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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says

Posted by WARREN MOSLER on May 9th, 2012

See below, seems 75% still support the euro vs trusting their own leaders with their own currency.

Also, unfortunately, the non MMT world pretty much still fails to grasp that mass unemployment is a macro problem and a manifestation of unspent income. That the only way the output gap gets filled is by some sector spending more than its income; and that the issuer of the currency is the only entity that isn’t inherently revenue constrained when it spends.

EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says

May 9 (Bloomberg) — European Union President Herman Van Rompuy said the EU’s response to the sovereign-debt crisis will “convince people” of the value of being in the 27-nation bloc.

“We will convince people of the sense and the meaning of EU membership by results,” Van Rompuy said in a question-and- answer session posted on the Euronews website today. “That’s why we have to stabilize the euro zone and that’s why we have to increase economic growth and create jobs.”

“There is still a huge majority in most of the countries for membership of the European Union and the euro zone,” Van Rompuy said. “Even in Greece, I saw an opinion poll just before the election which said that 75 percent of people don’t want to leave the euro zone.”

25 Responses to “EU’s Response to Crisis Will ‘Convince People,’ Van Rompuy Says”

  1. Roger Erickson Says:

    Absolutely killer lines, Warren. Why? Because:

    1) in a growing aggregate or system, aggregate Options scale exponentially;

    2) indirection & coordination are the ONLY ways to optimally explore those scaling options;
    sure, that’s a cost; but it’s an affordable cost, and if we don’t make the investment, someone else will (it’s an investment we can’t afford to NOT make);

    3) the only thing that outdoes the exponentially scaling cost-of-coordination, is the return-on-coordination.

    Reply

  2. Dan Kervick Says:

    Yes! It seems to me that the only way someone spends is by issuing liabilities or by trading someone else’s liabilities. But for everyone but the government, the liabilities they issue are debts for the delivery of someone else’s liabilities – primarily the government’s money. Only the government issues liabilities that are not debts that bind them to obtain something whose production they don’t control. They are only promises to credit off tax obligations that the government itself imposes by legislative fiat.

    Reply

    WARREN MOSLER Reply:

    yes, and it’s not wrong to say a tax credit is a debt of that govt. to keep the accounting straight

    Reply

  3. SteveK9 Says:

    Greeks may want the Euro, but they don’t want austerity (an actual election, not a poll). Will that work out? They did get the bond forgiveness.

    Reply

  4. Woj Says:

    “mass unemployment is a macro problem and a manifestation of unspent income.”

    Maybe I’m missing something but is it possible that the private sector previously spent more than its income and now is faced with less income than expected (therefore paying down debt)? Wouldn’t this imply that it wasn’t unspent income but rather too much spending?

    Reply

    Roger Erickson Reply:

    @Woj, An organized group of people ALWAYS have options. Leaving them unexplored indicates lack of executed transaction chains, which often means lack of access to adequately distributed currency (or brains, but then they wouldn’t be an organized group in the first place then, would they?).

    Lack of optimally distributed income can be caused from:
    1) failure to create enough currency;
    2) uselessly sequestering too much (income & savings disparity)
    3) patterns of mis-spending – which only produces #2, which then defaults to lack of productive re-spending (aka, re-distribution)

    Warren seems to usually imply that mis-allocation in a large nation is nearly always negligible compared to unexplored options, and hence summarizes 1, 2 & 3 as usually condensing to lack of aggregate spending. What’s Mosler’s law? That there’s no economic mess that can’t be swamped with enough additional fiscal spending (aka, public initiative). WWII etc pretty much prove his point. There are plenty of options beyond the current top.
    Darwin agreed.

    Reply

    Jim Thomson Reply:

    @Woj, Yes, you are missing something. The spending of the boom was credit based, which is fine as long as incomes can support the debt service. But due to the fraudulent mortgage industry loans were made with no supporting income. When these loans inevitably failed it led to our current mess . Gov’t spending incurs no matching liability and is thus Net income to the system. This is basic MMT analysis of the horizontal and vertical money flows. Spending of credit money requires debt service payments whereas spending of gov’t money creates no corresponding liability and creates net financial assets .

    Reply

    Woj Reply:

    @Jim Thomson, @Roger Erickson, Thank you both clearing up my misunderstanding. Recognizing that unspent income includes government spending I completely agree that the current troubles could be “swamped with enough additional fiscal spending.”

    Reply

    WARREN MOSLER Reply:

    right, for a while the private sector spent more than it’s income via credit, and the economy did ok. then it spent less when the credit cards were pulled, and it didn’t do so well.

    Reply

    Dan Kervick Reply:

    @Woj,

    Paying down debt is a form of “unspending”. Thinking in terms of stocks and flows, an economic agent saves – and foregoes spending – to the degree they choose to use some of their income to add to their stocks. If your stocks have a positive balance, then the saving just adds to that balance. But if your stocks have a negative balance, then saving is used to reduce the size of that negative balance and get it closer to, or above, zero. Either way, the choice to add to stocks represents a drain off from income flows.

    Since one way people save is by buying debt instruments from others, then the saving of one private sector agent might be additional income of another agent – which is gets spent or invested in production. It’s a net wash. But if the entire non-government sector is adding to its stocks in the aggregate, then either its spending in the aggregate is contracting, or else the total volume of government spending into the non-government sector is greater than the total volume of non-government sector payments to the government.

    Reply

    WARREN MOSLER Reply:

    that would be an example of the private sector spending less then its income in that ‘current’ time period.

    Reply

  5. JBH Says:

    Europe is in trouble for one reason…Politicians want to buy themselves election/re-election by spending mountains of money on handouts. It has to stop someday, it is an unsustainable model.

    This is the bottom, bottom line.

    Reply

    MamMoTh Reply:

    @JBH, What’s unsustainable about Sweden, Norway or Switzerland? Please, enlighten us.

    Reply

    WARREN MOSLER Reply:

    they have inherently sustainable institutional monetary systems

    Reply

  6. Piero from Italy Says:

    Europe will survive.. I am QUITE sure.. and Bce will become, thanks to Market Action (= Bild….) MMT like Fed/Boj/Boe… and 2012/2022 in all Western Countries will be like 1972/1982.. High Inflation.. High Commodity.. Real Interest Rate NEGATIVE.. Political Instability (also in US by some years from now.. may be the “next” cicle of 5/6 years)..

    but the real problem (competition from Brics&C plus Global Commodity Rationing) cannot be fixed by MMT, by Keynes, by Mises, by Krughman, by NO-ONE..

    Reply

    Save America Reply:

    @Piero from Italy, Piero, bill black just posted an article about krugman and the failure of austerity in europe and other places, but black and krugman avoid this topic you bring up, as globalization has replaced the developed worker and thier unions with third world labor, and all workers are being replaced with robots, AI, and technology, what is left for the redundant humans to do but sit back and enjoy the surplus?

    Warren’s MMT and jobs gaurantee at least attempts to do something to help all these idle people have some kind of purpose. You are in a bowling alley Piero, and there are 32 lanes, which maybe can service 200 people, but 1 billion people are filling up your bowling alley, someone is over in the corner talking about bowling score trying to help.

    So many people with too much time on thier hands, they are even showing up here at this board and billions of other niche internet places spending countless hours reading and posting they have so much free time, my bible says idle hands are the devils work, and that was written 2000 years ago, so idleness has been a problem a long time ;)

    Reply

    WARREN MOSLER Reply:

    ‘competition’ of that sort is only a problem if you limit yourself to export led growth

    Reply

  7. walter Says:

    Van Rompuy better hurries up with that ‘convincing response’.
    The Chinese sov wealth fund (CIC) announced today it stopped buying european govt debt.
    Looks like more and more parties wake up Norwegian style.

    Reply

    Neil Wilson Reply:

    @walter,

    “The Chinese sov wealth fund (CIC) announced today it stopped buying european govt debt.”

    In which case the spare Euros end up at the ECB by default.

    It is then for the ECB to force them back into the system.

    Reply

    walter Reply:

    @Neil Wilson,
    I do not expect ECB to buy member state govt debt. That ball is now with the EFSF as far as I understood.

    Next LTRO in the making?

    Maybe they also just stopped converting usd into eur that they did before for diversification purposes.

    Reply

    Piero Reply:

    @walter,

    for Save America and Mosler…
    thanks for your feedback..

    I understand that now we are in a over-capacity..
    I understand that if we give money (print) we stimulate demand
    and fill the output gap and increase employment..
    so I think MMT is the only possibility to manage the problem..

    and I think that both public opinion and politicians&many economist
    are in a mind-trap.. may be that the Big Affairs Bank that rule the world have some interest to expand this unique thinking of cuts&tax..

    but on the other side.. I think that Print don’t solve on the long secular run the underling problem.. consumer want buy cheap goods..
    so if you want that the money that you print will buy domestic goods you will need protectionism against international commerce.. if you leave free commerce you buy (with printing money) quite only imported goods.. so the currency devaluate.. and the Commodity Rationated (above all for Europe that don’t have Oil and Gas like Us) quoted in $ (o Remimbi) will become very very expensive… and through this channel the re-aggiustment of resource form West to East will became true…

    sorry.. I think MMT is better then austerity.. but on the long run I think that decline for West is inevitable..

    the only possibility is a real tecnological innovation (may be Robot and new atomic cold energy with no risk) that change radicccaly paradigma and avoid this massive world move of richness..

    bye

    Reply

    WARREN MOSLER Reply:

    the ‘currency depreciation’ you mention is perhaps better thought of as ‘currency appreciation’ of your counter parties

    and remember, the level of your currency doesn’t alter the real wealth of your nation, which is all it can produce at full employment domestically, plus imports, minus exports.

    yes, the level of the currency has internal distributional effects, but they are ‘better addressed’ with other policies.

    Reply

    MamMoTh Reply:

    @Piero,

    but on the long run I think that decline for West is inevitable..

    Probably true in relative terms but so what? It’s a good thing. It’s time to realize the level of wealth in the West is more than enough if it were properly distributed.

    Reply

    Leverage Reply:

    @MamMoTh,

    Exactly.

    I agree with both Piero and Warren even if it’s a bit contradiction. For me the big elephant is energy production and consumption transformation (and other resources, treatment of waste and recycling, environment problems etc.).

    If we can ease cost-push inflation some way it won’t be a problem, if we don’t we are screwed. There are already a lot of things that could be done in that front with right policy and money, there is also plenty of energy to transform gradually infrastructure and consumption habits. You could cut 80% of energy costs of houses in the USA implementing some policies NOW, there is also plenty of natural gas while we advance technology and implement it in other areas…

    Things can be done and are not being done because “there is no money” (dumb).

    So which is the bigger risk? That people in charge, and calling the shoots are either idiots, psychopaths or too short sighted; that they do not pursue the right policies because of vested interests. And off course, that the people does buy into propaganda and does not try to work it out and find alternatives with open mind. That’s the biggest risk right now.

    Save America Reply:

    @MamMoTh, http://endoftheamericandream.com/archives/a-chinese-group-plans-to-construct-a-200-acre-china-city-in-michigan

    There is plenty of money, those chinese are going to buy up land and energy resources all over the USA, I hope they bring over good general tso’s chicken in these mini me chinese communities.

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