Re: Re: Demise of the Euro closer? – Ignore this if it bores you

#106451
peterhun
Participant

Whats remarkable about all this is that people with the intellect and understanding of economics that Chris displays are seemingly in charge of the Euro Project and utterly obivious to what they have done

Here is a nice summary of the situation

http://www.theregister.co.uk/2011/11/10/were_all_doomed/

We’re mad as hell and we’re not taking any more

So, we could do what is being done but it’s not going to work. Could we actually do something that would work? Sure we could.

We could just make new money. The European Central Bank (ECB) can do that, just like the Fed in the US and the BoE in the UK. This is very much what quantitative easing (QE) is. Print new money, buy government debt with it, prices of govt debt rise, yields on govt debt fall. Exactly what we want to happen. ECB prints up a trillion euro (creates it on a computer actually but…) buys Italian bonds and we’re done.

Sure, we get a bit of inflation out of this: but that’s actually good at this point. It makes all the other adjustments much easier, like grease on an axle. We’re not in fact doing this though: this simple and obvious thing that could and should be done. The reason we’re not is because it’s illegal. This would be the ECB acting as a “lender of last resort” and the ECB isn’t allowed to act as a lender of last resort. This is, believe me, from an economic point of view, really a quite remarkable fuck up.

It isn’t just that cramming 17 wildly disparate countries into one currency for entirely political reasons was a bad idea (the “optimal currency area” argument) it’s that when they did it, they set it up so that the central bank couldn’t perform the most important task of a central bank: be the lender of last resort. The ECB just isn’t allowed to print money and bail Italy (or whoever) out.

And put like that, you realise that the Euro doesn’t qualify as a currency at all as its not even backed by trust. They used to say they would give you a pound of silver for a pound.

Then its became a promise from the Bank of England ( I promise to pay the Bearer on Demand etc).. The Euro doesn’t even have that, its not guaranteed to be worth anything. Its worth as much as a Green Shield stamp, from a company which, in Greece’s case, is bankrupt.

The Euro will still be here and people will still be buying and selling Spanish property, using the Euro for that and a cup of coffee.

Anyone considering buying property at this time is certifiable, the entire worlds bank system is at risk. Lending money for anything is a no no. Buying coffee my be worth the risk.

Rich greeks are buying like crazy;

That works if you have cash. They know that paper money is worthless so invest in solid assets. Inflation and high interest rates will destroy money and make loans very expensive.