Almost 100 years ago, a young official in the UK Treasury sought to advise European policy makers on how daunting external debts might best be managed. There was, he argued, a limit to the national capacity to service debts. Those expecting further payments were bound to be disappointed. More than that, efforts by creditors to insist on further debt payments would be politically dangerous. “If they do sign,” he wrote to a friend, “they can’t possibly keep some of the terms, and general disorder and unrest will result everywhere.” He recommended a round of debt cancellation among European countries, a plan that would – at the stroke of a pen – remove much of the problem. When he was ignored by creditor governments, John Maynard Keynes quit his post to write the Economic Consequences of the Peace.Read the rest at The Financial Times | Opinion
How Keynes would solve the eurozone crisis
By Marcus Miller and Robert Skidelsky
(h/t Mark Thoma)
Tom.
ReplyDeleteAn extremely important article by Bill Mitchell today - What is “good” at the macro level may well be disastrous at the micro level
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I have been reading about the Great Depression lately and comparing the sort of pressures that governments were placed under during that time to cut deficits which were rising on the back of a collapse in economic activity to what is going on today. There are many interesting parallels and déjà vu experiences. That research took me into some literature on the way the governments bow to industry demands as aggregate demand collapses. In turn, that led me to the way the military-industrial complex operates. Which took me into another literature on the role of the military-industrial complex in creating wars to provide markets for their goods – the merchants of death. And so it goes. That is the nature of research – it just takes one on a journey and usually to destinations previously not imagined. But this journey also clarifies some issues that readers regularly write to me about. The relationship between Modern Monetary Theory (MMT) as a macroeconomic framework and issues that lie below the aggregate level – such as distributional issues. There are links clearly (for example, income distribution affects aggregate demand) but in other ways what is “good” at the macro level may well be downright disastrous at the micro level. But in dealing with the disaster at the micro level, we always have to be mindful of the way dealing with that disaster impacts on the aggregates. This is particularly important in considering issues relating to trade. The military-industrial complex is an excellent case study of these challenges. Here are some early thoughts.
You got that before it even hit my Google RSS feed, Clonal. Thanks. Promoted to a post. Bill really zeros in there.
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ReplyDeleteI think what this demonstrates is the hole in international law.
ReplyDeleteWe need limited liability rules for sovereign nations - to be applied when they borrow in a foreign currency, and how the administration rules work for sovereign nations.
The lenders and borrowers know what assets are and aren't on the table when they cut the deal.
If the rules were written down and agreed, it would stop silly lending and all this pain resolving the issue afterwards.
can you have limited liability and also be AAA?
ReplyDeleteMaybe the international community could coordinate to provide for needs from available resources that "would stop silly lending." The problem is that some people are profiting from a rigged system at the expense of others, their fates decided in corner offices by a minuscule number of people with inordinate power to make decisions affecting billions of people.
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