Comments on: my euro ‘solution’ is on DeLong’s blog today

By: warren mosler

warren mosler — Sun, 14 Feb 2010 22:16:45 +0000

the euro still has a deflationary bias, and if greece defaults that many financial assets vanish, further tightening up the currency.

right now the euro is being torn in both directions.

the increased deficits are adding net financial assets and driving it down, as is the desire to exit.

but on going tax liabilities and fiscal tightening plans and the risk of default and deleveraging and high unemployment are deflationary and fundamentally supporting the currency.

By: Tom Hickey

Tom Hickey — Wed, 10 Feb 2010 17:43:16 +0000

The inflationists also have to look at Japan and not just cite Weimar and Zimbabwe, which were outliers arising from exogenous shocks. Anyone looking at Japan’s humongous debt to GDP ratio would run out screaming, “The sky is falling. Hyperinflation is here for sure!” Never happened. Instead, Japan has been fighting deflation with extraordinarily low rates. You have to look at situations case by case in terms of prevailing conditions, not just apply “commonsense” nostrums masquerading as theorems.

Post-Weimar Germany is continually fretting about inflation. Now it needs to be concerned with deflation.

By: Jim Baird

Jim Baird — Wed, 10 Feb 2010 15:14:55 +0000

“they start buying everything off the shelves”

And in Euroland, the VAT kicks in and immediately starts draining purchasing power from the private sector. It’s really tough to have hyperinflation in a country with a functioning tax system. In fact, you might say that hyperinflation is another word for the breakdown of taxing authority – not a response to “printing money” (whatever that means)

By: warren mosler

warren mosler — Wed, 10 Feb 2010 02:50:07 +0000

in the mid 90′s when the mexican peso blew up and confidence went to 0 or less the peso went from maybe 3.5 to the dollar to 10 where it stayed for a long time. Same when Russia blew up- the ruble went from 6.48 to 28, where it also stayed for a long time.

Point is, even under far more severe conditions than anyone imagines, you don’t just leap to hyper inflation.

The value of a currency is a function of prices paid by govt when it spends, etc. as in all the literature on this site. Note that
all the great latin am inflations were traced to indexation of govt psyments.

So as long as
there is continuous tax enforcement a jump to hyper inflation is more than highly unlikely.

By: Winslow R.

Winslow R. — Wed, 10 Feb 2010 01:28:41 +0000

Bill/Jason: “(or at least very serious inflation). … Just because Bill or anyone else can’t tell you what the magic figure is and when it would happen doesn’t mean his point isn’t well taken.”

Jason/Bill, the problem with this/his statement is it a conjecture which leads to political paralysis. Is that the ‘point’ to be well taken?

If you’ve read the papers on this site you would understand that
Warren’s proposal and the solution to your inflation fears are both easy to implement through fiscal policy action. Action, not paralysis.

By: Matt Franko

Matt Franko — Wed, 10 Feb 2010 00:05:20 +0000

Bill,
Because that (your straw man) would be absurd. That’s why Warren is rationally proposing a E3,000 per capita transfer (based on >300M EMU population). Just a slight “fiscal” adjustment to take the short term pressure off. Resp,

By: Jason

Jason — Wed, 10 Feb 2010 00:04:10 +0000

Bill’s point doesn’t deserve a “yes and the world will end at some point too” rejoinder. In my opinion he is absolutely right. Print up a trillion Euros and you face a real possibility that everyone comes to the conclusion that another trillion is on the way and they start buying everything off the shelves and voila you have hyperinflation (or at least very serious inflation). Just because Bill or anyone else can’t tell you what the magic figure is and when it would happen doesn’t mean his point isn’t well taken.

By: Winslow R.

Winslow R. — Tue, 09 Feb 2010 22:15:38 +0000

“my euro ’solution’ is on DeLong’s blog today”

Perhaps this is a ‘peace’ offering?

Kinda like Iran offering an alternative path other than war. Requires a small reciprocal move?

By: Winslow R.

Winslow R. — Tue, 09 Feb 2010 22:03:58 +0000

Bill: “at some point”

Could you please refine this ‘point’?

At some point the world will end.

By: Bill

Bill — Tue, 09 Feb 2010 19:16:01 +0000

At some point the people realize the currency is worthless, a sham, and hyperinflation sets in. It’s not a technical condition, you don’t see it coming. It’s a mindset that overtakes an economy like a virus. Why not make every European a millionaire tomorrow? It’s just numbers in a computer, right?