Single Currency Experiment Risks Rising.

Scofflaw

Amberman wrote: »

I read the headline....LOL

heres the job title of the guy who wrote it.

"Professor of European Political Economy"

The european political economics professor from the FT is never going to print that...its more than his jobsworth...

Don't be both lazy and facile. He's Professor of European Political Economy at the LSE - he's not some kind of EU functionary simply because the word "European" appears in his job description.

Really, sometimes I despair. It's not only a desperately obvious ad hominem, but it's not even a meaningful one. I mean, seriously, what were you thinking? Were you thinking? His job title includes "European" = he can't say bad stuff about Europe? You LOL'd? Christ almighty.

Hopefully other posters will get further than the headline before having a rush of prejudice to the head.

some days it's just not worth it,
Scofflaw

Amberman

See attached for money supply - ALL fiat currencies go up over the majority of time horizons...its inherent in the nature of the system

Amberman

Scofflaw wrote: »

Don't be both lazy and facile. He's Professor of European Political Economy at the LSE - he's not some kind of EU functionary simply because the word "European" appears in his job description.

Really, sometimes I despair. It's not only a desperately obvious ad hominem, but it's not even a meaningful one. I mean, seriously, what were you thinking? Were you thinking? His job title includes "European" = he can't say bad stuff about Europe? You LOL'd? Christ almighty.

Hopefully other posters will get further than the headline before having a rush of prejudice to the head.

some days it's just not worth it,
Scofflaw

The title said it all Scofflaw. I did read it, I don't think he's a European functionary....but Jesus, come on, cant you see his obvious bias? He doesn't have much of a job if the EU does break up.

What do you expect him to say?

Edit - Im not saying it will break up for sure....but pressures are building that mean the risks are rising of exactly that happening. We cant really predict what will happen since we've never been here...though kind of related is the UK leaving the ERM to begin on a decade long plus boom.

SuperMacs

Amberman wrote: »

You're missing the point entirely.

It doesnt make any more sense to tie your rates to Timbuctoo than it does to Germany, or the UK.

What Ireland really needed was rates that were right for Ireland...Tied to nothing else apart from the prevailing economic climate.

Setting your own interest rates will only have minor impact in this current tumoil.
Even Mervyn King said that interest rates are a blunt weapon (ie. useless).

Amberman

SuperMacs wrote: »

Setting your own interest rates will only have minor impact in this current tumoil.
Even Mervyn King said that interest rates are a blunt weapon (ie. useless).

And hes right...they're blunt NOW for the UK as they approach 0%, because the LIBOR rate isnt responding to interest rate cuts the way it should be.

They are blunt to stimulate in this environment. They are NEVER blunt not choke off excess froth. Thats what he meant.

View

Amberman wrote: »

How does it? They arent even in the Eurozone...my point is about countries in the Eurozone.

All three of the countries are also experiencing economic difficulties (including if I recall correctly sharp property price declines) despite not being in the Eurozone and not being subject to Eurozone rates, therefore the simplistic idea that low Eurozone interest rates were the primary cause for the current economic mess in Ireland doesn't stand up.

Amberman wrote: »

Of all the countries in the Eurozone, Ireland was growing the fastest for longest, easily the biggest expansion of all Eurozone states, so interest rates that were too low for Ireland had a disproportionate effect on Ireland compared to other countries whose economic situation warranted such interest rates.

Low interest rates provided us with cheaper credit. Where and how that credit was directed remained in the hands of the Government.

They - and they alone - controlled the tax system.

1. They chose to leave in place and/or extend the myriad of tax schemes that encouraged investment in property (i.e. the various Sections this-and-that tax avoidance schemes) - these had the effect of artifically boosting demand for property.
2. They chose NOT to introduce (annual) property taxes - which are the norm in most countries world-wide - despite the economists of the OECD calling for their introduction year-after-year since at least 2001 (which would have had the effect of making property ownership more expensive, thus reducing demand).
3. They allowed property investors/landlords to write off the cost of their mortgage interest payments against their (taxable) rental income. They could have chosen not to, thus discouraging investment in property (i.e. lowering demand).
4. They chose to allow the banks to introduce zero-down mortgages - they could just as easily have insisted the banks require would be borrowers to have deposits of 15 or 20%, thus making it harder for people to borrow (That after all is what interest rate rises do anyway).
5. They could also at any stage have raised taxes (thus taking money out of the economy) and ploughed the additional revenue into either: paying down the national debt, or, into a "Rainy day" fund - there to be used should the economy ever experience a down-turn!

By way of contrast, had investment been directed towards the BES (intended to help start-ups and expanding businesses), we could now be in the happy situation that we have products and services that could be exported world-wide, thus bringing in revenue at at time of need. Instead, we squandered a golden oppportunity to re-make the economy.

Économiste Monétaire

Amberman wrote: »

time horizon bias...they might have fallen last thursday between 1pm and 2pm...you need to look at the longer trend....fiat currencies are one way bets re: money supply expansion generally. Also, quantitative easing is looking more and more likely...it will hit EU.

Your argument stated that monetary aggregates were not contracting: Irish money supply has contracted over 2008.

Amberman

They're politicians, not economists.

Rule number One - Get reelected.

Best way to get unelected....choke off a popular boom. Who wants to be that guy?

Solution....make sure you have control of your booms in the first place so you don't need to choke them off.

How do you know that the measures you propose wouldn't have sparked rent increases and wage inflation, and led to thousnds of job losses? I can picture a politician saying "We're raising taxes and driving these jobs out of teh economy becuase we think there will be a property bubble in 4 years"

Come on now...its not going to happen. You cant blame the Irish politicians. People have to take personal responsibility for their decisions....decisions that looked great during a period of artificially low interest rates.

They didnt "choose to allow the banks" anything...banks operate in a free and competitive market. The market is meant to be FREE. Its not governments job to make sure entrepreneurs and investors don't make stupid decisions.

Why do you think it is?

Amberman

Économiste Monétaire wrote: »

Your argument stated that monetary aggregates were not contracting: Irish money supply has contracted over 2008.

See attached. ECB says you're wrong.

Amberman

Économiste Monétaire wrote: »

Your argument stated that monetary aggregates were not contracting: Irish money supply has contracted over 2008.

Ahhh....Im talking European, you're talking irish.

Thats a bit like talking about the money supply of Yorkshire in a way...whats the point?

Économiste Monétaire

Amberman wrote: »

Ahhh....Im talking European, you're talking irish.

Thats a bit like talking about the money supply of Yorkshire in a way...whats the point?

I was responding to your point that deflation in Ireland cannot occur because money supply is not falling. It has. You're also overstating the short-term rigidity of PPP as a theory of inflation due to our fixed exchange rate. The money supply can grow, or contract, at extremely outlying positions to that of Germany. Recent figures clearly show that. A specie flow mechanism for the Euroarea is widely understood to be apart of a correction mechanism to an uncompetitive cost base when devaluation is not an option. I'm baffled how you are ignoring this part of monetary union.

Scofflaw

Amberman wrote: »

Don't be both lazy and facile. He's Professor of European Political Economy at the LSE - he's not some kind of EU functionary simply because the word "European" appears in his job description.

Really, sometimes I despair. It's not only a desperately obvious ad hominem, but it's not even a meaningful one. I mean, seriously, what were you thinking? Were you thinking? His job title includes "European" = he can't say bad stuff about Europe? You LOL'd? Christ almighty.

Hopefully other posters will get further than the headline before having a rush of prejudice to the head.

some days it's just not worth it,
Scofflaw

The title said it all Scofflaw. I did read it, I don't think he's a European functionary....but Jesus, come on, cant you see his obvious bias? He doesn't have much of a job if the EU does break up.

What do you expect him to say?

Amazingly enough, that may actually be a sillier explanation.

Edit - Im not saying it will break up for sure....but pressures are building that mean the risks are rising of exactly that happening. We cant really predict what will happen since we've never been here...though kind of related is the UK leaving the ERM to begin on a decade long plus boom.

As opposed to those who stayed in to begin on a decade long plus boom. I suppose there must be less subtle ways of announcing that you'll only be looking at one side of the evidence, but I'm darned if I can think of them.

unimpressed all over again,
Scofflaw

Amberman

Économiste Monétaire wrote: »

I was responding to your point that deflation in Ireland cannot occur because money supply is not falling. It has. You're also overstating the short-term rigidity of PPP as a theory of inflation due to our fixed exchange rate. The money supply can grow, or contract, at extremely outlying positions to that of Germany. Recent figures clearly show that. A specie flow mechanism for the Euroarea is widely understood to be apart of a correction mechanism to an uncompetitive cost base when devaluation is not an option. I'm baffled how you are ignoring this part of monetary union.

I think you misread what I said. At no point did I say that prices can't fall when money supply is expanding. I said that you cannot have deflation when money supply is inflating. Thats like saying you can have heads and tails at the same time on a coin toss.

I said that several types of goods and services already were declining, even when Eurozone money supply was expanding...but that food wasnt one of them....which is a really important price when unemployment rises and wages begin to fall.

You said money supply was contracting. It clearly isn't across the Eurozone.

Can you provide proof/stats that money supply has fallen in Ireland?

Amberman

Scofflaw....a wise man once said "Its amazing what people will force themselves to believe and say when their salaries depend on it".

To dismiss his obvious bias is just crazy...and lets you down enormously.

As for looking at one side of teh argument...LOL all over again.

They did leave the ERM, it is the closest example we have...and they did go on a decade long boom.

Im not looking at only one side of the argument, but you;re just being a pollyanna.

I gave you a quote that ministers inside the EU are VERY WORRIED about the whole thing breaking apart....and it was nicely ignored....to support your view. Now who is only looking at one side of the argument?

Économiste Monétaire

Amberman wrote: »

I think you misread what I said. At no point did I say that prices can't fall when money supply is expanding. I said that you cannot have deflation when money supply is inflating. Thats like saying you can have heads and tails at the same time on a coin toss.

I said that several types of goods and services already were declining, even when Eurozone money supply was expanding...but that food wasnt one of them....which is a really important price when unemployment rises and wages begin to fall.

You said money supply was contracting. It clearly isn't across the Eurozone.

Can you provide proof/stats that money supply has fallen in Ireland?

Falling effective demand and the money supply growth aren't mutually exclusive. The extent to which you can have serious deflation, or protracted deflation e.g. Japan, is dependent on monetary policy in the long-term. Our banking system has severely reduced lending from September onwards, which is going to effect your base-multiplier approach that the ECB takes to increase the money supply. They've already given banks unlimited liquidity at a fixed rate, as opposed to variable rate tenders on MROs. The CBFSAI release 'monthly statistics' for Ireland's monetary aggregates, you can find them on CBFSAI site. They're no where near the 7% annual Eurozone M3 growth rates; M1 and M3 annual rates are negative since April.

Amberman

Thanks for that!

Very interesting read. So the money supply is expanding across the Eurozone, but contracting in Ireland according to the "selected measure" of Irish contribution as outlined on page 10 of that document?

Would you be so kind as to explain this footnotes to a me...from page 10?

b This comprises the Bank’s share of euro banknotes issued in the Eurosystem, in proportion to its paid-up shares in the capital
of the ECB, plus coin issued by the Bank less holdings of issued euro banknotes and coin by the MFI sector.

Économiste Monétaire

Amberman wrote: »

Thanks for that!

Very interesting read. So the money supply is expanding across the Eurozone, but contracting in Ireland according to the "selected measure" of Irish contribution as outlined on page 10 of that document?

Would you be so kind as to explain this footnotes to a me...from page 10?

b This comprises the Bank’s share of euro banknotes issued in the Eurosystem, in proportion to its paid-up shares in the capital
of the ECB, plus coin issued by the Bank less holdings of issued euro banknotes and coin by the MFI sector.

Pretty much. You should take a look at '06 money supply growth relative to the Eurozone as a whole; Irish M3 increased by ~30% in a year. Think of it as mean reversion.

That footnote, I believe, is referring to the capital structure of the ECB. The amount of currency issued by the CBFSAI, i.e. currency marked with a T in front of the serial numbers, is relative to our GDP and population as a proportion of the Eurozone. You can find out more about the "capital subscription" here:
http://www.ecb.int/ecb/orga/capital/html/index.en.html

Scofflaw

Amberman wrote: »

Scofflaw....a wise man once said "Its amazing what people will force themselves to believe and say when their salaries depend on it".

To dismiss his obvious bias is just crazy...and lets you down enormously.

As for looking at one side of teh argument...LOL all over again.

They did leave the ERM, it is the closest example we have...and they did go on a decade long boom.

Im not looking at only one side of the argument, but you;re just being a pollyanna.

I gave you a quote that ministers inside the EU are VERY WORRIED about the whole thing breaking apart....and it was nicely ignored....to support your view. Now who is only looking at one side of the argument?

I don't even have a strong opinion on whether the EU will break up - it seems unlikely to me because of the political investment in it, but nothing's impossible. On the other hand, I do have issues with the way you're going about claiming it, the way you're carefully sifting the facts to support your position, and the way you continue to support your position despite having been wrong about the facts you initially said suggested it - and which, even in your analysis, only suggested that the euro might break up, not the EU (which we seem suddenly to have jumped to without intervening steps). I'm reasonably used to that level of intellectual dishonesty from libertarians, but your dismissal of an analysis by someone who studies Europe because they study Europe is a new and laughable low.

Scofflaw

View

Amberman wrote: »

They're politicians, not economists.

Rule number One - Get reelected.

Best way to get unelected....choke off a popular boom. Who wants to be that guy?

Look, the job of the Government is to govern - to make decisions, most of which are not going to be popular. The politicans are aware of this. Yet, how many of them have ever refused the chance to be a Minister and risk courting unpopularity?

Amberman wrote: »

Solution....make sure you have control of your booms in the first place so you don't need to choke them off.

Government policies, particularly taxation, play a large part in having "control of your boom", just as interest rates can. Leaving in place tax policies that gave people tax breaks to invest in property at a time of rapidly rising property prices is no more prudent than a central bank keeping interest rates (artifically) low in the same circumstances. The Government knew that the ECB controlled interest rates, therefore the onus was on them to choose their policies carefully (And, in reality, this is little different from the days when we had the Punt, when our interest rates were frequently driven by the interest rates of the UK and/or Germany).

Amberman wrote: »

How do you know that the measures you propose wouldn't have sparked rent increases and wage inflation, and led to thousnds of job losses?

Short answer, I don't - just as central bankers don't know with certainty the results of their interest raises/cuts. This is not to say, we couldn't have taken an educated guess that a policy of inaction wasn't the way to go.

Amberman wrote: »

I can picture a politician saying "We're raising taxes and driving these jobs out of teh economy becuase we think there will be a property bubble in 4 years"

Come on now...its not going to happen. You cant blame the Irish politicians. People have to take personal responsibility for their decisions....decisions that looked great during a period of artificially low interest rates.

I accept your point that people do have to take personal responsiblily for their decisions but your contention that the Government politicans (most particularly the Ministers for Finance) are blame free is just crazy. They controlled the policies that were pursued here - they set the tax rules for the entire economy here. They also directly control Government spending (which accounts for a large part of the economy). They were increasing Government expenditure at 10% a year, year-after-year, while shifting their income base to one heavily dependent on the taxes derived from high volume sales of property. Is it any wonder they face a large hole in their budgetary arithmetic at the moment?

Amberman wrote: »

They didnt "choose to allow the banks" anything...banks operate in a free and competitive market. The market is meant to be FREE.

Banking is, in practice, a highly regulated business - To take one example, governments set standards for the capital ratios that banks must adhere to in the course of their business. As such, there is no reason why a Government should feel bashful about stepping in to ensure that the banks apply tough financial standards when providing credit particularly if there is evidence that the banks might be getting a bit lax in this area.

Amberman wrote: »

Its not governments job to make sure entrepreneurs and investors don't make stupid decisions.

Why do you think it is?

Finally, to answer your last point/question - when a central bank (an arm of government) raises interest rates it raises the price of credit, thus reducing demand for it, which (normally) helps to slow the economy (That, after all, is the point of the exercise). This, in turn, reduces the short-term return entrepreneurs and investors can expect to make on their investments which restrains their likelihood of making "stupid decisions".

As such, when making interest rate decisions, governments already intervene on a routine basis in the operation of the free market. Since, you seem to favour this, I am at a bit of a loss to understand why you feel they shouldn't adjust their tax policies and/or other regulations, to reduce the likelihood of entrepreneurs and investors making "stupid decisions".

Amberman

Ok...we are getting pulled into economic hair splitting over who could have saved what from happening...as events spiral out of control - time to pull this thread back on course.

Brussels and Berlin seem incapable of helping, according to the Telegraph as default risks rise dramatically and seem highly likely to take the already weakened Eurozone (weakest major area in the world) into unchartered collapse territory.

Even the IMF is powerless.

Scofflaw

'Uncharted', dammit, not 'unchartered'! I'm not singling out Amberman here - everybody seems to be getting this wrong.

If 'unchartered' meant anything - which it doesn't - it would mean that our boat hire agreement didn't cover this. However, our 'boat hire agreement' does indeed cover the waters we're in, but our charts don't.

pedantically,
Scofflaw

Amberman

wow..Ive always use unchartered.

Thanks for pointing that out. Uncharted makes more sense from a marrytime point of veiw.

You got painters and decorators in Scoff?

Scofflaw

Amberman wrote: »

wow..Ive always use unchartered.

Thanks for pointing that out. Uncharted makes more sense from a marrytime point of veiw.

You got painters and decorators in Scoff?

Not that I'm aware of! Why do you ask?

cordially,
Scofflaw

(yes, I'm ignoring 'marrytime')

Amberman

Well done for ignoring marrytime. Juicy bate.

thebman

jimmmy wrote: »

Methinks, given the UK is our main trading partner, and they can change interest rates to suit themselves ( we in Ireland would not have had this mess as bad if we were able to raise interest rates to control the bubble in 02, 03, 04 etc ) ....we may well have been better off sticking with the pound.

Come on, the government wouldn't have done anything about it if we still had the punt.

There were other measures they could have taken which they didn't bother so it is unfair to assume we would have taken action if we still had the punt IMO.

Amberman

Worsening by the day

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4782749/Will-Germany-deliver-on-the-Faustian-bargain-that-created-monetary-union.html

Ze Germans are coming...you HOPE!

Amberman

thebman wrote: »

Come on, the government wouldn't have done anything about it if we still had the punt.

There were other measures they could have taken which they didn't bother so it is unfair to assume we would have taken action if we still had the punt IMO.

Thats the point. They wouldn't have needed to....interest rates would be under local control tied to local conditions. Horse before the cart.

Its one thing to have to act aggressively and in an unpopular way to deflate a bubble foisted on you by largely external events...(the effect of moving against the bubble in 2004/5/6 with taxation...they'd have been lynched)...quite another to be able to stand passively by with a patsy at hand (eurozone rates and evil greedy bankers) when the bubble blows up and they can say...look at the UK/Spain...it was international...not our fault!

Amberman

Amberman wrote: »

Worsening by the day

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4782749/Will-Germany-deliver-on-the-Faustian-bargain-that-created-monetary-union.html

Ze Germans are coming...you HOPE!

False alarm...FU Ireland!

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4958395/Thanks-to-the-Bank-its-a-crisis-in-the-eurozone-its-a-total-catastrophe.html

Hitman Actual

Amberman wrote: »

False alarm...FU Ireland!

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4958395/Thanks-to-the-Bank-its-a-crisis-in-the-eurozone-its-a-total-catastrophe.html

I don't think I've ever before read an article with as little substance as that. Or, at least, not since the last link you posted from the Telegraph. You do realize that posting anything from that horrible eurosceptic tabloid by the most bitter eurosceptic hack in existence (Pritchard) does nothing for your credibility?

Amberman

Hitman Actual wrote: »

I don't think I've ever before read an article with as little substance as that. Or, at least, not since the last link you posted from the Telegraph. You do realize that posting anything from that horrible eurosceptic tabloid by the most bitter eurosceptic hack in existence (Pritchard) does nothing for your credibility?

Whats wrong with the article....specifically?