Markets were responding to comments by Greek Finance Minister Yanis Varoufakis, who said the government would, if necessary, use debt "engineering tools" to make Greece's 320 billion-euro debt mountain viable. The Financial Times reported that during a visit to London Monday, Varoufakis suggested exchanging Greece's debt to its bailout creditors with growth-linked bonds. That would mark a less confrontational approach to creditors than the eight-day-old government's previous insistence on a flat debt write-off. "Engineering tools?" "Growth bonds?" What the hell is this guy talking about? The Greeks have already caved. You can't grow, Yanis, without fiscal stimulus, unless you want to first continue this "internal devaluation" and then grow from an even much lower base. Varoufakis is a darling of MMT?
Good time to start following @yanisvaroufakis if you're not already. #Syriza
— Stephanie Kelton (@StephanieKelton) January 25, 2015
Sounds like he is saying that Greece would issue bonds whose yields are indexed to growth rates, so the creditors would then have a stake in making sure that growth happens.
ReplyDeleteAnd he said Greece would go cold turkey on new debt issue.
ReplyDeleteRestructuring existing debt with these indexed bonds will not do any good for Greece's economy. It will probably even reduce the amount of savings in private sector a little, if any of that debt is held in Greece's economy and if he is talking about restructuring debt held by private sector also. So Syriza is nothing but empty talk?
Bill reported this yesterday:
ReplyDelete"My friend the Finance Minister confused things yesterday when he told the BBC that he was in favour of privatisation. What?"
I would have put it: "Whaaaaaaatttt?"
And he is going for balanced budgets:
"Varoufakis said he had assured Dijsselbloem that Athens planned to implement reforms to make the economy more competitive and have balanced budgets"
http://www.newsweek.com/greece-says-will-not-co-operate-troika-or-seek-aid-extension-303287
Mike, now there are reports that Yanis has tweeted that the FT mis-interpreted him:
https://twitter.com/yanisvaroufakis/status/562422825810546688
So seems Yanis is all over the place... (via reports anyways...)
He has changed out his twitter background picture from a well designed, solid bridge span to a flock of birds being scattered all about.... revealing ...
John thinks this:
""Want to save it? Make sure it’s sustainable, incorporating some means of reinjecting the spending that the Germans, et al, drain with their trade surpluses .... This is Varoufakis’s goal."
If this is Yanis' goal he seems to be taking the long way around at this point...
Have to see... right now hard to see any of the "MMT macro" in any of this at this point...
he's pretty charismatic but he needs qualified technocratic support... I dont think it is there with him at least at this point... he may be being forced to accept a Syriza appointed support staff who no doubt are out of paradigm...
Seems like (for now) he thinks he can close the deficit by cracking Greek skulls on tax avoidance and then be able to "balance the budget" and pay the debt as long as it is somehow renegotiated down to more "reasonable" terms...
Fluid situation...
rsp,
Kristjan - the debate is over restructuring of the debt held by EU institutions and NOT privately held debt. The growth-bond idea offers a way for the EU to save face - an outright write-off would create political problems as all ECB institutions are theoretically backed-up by member-state tax-payers. It will do plenty good to Greece's economy as more money in the immediate sense will be freed up for govt spending. Plus it would delay the threat of the ECB pulling the plug on Greek banks. Yes leaving the Eurozone would enable far greater public spending after the chaos settled down but the people of Greece overwhelmingly desire to stay in the Eurozone and, for better or worse, they live in a democracy not a MMT technocracy.
ReplyDeleteIt's called political reality. I've been critical of all this, calling it a bluff since the beginning, but I cannot realistically blame single people when I don't know what I would do under such situation. Individuals in this situation have little power and have to play the game, putting too much weight on single figures (like Varufakis or Tsipras) is completely delusional.
ReplyDelete1) They were not voted in to unilaterally leave the euro. They were not voted with the promise that they would do all they could to keep Greece inside the euro and advance . Maybe this is naive from the Greek population (not more naive that the rest of the 99% in other nations), but is the reality. Doing otherwise would be doing the same oligarchs have been doing in Greece and elsewhere since decades: shit on the population votes. At least they have some kind of morality contrary to other politicians.
2) Despite their name, and the western propaganda, Syriza is not a 'radical' party. They are a weak coalition which goes from the moderately leftists to centre-right, with a majority of pro-European. They simply cannot trump the party majority, is the organisation which is the real power structure. This is not some 'monarchic' regime where one guy can do as he pleases (never in history has been this way anyway).
3) The reality is that the current policy is not sane or sustainable. The irrational people though is the one holding the power. Greece is a very weak negotiating situation, period. I had my doubts until now, that maybe they could blow up the European financial system, after Draghi backed the German position yesterday I'm not sure anymore. The damage could be probably easily contained and propaganda would do the rest. The Greek government would be paint as 'irresponsible' both internally and externally.
Additionally it wouldn't be wine and roses, it would take months, if not at least a year to get a currency rolling, and Greece would be pushed further into a destructive spiral for at least a few years. This opening a Pandora's box, a lot of uncertainty and unknowns of what would happen next. It could easily lead to a military coup or even a civil war eventually. Europe could take measures to harm Greek economy to a point that would destroy the Greek state. They could surrender further sovereignty to external powers in exchange of promises (Russia or China). They could open potential problems with the unstable Mediterranean nations and try to play that card. All of this is potentially very dangerous and could backfire in thousands ways. Is not your neck at play here, is theirs, and the future of their people.
4) They can call it how they want, but if Varufakis gets its way it will be a de facto default. 'Consols' are not a new idea, and bonds tied to growth are either. Both kick the can and win time. The game now is 'winning time', they know it, and the Troika probably also does. But the Troika are blind ideologues that have drink too much neoliberalism kool-aid and it's starting to crack. If they can hold until more governments fall in hands of anti-eu/anti-austerity parties they will have won the game, even at a cost of losing some battles. If they can pull it, it's genius.
I have said this won't end until a far right government (or a far left for instance) ends up in power in other European country. Is not because I love far right countries, but because I think they are the only ones that are crazy enough to do stupid things unilaterally regardless of how they end up in history books. Sometimes you need chaos and insanity to move on from entrenched situations, but is always the worst solution, so let's hope we are not yet at that point. You know, some of us are actually living in Europe!
Syriza is in the midst of a two front war with the Troika and within it's own country's kleptocratic oligarchy. The coalition government would dissolve in seconds if it simply repudiates its debt obligations, so it has no choice but to proceed within acceptable EZ charter parameters. The playbook here is the Modest Proposal, which it is said comports with EU bylaws. It's the best and only politically feasible solution. Leaving or being expelled by the EZ would effectively be a political disaster and likewise a financial disaster because of internecine conflict native to Greece itself. The vacuum thus created could easily be filled even more monstrous entities than preceded Syriza.
ReplyDeleteBottom line: the needle that must be threaded here is one that allows Greece to stay in the EU and one that allows economic growth so as to lift the Grecians out of their horrid economic plight. The question begs; are they mutually exclusive?
Bizarre, run surpluses? How? They have a trade deficit, and I am pretty sure there is a dearth of credit worthy borrowers. Running surpluses will cause tax collections to collapse at the macro level.
ReplyDelete"The growth-bond idea offers a way for the EU to save face - an outright write-off would create political problems as all ECB institutions are theoretically backed-up by member-state tax-payers. It will do plenty good to Greece's economy as more money in the immediate sense will be freed up for govt spending."
ReplyDeleteWhere do yo see the more money freed up gor government spending? Varoufakis is saying he will go cold turkey. Id those bonds are indexed, It doesn't "free p" oney anywhere.
It stops interest payments immediately. This indeed will free up a lot of money for the Greek government in a short-middle term. Interests are eating them alive.
ReplyDeleteAlso the conditionality forces European elites to pursue pro-growth policies instead of nation-destroying policies.
So is a net gain, even if it's only through indirect channels. It certainly will help more than the ECB QE, which only helps the banks (if anyone).
Yes, the surpluses are not going to the IMF, ECB. But balanced budgets?
ReplyDeleteThat was the problem in the first place.
My view remains that they are playing for time. They want to stay within the euro, and organise a wider anti-austerity multi-nation coalition. So they have to pretend to follow the dictates of the Troika while they wait for that coalition to form. Which could easily take a couple of years.
ReplyDeleteThey do not believe that they have a mandate to leave the euro, although they may be willing to trigger being kicked out. They will just need for the Troika to make some demand that they can paint as unacceptable to provide themselves with political cover.
"Also the conditionality forces European elites to pursue pro-growth policies instead of nation-destroying policies."
ReplyDeleteIf It was so, It would be a very modest gain, very modest. Right now It is Varofakis' idea, so It is not forcing anyone for anything.
They think deficits and high debts are the problem, so does Varoufakis. In his mind Greece's high debt is the problem. He doesn't seem to think about problems in real economy. Those are the primary problems. If Greece could have full employment It could easily give 3% of GDP to debt payments, but It cannot do It with euro framework. Syriza is all over the place, one day they say they don't deal with troika the next day it's the opposite again. It seems right now they won't last very long.
Varoufakis is asked abot MMT in this video 7:45 and he is talking about Zimbabwe ????
ReplyDeletehttps://www.youtube.com/watch?feature=player_detailpage&v=ncdXwulRNas
Kristjan - as Ignacio pointed out, growth indexed bonds means less interest payments for the moment.
ReplyDeleteThe next step is to push for a euro-wide growth strategy which involves either infrastructure money for governments via the European investment bank (which ideally would raise funds with bonds bought by the ECB) OR scrapping the Stability and Growth pact and allowing larger deficits (or both). The infrastructure funds would be like the American government transferring money to a state running a balanced budget - technically deficit spending.
But really of course the talk for now is gonna be about balanced budgets - it would be political ammunition for their enemies to do otherwise in Syriza's situation - at least until they have some degree of fiscal freedom...
Which could easily take a couple of years.
ReplyDeleteThey don't have that much time, Brian. They have a few months, maybe even weeks, to start delivering on various promises - including the promise to hire back a bunch of laid-off public sector workers.
Yes, Kristjan, Syriza appears to be all over the place. Brussels isn't going to budge it appears because they know Syriza's hands are tied by their own countrymen, who in overwhelming numbers want to stay in the euro. The plebs have no desire to become a satellite nation aligned with China or Russia either.
ReplyDeleteThe idea that stonewalling between Greece and the Troika will go on for years is simply a non starter. The austered to the bone average Greek citizen doesn't have two more years, so they need their plight alleviated right now for Syriza to survive. Of course they are asking too much of this coalition in wanting to stay in the euro and wanting to be free of this depression too. Thus the overlords to north, the plebs themselves, not to mention the self interested oligarchs embedded in Greece are putting the squeeze on Syriza that Vegas most certainly would wager will lead to ultimate failure. Got civil war?
Dan,
ReplyDeleteYes, Syriza will be attempting a lot of domestic reforms. They should be able to do so while keeping the international relations pretty much where they are now. They will have to offer some concessions in order to make the Troika look like it has some power. But those concessions can easily be things they would have done anyway.
The Europeans have had a lot of practice with "can kicking", possibly because of playing so much soccer.
You have to be careful about reading much into press reports. There's a lot of floating going on here to see what effect the ideas have.
ReplyDeleteThere are many ways this cat can be skinned that are more acceptable politically. There will be a political solution that looks right - much like the Social Security Fund in the US which is economically irrelevant and is purely a political device.
Yanis is an integrationist and that means he has to find a way of getting the German savings that are currently stuck in the ECB flowing into spending in the Greek et al economy. The front, I believe, will be the European Investment Bank and a load more private borrowing somewhere.
MMT shows us that you need to accommodate net savings to maintain the requisite flow in the economy. And ultimately that means somebody increasing their balance sheets, whether Treasury at the central bank, or via the private banking system. It all amounts to the same thing - put some new money into the flow.
Yes it would be best if the ECB just advanced the relevant overdrafts to the governments, or even directly to the Greeks without jobs. But however they do it, there has to be more circulation in Greece.
The number one issues for Greece are jobs and capital development. Only 39% of the Greek population is employed; and gross capital formation is only 12% of GDP. These are absolutely abysmal numbers. Greece simply can't grow out of its misery with so few people working, and with such a low level of wealth generation.
ReplyDeleteThe Greek government needs to act immediately to re-staff existing public enterprises, and to create small businesses, cooperatives, and larger scale public enterprises. If they can raise euros with debt renegotiation, great. But if not they need to find some more innovative workarounds, such as issuing easily transferable penny shares in the new enterprises that only Greeks are allowed to own. These shares can float against the euro and function as a separate currency. They might also have to have to seize private some private capital.
Varoufakis is asked abot MMT in this video 7:45 and he is talking about Zimbabwe ????
ReplyDeletehttps://www.youtube.com/watch?feature=player_detailpage&v=ncdXwulRNas
Good answer, actually. Short and to the point. Worth looking at.
He identifies as an MMT traveler that agrees with most of MMT but is essentially a Marxist who holds that the value of money arises from the value creation process in production.
Fits with the MMT JG what establishes the value of the unit of account in terms of a fixed period of unskilled labor as base compensation?
I think that Yanis is probably among the best we could hope for. He is smart, an economist that understands MMT although he self-identifies as a Marxist, co-authored Game Theory: A Critical Text, and appears to be a pretty skillful negotiator.
ReplyDeleteThis is a complex negotiation that involves a lot of behind the scenes maneuvering that takes place within a social, political and economic context that is not ideal in that most Western workers today are basically neoliberal themselves and want to work within the present system. So Yanis is not going to go all Marxist all of a sudden.
This is a solution that has to be crafted with many parties and many interests, so the outcome is not going to be ideal for anyone. I'm willing to trust Yanis to get the best deal he can negotiate. After that he has to deal with the Greek economy and financial system.
Lets cut him some space.
"But if not they need to find some more innovative workarounds, such as issuing easily transferable penny shares in the new enterprises that only Greeks are allowed to own."
ReplyDeleteI think this goes against EU rules. You are not allowed to restrict ownership like this.
I would also add that expecting Yanis to turn Greece around in the first days is like expecting Stephanie to turn the US budgeting process into something that is MMT-based in the near term.
ReplyDelete"Politics is the art of the possible." — Otto von Bismarck.
"This is a complex negotiation that involves a lot of behind the scenes maneuvering that takes place within a social, political and economic context that is not ideal in that most Western workers today are basically neoliberal themselves and want to work within the present system. So Yanis is not going to go all Marxist all of a sudden. This is a solution that has to be crafted with many parties and many interests, so the outcome is not going to be ideal for anyone. I'm willing to trust Yanis to get the best deal he can negotiate. After that he has to deal with the Greek economy and financial system.
ReplyDeleteLets cut him some space."
Very well said.
Kristjan
ReplyDeleteHe did answered it perfectly. His answer is that MMT is non political, (because it describes pure monetary flow, but for what purpose, how to use it is not determined) He wants MMT to be determined on how to best use it, so he says that he is Marxian, that the base of MMT is in productive capacity.
To explain it more directly and more exceptionally; If an economy does not produce nothing but only shuflle money according to MMT it would not be sustainable. But MMT also says the same. Assuming that there is a productive capacity and it operates (produces what people need) spending money to produce more will employ everyone.
What happened in Zimbabwe is that productive capacity was destroyed and no amount of additional money could fix that, because it was not directed at increasing production but on imports which was limited.
Instead of spending on educating new landowners to cooperate and form technological productive capacity for food which will provide sufficient supply of food that would cover for increased money, they just imported it causing inflation.
He is saying that all new money should be directed to new production which should replace imports. Value of money is based on production capacity. True.
That is how it works for countries on Gold Standard where you have to borrow foreign currency for imports, and Greece has no their own currency. It is different for USA, Japan, Canada, UK, Australia, Swizerland where they can buy anything with their own currency. MV=PQ for those countries means Quantity is the quantitiy of the whole world. They can import without affecting the price as much as they want.
Those in EZ can not import without changing the price. They should produce it domesticaly instead of importing it.
This what it means for him when he says that production of labor is the base for money.
Tom
ReplyDeleteI am sorry but i was writing my answer while you were posting yours. I have not seen it before posting my answer that was similar to yours.
"Good answer, actually. Short and to the point. Worth looking at.
ReplyDeleteHe identifies as an MMT traveler that agrees with most of MMT but is essentially a Marxist who holds that the value of money arises from the value creation process in production.
Fits with the MMT JG what establishes the value of the unit of account in terms of a fixed period of unskilled labor as base compensation?"
No, he doesn't identify, he's been described as an MMT fellow treaveller. He says he agrees with them (MMTers)pn many issues but he has a Marxist backround and he believes that in the end the vale of oney is nothing more than alienated power of humankind. then comes the pinning the value of money down to value creation and Zimbabwe. The JG that Tom is talking about is Tom's imagination. Yanis doesn't say anything about that relating to MMT. His answer is not affirmative. When you say something about MMT to someone and he replies Zimbabwe, I guess yo would say, great, this guy agrees with me and he is talking abot JG. :)
FWIW, it makes little sense to say that the value of some currency derives entirely from "the value creation process" or the "productive capacity" of an economy.
ReplyDeleteSuppose we have a big economy growing at 5% on the one hand, and a guy printing currency notes in his basement on the other hand. Is the currency acquiring value because of the real value being created in the economy? Of course not. You need some further set of social facts that explains why people in that very productive economy are willing to accept those particular currency notes in exchange for the non-monetary goods and services the economy is producing. Absent such facts, you just have worthless monopoly money.
Chartalism provides one part of the explanation of why people accept a currency. (I think there are other parts too.)
But perhaps all Varoufakis means is that the mere manufacture of new units of a currency in some currency zone is not sufficient by itself to create additional wealth and grow real income in that zone. And certainly no economist would disagree with that.
@ Kristjan
ReplyDeleteWe apparently understood Yanis from different angles. Others can come to their own on his position on MMT.
But this shows how difficult it may be to get a fix on precisely what he is saying in any particular case. For example, FT reported his position in a way that he said was not what he intended.
@ Jure
ReplyDeleteYou elaborated on what I had said in a way that I think is correct.
"But perhaps all Varoufakis means is that the mere manufacture of new units of a currency in some currency zone is not sufficient by itself to create additional wealth and grow real income in that zone. And certainly no economist would disagree with that"
ReplyDeleteSure, but why bring that up when you are asked about MMT?
Say Zimbabwe because you want to promote JG?
You start with the real economy [and not with the imposition of taxes to drive the acceptance of a fiat currency].
ReplyDeleteWIW, it makes little sense to say that the value of some currency derives entirely from "the value creation process" or the "productive capacity" of an economy.
ReplyDeleteAccording to Chartalism as Wray presents it, taxation only in the government's unit of account is sufficient to create a need to obtain the unit of account. This creates demand for the unit of account rather than establishing its value.
According to Warren the value of the unit of account of a currency sovereign is based on monopoly power that can be exercised by setting the own rate (policy rate) and offers for goods and services in the market.
However, the value of a currency is relative to what it can be exchanged for, and that is fundamentally dependent on what is available for purchase. This is made evident in markets through price and fx fluctuations.
Such changes are independent of the amount of currency in many cases, for example, where there is a supply shortage that can't be addressed in a timely way. And there are a lot of reasons why this might happen, such as destruction of productive capacity.
He could have said there are no free lunches. Again, every economist agrees.
ReplyDeleteTo me It seems that his answer is qualified because he is leftist Marxist. Let's say Peter Schiff would have said that money needs to be anchored to some value, otherwise it's gonna be Zimbabwe.
I agree that these negotiations are complex and we really don't know how they are playing and why they are saying the things they are saying. I think the euro love will kill them
Tom, I tend to doubt Warren's explanation for the value of the currency. Apart from a few special cases, nobody is required to sell goods and services to the government. They compete for the opportunity to do so, and only because the government offers to buy at a price that is acceptable to the seller.
ReplyDeleteCan someone explain to me how MMT is germane to Greece at the moment when there is no United States of Europe and as such Greece is not a currency sovereign?
ReplyDeleteYeah, I think it doesn't matter a single bit MMT this, MMT that in Europe now. Accept that we live in gold-standard redux (aka euro) and look at the situation from that perspective.
ReplyDeleteYanis may want to change that (his 'modest proposal' would), but right now is just receiving 'nein, nein, nein' from the jerkmans.
P.S: Draghi just sided again with the Germany, "nein nein nein".
Ignacio
ReplyDeleteDraghi might have publicly denied Yanis's proposals, but he started QE that includes government debts that is very similar to some of Modest proposal.
Modest proposal has described a mechanism by which ECB should be buying EIB's and EFB's bonds.
ECB's QE is going to 8% spent on buying investment bonds which is EIB and EFB bonds. Yanis only ask to be done in much larger scale. And what national CBs spend on is not directed.
Malmo's Ghost
ReplyDeleteEven tough Greece can not print euros, but it can print something very similar using insights from MMT, paralel currency and complimentary currency.
Yanis's Modest proposal includes also to print small government bonds in lieu of future taxes to pay for government purchases. This is an insigt from MMT. But i think that is too obvious of what it is. It is what a currency is.
I have been trying to point him in another direction toward more stealth currency but just as effective in reducing private debt burden and allow for more govt spending.
MMT says that bank issuing credit is creating money and paying off the credit is destroying money.
My suggestion was to use those newly printed small bonds to pay for purchases and increased wages, but to be used only in lieu of credit payments. Only banks will accept it as credit payment and extinguish it just as it does with money when received in lieu of credit payment.
This is very stealth money printing which can be arrived at only by knowing MMT.
But in the case of past government debt and EU setup MMT can not help.
Except; it is from MMT insigts that i learned that no government ever lowers its nominal debt and that it is a duty of past lenders to keep rolling it over. Every country does that, why is that they do not allow to Greece what every other country does? It is from purely political reasons that they are blackmailing Greece. There is no reason not to roll over the debt at 0-1% rate, especially since it is allready in ECB, barely any is in private hands.
In other words, absolutely nothing has been resolved which is par for the course for Europe, but the momentum of Greek leverage has been broken and now it is only a matter of time before the new Greek government admits it is, for all intents and purposes, a continuation of the Pasok/ND regime where it does whatever Europe tells it to do. Unless of course, Tsipras is willing to actually make good on his pre-election promises, something which would now necessitate a full break from the Eurozone, which it has now become clear, it isn't prepared to do. Which, sadly for Greece, also means it now has absolutely zero leverage because its only trump card was the threat of a Grexit, a trump card it lost in less than 10 days.
ReplyDeletehttp://www.zerohedge.com/news/2015-02-03/first-germany-now-ecb-said-resist-latest-greek-bailout-plan
Agree with Ignacio and Malmo. Since Greece is staying in the Euro zone, MMT has nothing special to offer on this issue.
ReplyDeleteWell I think it wouldn't hurt to at least try to educate EMU policymakers about the SBE part of MMT.... wrt Greece's trade balance and what that implies wrt the other 2 balances in the equation as applied to Greece....
ReplyDeletersp,
Jure,
ReplyDelete" Every country does that, why is that they do not allow to Greece what every other country does?"
It may not be that they are 'not allowing' it, they may not have the EUR balances available in Greece to be able to do it period....
The banks that would do that (in Greece) may not have adequate capital to be able to do it...
iow if you examined current Greek bank capital allocations, and the Greek banks had 100% of their regulatory capital allocated then how could they bid ONE PENNY higher for the Greek bonds?
They might be maxed out... (this is typically how banks like to run...)
rsp,
Apart from a few special cases, nobody is required to sell goods and services to the government. They compete for the opportunity to do so, and only because the government offers to buy at a price that is acceptable to the seller.
ReplyDeleteThis year's budget is approaching 4T. You betcha firms compete for it. And the government usually drives a hard bargain other than where cronyism and corruption prevail, like no bid military contracts. The carrot is the volume.
Moreover, the US government demands very favorable terms, like 180 days.
Matt
ReplyDeleteIt is not a problem in capital allocations of Greek banks, ECB holds €290 B out of €320 B. Something like that.
Whoever holds bonds, at expiration date can just extend the date i.e. exchange expiring bond with a new bond with new date. No nedded change in capital requierments. No expense for bank- no need for higher capital fund.
I tought that is loan rollover. Is it something different?
If i was in Yanis's shoes in negotiations i would not talk about bailout at all. I would be small talking and trowing jokes since Troika have to roll over all debt or erase it. It is their problem what to do with it. If they want to roll it over i would sign, but only at 0,5% yield, nothing higher.
No codnitions. Full stop.
Remember that small loan is a debtor's problem, huge loan is creditor's problem.
And then use all tricks to print small amount bonds (100-200€) to all Greeks every month. With 3 month expiration date and accepted only by banks in lieu of credit payment. It would be a huge debt relief for Greeks.
It would stop further credit defaults, euros would stay in circulations while small bonds instead of euros would be extinguished by banks. It would also save greek banks.
Well Tom I'm with Dan here the acceptance of the state currency goes towards exhibiting some sort of greater social solidarity within the nation...
ReplyDeleteiow I think it is more than "there is a guy at the door with a gun," or "taxes drive a currency"...
Here is Romans 13:
"5 Wherefore it is necessary to be subject, not only because of indignation, but also because of conscience.
6 For therefore you are settling taxes also.."
So the taxes go towards exhibiting some sort of subjection to each other/solidarity between each other ...
but at the same time it is dependent on the govt people to provide for "general welfare" to the point where people dont have a problem with this as govt is "doing its job.."
... we comply with the taxes and simultaneously govt is supposed to do its best to promote "the general welfare" of all... which this is of course not happening... so chaos results, etc..
iow Paul isnt teaching that we pay taxes "to drive the currency" or "because there is a guy with a gun..." etc...
So it goes beyond technocracy I think this is Dan's larger point... which I basically agree with.... but at the same time we need competent technocrats to operate the system for "the general welfare" and this has been missing ...
rsp,
"Modest proposal has described a mechanism by which ECB should be buying EIB's and EFB's bonds.
ReplyDeleteECB's QE is going to 8% spent on buying investment bonds which is EIB and EFB bonds. Yanis only ask to be done in much larger scale. And what national CBs spend on is not directed."
There is no need to buy those bonds. Whatever it takes was all that was needed. As long as ECB guarantees those bonds against default, there is no need to buy them. ECB has effectively guaranteed government bonds in euro area, that's why there is no more debt crises. All it needs to do is guarantee the EIB bonds too. Politically much easier to implement than "printing money and causing hyperinflation". I think half of these "Post Keynesians" don't understand the concept of endogenous money. That's why they talk about needed "money printing". Tsipras was unhappy that ECB didn't buy Greece's bonds, yet now they are unhappy about the bonds that ECB has bought. They were talking about cancelling Greece's debt, most of it is on ECB's balance sheet. So you never know what these people want really.
Varofakis has said that creating the euro was a mistake. It is fashionable to say so nowadays, I don't think he fully understands what he is up against.
Jure,
ReplyDelete"ECB holds €290 B out of €320 B"
can you post a source on that ?
(not challenging just would like to see more info on that....)
rsp,
"Tsipras was unhappy that ECB didn't buy Greece's bonds, yet now they are unhappy about the bonds that ECB has bought. "
ReplyDeleteshould be: Tsipras was unhappy that ECB wouldn't buy Greece's bonds during QE
K,
ReplyDeleteI dont think it is the "ECB" per se doing the "buying"... it is the ESCB letting the individual NCBs buy a certain allocation of their own nation's bonds.... should check me on this... but that is the way I understood it last time...
iow I dont believe the "ECB" has a "trading desk" per se... they just monitor/manage the ESCB as a whole...
rsp,
you know this riminds me that Estonian government hasn't issued any debt at all. Estonian Central Bank hasn't announsed the exact details yet but they are going to buy bonds of the companies that government owns. Either that or they have to buy foreign government issued bonds. This QE is interesting in Europe because the national central banks take losses or profits too 80% of the volume of the QE if I reeber correctly. I've been trying to talk to people of the concept of "central bank profit" but without success so far. Our central bank is buying even company shares and then bragging abot it later if It made a profit.
ReplyDeleteHere is a breakdown of Greece govt debt ownership:
ReplyDeletehttp://blogs.wsj.com/economics/2015/01/22/who-owns-the-government-bonds-the-ecb-will-buy/
Looks like the Bundesbank only has about 27B at most:
https://www.bundesbank.de/Redaktion/EN/Downloads/Statistics/External_Sector/International_Investment_Position/waehrung.en.pdf?__blob=publicationFile
The rest must be spread around Europe...