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Wrong about the Euro

May 26, 2012 Leave a comment Go to comments

A trick question: who was wrong?

* Cees Maas, one of the architects of the Euro who still states (2012) that there is nothing wrong with the Euro and that Eurozone wide consumer price inflation is all that matters, even when house prices go through the roof and even when there are considerable differences in consumer price inflation between countries? And who still does not seem to know that Spain had sizeable government surpluses, before 2008.

* Or Paul de Grauwe, who in 1998 (!) made remarkable precise predictions about what would happen in a country called Spain and warned about asset price inflation, differences in inflation between countries, the risks of unregulated flows of capital and the dangers inherent in denying the importance of private debt?

The answer is of course that the former president of the ECB, Jean-Claude Trichet, and his ECB-economists were wrong. They should have known about the ideas of De Grauwe, they should have taken action when the risks he warned about materialized. They didn’t. Incredulous.

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  1. henry1941
    May 26, 2012 at 9:03 pm | #1
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    It was obvious from the outset that it was impossible to have a single currency shared by many sovereign states. It was hubris to the nth degree, as well as rotten economics. What price experts?

  2. justaluckyfool
    May 26, 2012 at 9:11 pm | #2
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    One should note that this is not a political problem,it is a consumer price inflation,asset price inflation problem.Bottom line.
    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” — Ludwig von Mises

    BUT THERE MAY BE A WAY !
    The USA as the agent behind “the magic curtain”, he who controls the quality and quantity of the “WORLDS RESERVE CURRENCY” can and could become the “very fine pin” that would deflate this inflationary bubble.
    MAKE THE BUBBLE WHOLE (SOLID).
    Become the direct lender to the Euro nations, starting with a pool of $2 trillion, at a rate of 2% for a term of 36 years.
    No burst,just a fizzle over 36 years.
    READ: “Great News !! Zero Income Taxes Solves Worldwide Economic Crises.”
    or
    Google “justaluckyfool”
    Then-***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism

    .

  3. Ignacio
    May 28, 2012 at 8:27 am | #3
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    Obviously, the architects of the euro will never admit that something was wrong with the euro. One of the big problems in both sides of the atlantic is that nobody is responsible for any error because errors are not admited. Bankers run away with millions in bonuses while government social programs struggle with austerity programs and bdozens of billions are spent to rescue those banks.

    Spanish goverment will increase it’s deficit by 20.000 million euro just to rescue one bank while cutting in education, health, research or investments. Can a government survive after such shameful behavior? If so, fuck the euro, fuck the EU, fuck the banks, fuck Rajoy, fuck Merkel, fuck them all.

  4. Dunning-Kruger
    May 28, 2012 at 8:13 pm | #4
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    Actually there is nothing wrong with the Euro. A currency can get into an crisis after a prolonged period of current account deficits. Eurozone does not have a (seiziable) current account deficit.

    If one of the sovereigns goes bankrupt, ths means, that one of participants using the currency went bankrupt. Nothing more.

    When the banking sector is in a crisis, then the outlook for intermal demand is bleak. The currency is not in a crisis.

    When the central bank is monetizing debt, this might have an impact. But this is true for Britain and USA even more than for the eurozone.

    The problem within the eurozone is that commercial banks financed internal imbalances over a long period of time. Now, when the credits cannot been paid back, they go into an crisis, and the economy follows. Not a currency crisis.

    To make an crisis ot of this is propaganda of the banks, shifting the repsonisbility to the public sector.

  5. Alice
    May 29, 2012 at 10:46 am | #5
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    Dunning-Kruger is right. The financial institutions and banks have been attempting to make this a crisis of government deficits, a crisis caused by the ordinary mans profligate ways. We have all heard the talk / chat of the “irresponsible greeks” etc.

    This is a crisis of the banks. Its a crisis caused by the financial sector with government as an accomplice (or perhaps the other way around). Banks can point the finger at others but they cannot and will not escape the shakeout of this sector they are so desperately trying to avoid.

    It was the banks who lent too much money. The banks tried to push credit cards on new school leavers, they invented reverse mortgages for the aged, they regularly cajoled us to “increase your credit limit”. It was the banks who street hawked housing loans in the US in the same way door to door salesmen sold encyclopaedia sets and vacuum cleaners in the 1860s.

    It was below the belt door knocking letter box stuffing intrusive debt peddling.

    But why did they do it? Why did / do they so desperately want to peddle money to others?

    Could it be they have too much money (not enough sense)?

    Could it be because governments arranged for banks to be fed a high protein diet of our retirement savings (mandated) which was then fed to sharemarkets and has now distorted the entire global financial system?.

    When the market was saturated with debt, the banks then invented ingenious ways to lend to each other to keep the party going. This was one wild party and it sank the global economy.

    The sharemarket of course isnt dancing to the same tune now yet people have the right to demand that banks manage their life savings carefully. Or then again, perhaps it is safer under the mattress.

    If we really want to clean up this mess – we could do so simply. Stop artificially feeding the financial sector our captive savings, get on with the inevitable FS shakeout and have a complete rethink about the not so wonderful world of credit cards.

  6. Alice
    May 29, 2012 at 10:47 am | #6
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    sh read 1960s – damn typo

  7. Alice
    May 29, 2012 at 10:55 am | #7
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    Im with Ignacio. If we have to destroy the very institutions of public order, research, education and whatever else made people’s lives promising and made us work towards progress and collective human advancement, just to keep the banks (fat) and happy

    Then what Igacio said.

    We have lost the plot, clearly.

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