This currency crisis story might have some relation to the current debate between Marc Lavoie and Sergio Cesaratto on whether the European crisis should be seen as a a monetary sovereignty problem (Marc) or balance of payments crisis (Sergio). Both would agree that the crisis is not the result of fiscal problems, as described above.....Naked Keynesianism
More on currency crises and the euro crisis
Matias Vernengo | Associate Professor of Economics, Bucknell University
Matias: "The mismatch between government receipts in domestic currency and foreign debt obligations in foreign currency is the key problem in currency crises."
ReplyDeleteAgree with that.
As for Matias' Euro discussion, I tend to believe Greg Palast that the Euro thing is politics disguised as economics.
I'd argue that neither is right because they have the model of a physical country in their mind when analysing rather than a currency zone in a global world.
ReplyDeleteThere are no Eurozone countries in economic terms. There is just the Eurozone and state legislators - as in the US or Australia and even the UK.
Sticking with this incorrect model means that the wrong moves are made every single time and you get the same outcome. That is then put forward as the 'causal' process when it is actually an artefact of an incorrect viewpoint.
It's like a bunch of experts saying that it is impossible to recover an aircraft from a stall because when you pull the stick back the aircraft always ends up crashing.
Half the problem with Keynesians is that they hark back to their God of the 1930s. The world is a significantly more complex place than it was then.
What this area really needs is analysis from a global perspective based upon dynamic interacting currency *zones*.
@Neil you have a point that most economic models do assume a physical country and of course the world is more complicated than that, especially with the proliferation of so-called free trade, open borders, and being able to move money from one location to another with the click of a mouse.
ReplyDeleteThat said, a model does not have to be perfect to be useful.
The decision to interact with the world is a political choice and different choices could, in theory, be made. Public support for free trade and open borders is at best mixed.
But at the moment the powers that be are drinking the Neoliberal kool-aid. It'll probably take WWIII to change that.