of parties that held the absolute majority of seats in the Assembly as a result of the recent national election. He indicated that he would not allow a government that would relax the fiscal austerity and consider exiting the Eurozone. His motivation was that financial markets had to remain appeased. It was an extraordinary intervention and will come back to haunt the nation given that the conservative austerity government will lose its authority as soon as it puts its platform to the new Parliament for endorsement (within the next 10 or so days). Then the nation is in chaos and the President will be compelled to accept the anti-austerity left coalition or something worse will happen. But, happily, in Canada, the election of the Liberal Party is a rejection of the obsession with fiscal surpluses – at least for now.…
Bill Mitchell – billy blog
The tale of two nations – democracy dies in Portugal and lives in Canada
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

5 comments:

Matt Franko said...

"The article notes that currency “traders soon got over it” – ‘it’ being the election of a political party determined to increase the fiscal deficit through increased government spending.

The ‘knee-jerk response’ was to initially sell off the currency but that “only created a buying opportunity for anyone with a less jaundiced view of government’s role in the economy”.

I love that! The financial market traders are ultimately are not ideological just greedy."


Forex traders have very limited influence on the exchange rates... the rate is dominated by what the exporters/importers will offer/bid in the different currency terms...

(I think Mike might have bought that sell-off last week...)

USD/CAD is stable here in the low 1.30's as oil is stable in the mid $40's.... if it takes another leg down it will be on even lower oil prices or a different Canadian price reduction for another significant good/service in USD terms, not whether forex traders think the new govt will be "printing munnie!" or what the deficit is or isn't...

Neil Wilson said...

"Forex traders have very limited influence on the exchange rates... the rate is dominated by what the exporters/importers will offer/bid in the different currency terms... "

That's interesting because that is, of course, exactly the opposite of what most economists believe - that the volume of trades is what moves the price.

However when it comes to settlement the only people that actually need the forex are those doing actual buying and selling. Everything else is a zero sum game - so of course it pulls towards what importer/exporters want *unless* there is a patsy central bank doing daft things in the background.

Matt Franko said...

but Neil just work out the units...

ok..... look at aggregate amounts of transactions over time... think of the calculus... ok... you get a sum of $$$/time.... so how does the other currency unit then come in to the units?

What causes the change in the observed rate? how can a flow of transactions over time when summed then include another currency in the units?

In physical sciences, this is when you see "physical constants" come in to play... so if they are correct, then they have to introduce a "constant" into the analysis....

See here:

https://en.wikipedia.org/wiki/Physical_constant

"Whereas the physical quantity indicated by any physical constant does not depend on the unit system used to express the quantity, the numerical values of dimensional physical constants do depend on choice of unit system. Therefore, these numerical values (such as 299,792,458 for the constant speed of light c expressed in units of meters per second) are not values that a theory of physics can be expected to predict.
Because their units cancel, ratios of like-dimensioned physical constants do not depend on unit systems in this way, so they are pure dimensionless numbers whose values any other civilization, anywhere, and at any time in the universe would predict. "

So they have just f-ing SKIPPED the development of the constant for their area... imo this is where some more clear minded desire "stock-flow consistency" .... iow the "stock-flow consistency" people at least smell a rat...

Matt Franko said...

The "constant" should be investigated using the capitalization regulatory ratios in the bank regulations governing the banks that are actually exchanging liabilities denominated in the two different currency units...

iow if they developed a "constant" C where C is in USD/EUR based on Basel II or something .... THEN they could sum up some transcations in USD dt and multiply by a constant C in USD/EUR and then show how the exchange rate between the USD and the EUR was effected by flow of USDs....

Short of this type of analysis they are simply not doing science... I dont know what they are doing...

Jan M said...


Interview: capitalism, neo-liberalism and democracy
Wolfgang Streeck, Ben Jackson
http://www.renewal.org.uk/articles/interview-capitalism-neo-liberalism-and-democracy