The Gaming Den

To get this back on track, German Bonds are now being priced as a risky asset. German bonds are now 33 basis points over US bonds. How does that hard money look now, bitches?

-Username17

B-b-butt Frank, the investors are obviously pricing in the inevitability of inflation that Keynesian Kommies like Krugman keep whining for. You ever think of that, pinko?

http://www.telegraph.co.uk/finance/fina ... ction.html

Ms Merkel instead used a three-way summit with France and Italy in Strasbourg to insist that new treaty powers to intervene and punish sinner states remained the key focus of Europe's rescue efforts. She said: "The countries who don't keep to the stability pact have to be punished – those who contravene it need to be penalised. We need to make sure this doesn't happen again."

I think that George W. Bush massaged Angela Merkel's shoulders too hard and burst a blood vessel to her brain or something.

EDIT #2: Also the comments in that article make my head hurt.

The more I read about her, the more I approve of Putin giving her a pet dog as a gift* and having his big dogs roaming around for their meeting. She could do with some more trolling.

Also, what is her plan for punishing them? It's not like they have any money to confiscate.

*She's terrified of dogs.

The only thing I can imagine at this point is that, yet again, Germany is trying to take over Europe. Merkel hopes that their economy will hold out a bit longer than anyone else's, giving them a chance to buy out the EU (rather than the ECB). If history tells us anything, probably in a joint effort with Russians that will fall apart once it looks like it's going to succeed.

Lago PARANOIA wrote:B-b-butt Frank, the investors are obviously pricing in the inevitability of inflation that Keynesian Kommies like Krugman keep whining for. You ever think of that, pinko?

Heh. Currently the market is predicting an inflation rate of less than 1% for the next five years. So um... yeah.

EDIT #2: Also the comments in that article make my head hurt.

They really did. I mean... um... yeah.

Koumei wrote:Also, what is her plan for punishing them? It's not like they have any money to confiscate.

That's a really excellent question. See, she refuses to back off from the narrative that the countries that are in trouble are in trouble because they lacked "fiscal discipline". But let's be real here: Germany has a larger debt than Spain. Spain's public debt is only 56% of GDP, while Germany's is 73%. Spain's high level of public debt is not the problem because they do not have a high level of public debt. Italy has a primary budget surplus. Their problem is not their high deficit because they do not have a deficit. Merkel insists on putting this shit into a Calvinist morality tale, but the facts do not fit.

Now as for Merkels' claim that somehow inflicting economic sanctions on countries that are having economic problems would scare countries into not having economic problems... I don't really know what to say to that. It is obviously false, since of course countries don't actually sign themselves up for recessions and there is no "temptation" to having investors lose confidence in a government's solvency. Absolutely no one anywhere ever signed up for an economic crisis because they thought they would be fun.

What economic sanctions she actually want to impose, I have no idea. Seems like a cutting off nose to spite face action. Since of course, cutting off trade with nations in economic crisis does not only hurt the nation in crisis but also the nation imposing the sanctions.

-Username17

FrankTrollman wrote: Absolutely no one anywhere ever signed up for an economic crisis because they thought they would be fun.

Well, there was that time when Burma decided to base it's currency entirely in denominations divisible by 9...

Maxus wrote:

CatharzGodfoot wrote:

Fuchs wrote:a low standard of living - basically 1100 bucks a month, plus rent and medical expenses are covered, for a single person

Well, 1100 a month isn't a ton of disposable income.

But I freely admit that your idea of a 'low standard of living' beats the hell our of our idea of 'low standard of living' and should be more widely adopted.

A single Big Mac burger (not the menu) over here costs more than 7 USD.

CatharzGodfoot wrote:The only thing I can imagine at this point is that, yet again, Germany is trying to take over Europe. Merkel hopes that their economy will hold out a bit longer than anyone else's, giving them a chance to buy out the EU (rather than the ECB). If history tells us anything, probably in a joint effort with Russians that will fall apart once it looks like it's going to succeed.

Why the fuck does Merkel's opinion carry any weight? She's the Chancellor of Germany, not the President of the EU.

I'd think that either Jerzy Buzek or José Barroso would use this crisis as an opportunity to expand their own powers, since they're the ones actually in a position to make EU-wide laws.

If the Parliament and/or the Commission started throwing their weight around and actually getting shit done it would drastically weaken national sovereignty in the EU. I don't think too many people would complain if one or the other unilaterally assumed the powers necessary to resolve the crisis.

Ancient History wrote:That is also not entirely correct. Capitalism as we know it just didn't exist as a fucking concept yet.

That depends on how you define capitalism. One might argue that mercantilism is a form and variation of capitalism.

The earliest forms of mercantilism date back to the Roman Empire. When the Roman Empire expanded, the mercantilist economy expanded throughout Europe. After the collapse of the Roman Empire, most of the European economy became controlled by local feudal powers, and mercantilism collapsed there. However, mercantilism persisted in Arabia. Due to its proximity to neighboring countries, the Arabs established trade routes to Egypt, Persia, and Byzantium. As Islam spread in the seventh century, mercantilism spread rapidly to Spain, Portugal, Northern Africa, and Asia. Mercantilism finally revived in Europe in the fourteenth century, as mercantilism spread from Spain and Portugal.

Are we really back to quoting Wikipedia, All-Knowing Internet Goddess of Knowledge, at each other again?

And no, mercantalism is not capitalism (or more properly, not free-market capitalism). You might think it is because you read mercantalism and think "merchants," but really it means something substantially different.

Some punditry:

http://www.parapundit.com/archives/008388.html

Gx1080 wrote:Some punditry:

http://www.parapundit.com/archives/008388.html

That's actually very naive. Germany's public debt of 73% is larger than Spain's - but it's not huge or in any way unsustainable. Germany has a big welfare state, bigger than Spain or Greece, but world solvency leaders Norway and Sweden have larger ones still. Basically, it's good punditry because it sounds convincing, but it isn't actually true.

While it is tempting to go for easy answers like "Europe has unmanageable debt!" or "Europe can't pay for their social services!", the fact is that this isn't the case. European debt levels are not especially bad and their budgets are quite salvageable. Italy is running a budget surplus, they just aren't running a budget surplus of 8% of GDP, so they can't sustain these ridiculously high interest rates and ridiculously low inflation at the same time.

And the reason that is happening is because of one thing and one thing only: they have an uncooperative central bank. Markets note that without the cooperation of the central bank that Italy could be pushed into default by market interest rates alone, which causes investors to demand higher interest rates from Italy, which makes the chances of Italian default higher, and so on. But the root cause is simply investors noting correctly that the central bank won't do anything to protect their investments or the country, and the entire crisis proceeds from there.

People want this to be a simple morality tale where the things people democratically demanded were unrealistic and now they "have" to pay the price. But the answer is actually much more chilling: the democratic demands of Europeans were and are sustainable, but the unelected elites of Europe have an unrealistic gold-standard fantasy world that they live in and are accepting a huge crisis because they refuse to admit that they were and are wrong about how money and investor confidence works.

The Spain/Germany thing is actually completely comprehensible. Spain is an undeveloped country relative to Germany. Spain got out of Fascism in the 70s, Germany in the 40s. Spain is a more attractive place to invest when things are running smoothly. With the European Monetary Union, Spain became easier to invest in, so money moved from Germany, to Spain. That drove prices and wages up in Spain because of a period of investment bubble. Too many German investors chasing too few Spanish investment opportunities. And when the crisis hit, and German investors wanted to hide their money in a sock drawer, billions and billions of Euros went out of Spain and back into Germany.

So to balance the equation, what has to happen is some combination of Spanish prices falling and German prices rising. Germany has refused to accept Inflation, and the ECB has made price stability the cornerstone of their every move. So... we're in for years and years of deflation in Spain, which drives investment out of the country and destroys jobs and demand. So Europe has signed up to have a full fledged Depression in Spain. Again, not because of the democratic will of the people of Europe, but simply because the elites of Europe can't seem to come to grips with the fact that the system they created needs some inflation in the core (or totalitarian price controls in the periphery - that would also work) in order to balance prices in any kind of reasonable time frame.

Basically: the European elites refuse to acknowledge any of the following:

• A central bank needs to guaranty the debts of a nation to prevent that nation from falling to self-fulfilling panics.
• Prices and wages have downward rigidity.
• Private investors pulling tens of billions of Euros out of your country is not necessarily the product of anything you did.
• Investors do not want to invest in countries with negative real or nominal growth, even if those countries have price stability.
• The market gods are not appeased by sacrifices. Killing a cow or a job does not show the markets that you are serious, it shows the markets that have one less cow or job.

-Username17

FrankTrollman wrote:Spain is a more attractive place to invest when things are running smoothly.

It was an easier place to inflate a bubble for bonus earning financial types ... and that's about it. If they had productive investment their trade deficit wouldn't have gone up for 9 years straight after the Euro introduction.

http://www.tradingeconomics.com/spain/balance-of-trade

It's long term prospects for productivity increases were as constrained by peak fucking everything as Germany, and with Germany absolutely raping it's labour at every turn they would be unlikely to ever gain a foothold with low labour costs either without racing to the bottom faster and implementing Eastern Europe median living standards (which aren't that bad seen globally, but still worse than what they had pre-Euro).

Bubbles, government lobbying and crime/fraud have been the only major inflation beating investment for over a decade ... and that's not going to change going forward because of peak fucking everything. Free market capitalism is dead, without growth all it does is cause wealth concentration ... and that only reinforces itself as capital takes over government, with the final state being feudalism again unless revolution intervenes.

Either we increase redistribution of wealth or we are heading towards an economy almost entirely build on rent seeking and debt slavery from cradle to grave for the 99.9%. That's why austerity and deflation is the solution the elite want, if everyone defaults they can buy up everything.

So to balance the equation, what has to happen is some combination of Spanish prices falling and German prices rising.

The problem is that labour inputs are dropping as a percentage of final product prices and foreign natural resource inputs (majorly oil) are increasing, this makes the old solution to financially created trade imbalances of devaluation much less effective.

A certain amount of austerity is necessary for Spain, and all the trade deficit countries (so all the PIGS except for Ireland ... which allowed itself to become a debt slave while running a trade surplus, no better example of a government selling out it's population to finance than Ireland).

Fuchs wrote:

Maxus wrote:

CatharzGodfoot wrote:

Well, 1100 a month isn't a ton of disposable income.

But I freely admit that your idea of a 'low standard of living' beats the hell our of our idea of 'low standard of living' and should be more widely adopted.

A single Big Mac burger (not the menu) over here costs more than 7 USD.

A single doctor's visit here costs about 230 swiss francs. Trade you!

What would happen if the smaller countries that were more financially solvent such as Finland or Denmark left the euro before it sucked them into the black hole? I mean, obviously it would hurt the euro even more, but would would happen to those individual countries?

Denmark doesn't use the euro. They opted out initially (there was some popular support for adopting it, until recently), and instead peg their currency directly to the euro. They'd just have to stop doing that, which is easy enough. It's hard to see them losing much of anything at all from doing so.

Lago PARANOIA wrote:What would happen if the smaller countries that were more financially solvent such as Finland or Denmark left the euro before it sucked them into the black hole? I mean, obviously it would hurt the euro even more, but would would happen to those individual countries?

Well, Finland basically tracked Sweden until the ECB started going crazy and raising rates in the middle of a depression. Now it's diverging, with the market pricing in a general Euro collapse to Finland and not to Sweden:



So getting the fuck out of the Euro should obviously be a priority for Finland. Unfortunately, there lacks any specific mechanism to do that. The normal fear is that dumping the Euro would cause a bank run on the country. For Finland the opposite may be true - especially if they announce a Scandinavian Union Kroner or something - that might be so in-demand as to cause a Euro bank run into Finland. That would be the opposite problem of Greece or Italy, where people would expect the new currency to undergo massive inflation and pull all their money out - people would expect the new Scandinavian currency to be safer and more stable than the troubled Euro and move lots of Euros into Finnish accounts just before the switch over. Finland would be subject to huge capital inflows, which would destabilize their country and drive prices up. There is only 5.3 million Finnish people, they just can't take hundreds of billions of Euros flowing into their banks. They'd have to issue strong capital inflow controls, which are currently against EU rules.

Basically it would be a clusterfuck. They would have to break EU regulations left and right, and they would be really putting the boot in to other EMU countries to do it - remember that they are a very small country so if Germany or something decided to "take revenge" they could do some pretty bad things to Finland.

-Username17

Lago PARANOIA wrote:What would happen if the smaller countries that were more financially solvent such as Finland or Denmark left the euro before it sucked them into the black hole? I mean, obviously it would hurt the euro even more, but would would happen to those individual countries?

EU big wigs have said that if Greece wanted to leave the Euro they'd have to leave the EU ... which was basically a warning to all the Euro countries "don't even fucking think about it".

The only country in the EU who could comfortably lose access to EU single market trading rights is Norway, because of their oil exports, and they don't even use the Euro.

MfA wrote: The only country in the EU who could comfortably lose access to EU single market trading rights is Norway, because of their oil exports, and they don't even use the Euro.

Norway is not in the EU. That is like saying "the only state that could secede from the US is Panama".

-Username17

I believe that the name is just a coincidence, but seriously, how many Austrians are running the ECB? I have a really hard time believing that most of the people pulling the strings are Keynesians. Or even Monetarists.

Lago PARANOIA wrote:I believe that the name is just a coincidence, but seriously, how many Austrians are running the ECB? I have a really hard time believing that most of the people pulling the strings are Keynesians. Or even Monetarists.

Some choice quotes from the wikipedia on Super Mario's ECB head candidacy:

Wikipedia wrote:A few days later the German newspaper Bild endorsed Draghi by defining him the "most German of all remaining candidates".
...
There were concerns that his past employment at Goldman Sachs would hinder his path to the position, although in the end this doesn't appear to have occurred.

All joking aside though, the reality is that the Very Serious People of Europe do not have a model. Actual models based on any kind of consistent theory do not output the results they want, and so they just make shit up as they go along. Can anyone tell me what the fuck kind of theory tells you that fighting inflation is your number one priority when the economy is depressed, governments are losing investor confidence, unemployment is rising, and inflation has been at record lows for three fucking years? That does not make any sense. There is no economic theory anywhere that says that central banks should be interfering to lower inflation when inflation is low and growth is negative. No one advocates that shit.

What we have instead is the ECB making bizarre pronouncements that make no sense in any context but represent actions taken by "gut feelings" and the desire for the economy to be a morality play. They keep announcing that fiscal discipline needs to be increased, but seriously what the hell? Spain had fiscal discipline before this shit started. Italy has fiscal discipline now. It doesn't fucking matter, because this is obviously not a fiscal discipline issue and never was one.

The really funny one is to watch the OECD in action. Here's their latest doom crying:

OECD wrote:Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track, says the OECD’s latest Economic Outlook.

The euro area crisis remains the key risk to the world economy, the Outlook says. Concerns about sovereign debt sustainability are becoming increasingly widespread. If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption. Pressures on bank funding and balance sheets increase the risk of a credit crunch.

Another serious downside risk is that no action would be agreed to offset the large degree of fiscal tightening implied by current law in the United States. This could tip the economy into a recession that monetary policy could do little to counter.

Huh? So they are concerned that hawkish monetary policy is choking the Euro and threatened US fiscal contraction could devastate the world economy? Oh wait, who could have possibly told Europe and the US to do something so fucking stupid? Could it have been... the OECD in [url=http://www.oecd.org/document/4/0,3343,e ... _1,00.html]May of 2010[/ur]? Why yes, yes it could.

OECD on the US, 2010 wrote:In the United States, where some long-term measures of inflation expectations have increased and the labour market has stabilised earlier than expected, the start of normalisation should not be delayed beyond the last quarter of 2010. Policy interest rates should be well above half-way to neutral by end-2011, but the path of convergence to full normalisation would have to accelerate if long-term inflation expectations were to drift up further.

So here's the thing: the OECD economists track the austerity measures and report how fucking disastrous they are going to be. Then the actual leaders of the OECD sign off on documents demanding... even more austerity measures. It's a weird religious thing where no matter what the analysts say, the bishops always demand more sacrifices. They are like Aztec priests - apparently they think the market gods always want blood no matter what the situation actually is.

-Username17

Some people have the (conspiracy) theory that the ECB actually does intend to act as a lender of last resort, but first Germany wants to cause enough turmoil in Southern European nations in order to get political appointments more favorable to them before undergoing the necessary and inevitable inflation. Like the Republicans during the debt ceiling debate they're actually playing a game of high-stakes chicken and aren't actually crazy, they just want everyone else to think that they're crazy and get what they want. They've overreached a bit to the point where they accidentally dropped their spectacles and wedding ring into the abyss but have no intention of actually heading in. Obviously this falls apart a bit because it's obvious at this juncture that Boehner didn't realize that his coalition was actually crazy instead of pretending to be crazy. But that's the general idea.

Thoughts on that theory? It's naked imperialism and I wouldn't be surprised if an unshaven Berlusconi burst into Merkel's office reeking of smoked reindeer and stale wine in order to kick her in the shins, but if that's the plan it looks like it's working to an extent.

If that's their plan the 'brilliant' thing about that theory is that no one except the PIIGS, Chinese, Brits, and Americans (and the last three are debatable) will want to throttle the ECB/Germany/France. Have you read the comments for these kinds of articles? They're kind of disturbing.

EDIT: That's right, I said France. I think they're in on the scam. I don't know why, I just do. Something about Sarkozy just makes me not like him. I admit that it's not rational, but just something about that guy inspires some sort of primal disgust I don't even have for Cheney.

it's like the republicans spouting about how the US doesn't have an Income Problem, it has a "spending problem' when that's clearly not true.

In France we call him the Little Napoleon.
He's got a bad habit of trying to squash journalists who report unflattering things. Until SDK turned out to be even scummier than we thought, everyone was hoping he would win the Presidency. Noone wants 5 more years of Sarkozy.

sabs wrote:it's like the republicans spouting about how the US doesn't have an Income Problem, it has a "spending problem' when that's clearly not true.

Like, whatever, because it's clearly true. Here is a chart. "The federal government is spending more per household than ever before. Since 1965, spending per household has grown by nearly 162 percent, from $11,431 in 1965 to $29,401 in 2010. From 2010 to 2021, it is projected to rise to $35,773, a 22 percent increase."

Now we also have an income problem: IT'S A RECESSION, STUPID. THAT HUGE UNEMPLOYMENT NUMBER IS LESS REVENUE FOR US. But that is not a constantly declining number where the spending problem is a constantly rising number.

Now I could be wrong but 21st century spending (baring the big burp with 2008) or the Bush-'Bamma administrations seems to be somewhat linear. So the biggest problem is that angle of the dangle that keeps going up and up. Ideally this should be FLAT. (YES, FLAT, THAT IS INFLATION ADJUSTED DOLLARS ON THAT GRAPH.)