“MFS001.....you are right, you can't just print money without consequences. But where the bankers have bombed a crater of economic output, unemployment, repossessions - out of the economy - the Federal Reserve can pump money into that crater, without affecting inflation.....If the economy was purring away at full speed, then printing money would be inflationary.....there would be more money than economic activity, and that would cause inflation. When there is less money (credit) than economic activity - you get what threatens us all know - deflation, and a further acceleration of bankruptcies, unemployment repossessions.......which is why it is right for the Fed to create credit ('print money') - while the government stimulates 'demand' - i.e. invests in productive activity that creates jobs, tax revenue - that pays off the debt!”
MFS001 on May 5, 2010 at 14:16:41
“Thanks, However, the big problem here is that the "crater," so to speak, is the crash of wealth that was basically fake -- inflated assets. Now we're trying to prop it all up, making the problem worse in the long-run because those dollars you have will continue to be devalued.”
“This lady sure does know S&P and how they failed every all those innocent investors believing that institutions rated at triple AAA, were really AAA when they were not....But that is not the point of my blog.....the point of my blog is that on THIS issue - the deficit - amazingly, they have got it right.”
“dsws - all that bondholders want is for the economy to recover.....Think of Russia, 1998. Defaulted on her debts....got out from under the IMF's economic strategy, and recovered...After which investors - with unseemly haste - piled in, and have not looked back...”
dsws on May 5, 2010 at 11:12:01
“Thanks for the reply.
If you're talking about a country that's going to default, it's certainly best to get it over with. Bondholders would rather have new debt they know can be paid and probably will be, than old debt that probably can't be paid. But if they definitely can pay the debt, even with some hardship, it's probably cheaper to do so.
The US definitely can pay our debt. Default risk isn't even in the picture. If there's a situation where the US defaults, gold won't do you any good either. Even the traditional diversification into ammo and canned goods is likely to be futile in that kind of scenario.
In the case of US debt, it's a matter of how much money people are looking to park someplace safe. If we go past that, we're both raising the rate and crowding out private investment. In the Great Recession there's been a lot of money looking for a safe place to park, and not a lot of investment going on that could be crowded out. But the recession is technically over, and the ship of state turns slowly.”
“No Krugnac....not Greece. Us. You and me. We are entitled to intelligent economic debate. Not hysteria. Those who hand over their money and lend, expect to make a great deal from it - effortlessly.I earn my money from hard work. It is not effortless. But money-lenders can make money effortlessly. . Especially if a country (or sub-primer) is risky.....they make very big money. So they can't have my shoulder to cry on. Having said that, it is fair that a lender should be repaid. But the point is this: for a lender to be repaid, to be sure of getting back his/her money, the borrower cannot be bankrupted/jailed/put to death. That way the money will never get repaid. Get my point? Better to keep the borrower healthy, engaged, working, productive - so that debts can be repaid. Am I making sense? Because that is the sense that Standard and Poor's was expressing in the NYT.”
tychill on May 5, 2010 at 13:58:15
“All lending requires risk. Sure, lenders can make big profits from risky bets and they can also loose big. Saying that lenders make money effortlessly is misleading. Whether or not lenders take part in actual labor is inconsequential. Lending requires cost and risk. For the economy to function properly, both lenders and borrowers should be rewarded or punished accordingly by the market.”
PotomacOracle on May 4, 2010 at 21:39:01
The Government of Greece offered to monetize its public assets to raise the local currency to finance the governments budget and keep unemployment relatively low. The Germans said no deal as did the IMF. Their refusal was based on the fact that the GoG would not have to borrow the local currency from them.
The EC is so corrupt in this regard. All EC governments could monetize their assets up to budget requirements to generate local currency without giving up the assets, i.e., selling them to foreigners. Yet, the IMF and World Bank along with the power nations in the EC see this as a solution that does not benefit them because there are no debt service payments from the Greek taxpayers and their is no forced austerity.”
“qualia8. Sure Greece suffered mismanagement. That's what her new government openly revealed to the world, as they opened up the old government's books. But it also suffers from trade imbalances within the Eurozone (the Germans export too much, and import too little, so Greeks can't sell into German markets, and raise the cash needed to repay debts....a bit like the relationship between the US and China...) Also Greece has no flexibility around her currency; and her central banks can't adjust interest rates to suit the Greek economy. So as well as incompetence....there are these other major macro-economic issues, which are not the fault of the Greeks, but the fault of the structure of the Euro and the Maastricht Treaty - all based on classical economics that went out of fashion in 1929.”
“doug494, it's not right to say government has no choice but to tighten the belt. The only way government will ever repay the debt, is if the economy recovers. If the economy fails again, and continues to fail...be sure that not even 'tightening the belt' will help pay the debts........Government debt is different from yours and mine - in some respects. When government spends, it generates income - tax income. When I spend on e.g. a property, that may not generate income....If I have spent too much, and do not have enough money to repay debts...then 'tightening the belt' will free up money to repay debts - provided I do not lose my job/income. The point is that debt can only be repaid through income...and if we cut back on economic recovery, then the government will stop receiving income in the form of tax receipts...and will not be able to repay the debts.”
doug494 on May 5, 2010 at 11:59:16
Government spending in and of itself is not sustainable or beneficial.
Every dollar the government spends must be viewed as an investment, which must have a return value, and must be economic in nature, i.e. we should spend on defense to protect ourselves so we are not stolen from, we must invest in infrastructure to lower future costs, we must invest in protecting the environment because we cannot afford to rebuild it.
The government is no different than you or I. A baker that borrows money to buy his own cookies, so his bakery has money to purchase flour to make more cookies is going to soon be out of business. The only difference is the government can last longer by printing money and it takes longer for inflation to catch up.”
“RabidRightRebel....No, Americans are not subject to Bostonian tyranny, because they elect the governments (both Federal and state) that determine fiscal policy, and their elected representatives have a say in monetary policy too.....by mandating the Treasury, the Fed, and by appointing the governor of the Fed.
Greeks do not enjoy these democratic privileges - now that they have surrendered control over currency, monetary and fiscal policy to Frankfurt, Brussels and Washington.”
“To reiterate lenuk: the issue has not been superseded. The fact that the British and Dutch have come to the negotiating table and offered a new proposal - has entirely to do with the referendum. If there is a big turnout today - the British and Dutch will have to make further concessions....there is no 'deal' on the table - only offers from the British and Dutch.”
“Mr James....I disagree that the people of the United States are asleep. They just have not had, as a nation, the chance to express their views the way that Icelanders today have a chance. However, when they were given that chance in Massachussets, they made their anger and resistance abundantly clear.”
WillieBlack on Mar 16, 2010 at 16:56:34
“I think he meant the people of Iceland are asleep.
He wants them to rise up (or something).”
fightorleave2 on Mar 6, 2010 at 13:15:14
“When did Massachusetts make their anger and resistance abundantly clear? Please don't say Scott Brown because he's Mr. Business as usual. He will not do one thing to alleviate the supposed hate and anger fueling America. In fact, his election will make it worse.”
“Thanks Lenuk for your comment, but we disagree profoundly with you.
There would not have been a better (though still not good) offer put forward by the British and Dutch if there had not been a decision to hold a referendum.
So this actually reinforces our point - when leaders and the people stand up - you can make real progress.
And today there is still no final deal reached - we are still dealing with negotiations in which the UK and Dutch governments are NOT only not sharing the burden, but are still trying to make a profit overall. We are with the President of Iceland who today again (also on the BBC) called the problem 'a shared responsibility'.
We sympathise with the Prime Minister who has had to deal with a terrible problem inherited from the last government, and faced with appalling pressure from much more powerful countries.
But her government can only be helped by a strong statement from the people of Iceland - about the international bullying they have had to face....”
larry278 on Mar 7, 2010 at 12:33:08
“Thank you for elucidating on this situation & the comments which HP has posted, Ann. I'm starting to learn things incident to this battle of wits, thank you.”
MelRoy on Mar 7, 2010 at 10:13:22
“Why is Landsbanki still paying Icelandic depositors among the highest rates of interest in the world?”
lenuk on Mar 6, 2010 at 11:31:17
“My mistake. It wasn't the Icelandic Prime Minister who spoke on BBC's 'Today' programme, but the Icelandic President (Olafur Grimsson).”
HelloFunnyWorld on Mar 6, 2010 at 10:08:09
“RE: "Their leadership and example will encourage people in other democracies to reject harsh cuts in public services and living standards made at the behest of the very people and institutions -- the bankers and the regulators -- responsible for the crisis. For through the wholesale nationalization of private losses, we are all -- not only in Iceland -- asked to pay the price of private, reckless risk-taking."
And re: "And maybe, just maybe, the message from Iceland may be heard by ordinary citizens in other, larger nations,"
Yes we hear you.
This seems to be the same story everywhere and especially for the middle class.
Good Luck to Icelanders.
"Democracy now" is a good Motto for this Century since the self interests of a Global Ruling Class and their brand of Globalization have taken a wrong turn.
And speaking of Referendums ~ May those poor people in Honduras be able to keep an eye on Iceland and learn how to go about Democracy & Referendums without getting killed or having their lives badly thrashed.
“bassboat, I fear you are quite wrong.....we do not live in a world of free market capitalism. We live in a world of 'offshore capitalism' and far from 'government interference' - this form of capitalism, because its offshore, guarantees no interference....that's what got Iceland into trouble, and its why trouble is still brewing for the rest of us....”
“~Thedesertdweller - while we may have enjoyed the party, we were positively encouraged to join....Indeed 70% of US GDP depended on Americans borrowing and shopping.....and economists, regulators and politicians positively encouraged this profligacy...
Between 1945 and the late 1960s - economists, regulators and politicians took a diametrically opposite view - Americans thrived, did not load up on debt, the economy was stable, but Wall St. was tamed......
So I am not going to blame ordinary Americans that did what they were told was good for the economy.....”
“LaughinMan....you are right that Iceland (being a country of just over 300,000 people) is in a mess...but that's because they followed the Anglo-American model.....so we cannot simply sit back smugly, and pretend that their crisis is isolated from the broader global financial crisis....Nor can we be so smug as to say that its nothing to do with us....its everything to do with us....”