"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister
"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."
- Daenerys Targaryen
"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"
- Tyrion Lannister
"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."
- Jorah Mormont
"These bad people are what I'm good at. Out talking them. Out thinking them."
- Tyrion Lannister
"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."
- Michael Barone
"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker
Saturday, March 07, 2015
March 9, 2015
As soon as the battle between Greece and its creditors ended, with the two sides agreeing to a four-month extension of Greece’s financial bailout, the battle over who had won began. Wolfgang Schäuble, the hard-line German finance minister, declared that the new Greek government, led by the leftist party Syriza, had been forced into a “date with reality.” Greece’s Prime Minister, Alexis Tsipras, called the agreement a “decisive step” that would help end austerity and lift the Greek economy from its deep depression, and the Greek public seemed largely pleased with the deal.
At first glance, Tsipras’s positive comments look like spin. Syriza came to power vowing to win a reduction in Greece’s enormous debt burden, to reject the budget commitments that the previous Greek government had made, and to liberate Greece from supervision by the so-called Troika—the European Central Bank, the International Monetary Fund, and the European Commission—that has been vetting all the country’s fiscal decisions in recent years. Yet the new agreement makes no provision for debt reduction. It says that the extension will take place only within “the framework of the existing arrangement.” And Greece’s plans will still be evaluated by the same three institutions. From that angle, the Greeks went 0 for 3.
If you look a little harder, though, you can see that Greece won important breathing room. Heading into the negotiations, the country faced budgetary targets for 2015 and 2016 that would have kept the economy stuck in recession—it has shrunk by thirty per cent since 2008—and prevented the government from doing anything about poverty levels that many observers say constitute a humanitarian crisis. The targets are now up for revision in future talks—a significant concession. According to Mark Weisbrot, the co-director of the Center for Economic Policy Research, “European officials were telling Greece it was their way or the highway. That’s changed. I think Europe blinked.” James Galbraith, an economics professor at the University of Texas at Austin who was in Athens and Brussels to assist the Greek team during the negotiations, told me, “Victory may be too strong a word. But you can certainly call it a successful skirmish. This has given Greece some room to maneuver. Not a lot, but more than it had before.”
In essence, the agreement kicked the can down the road for four months—which suits Greece fine. In recent weeks, money had been pouring out of the country, leaving the banking system on the verge of collapse. And Syriza officials inherited an administrative state that was barely functioning. As Galbraith said, “When they went to the Ministry of Finance for the first time, there was not a document, not a computer. The Wi-Fi was not turned on.” Now Syriza has a little time to deliver on the promises it’s made, both to voters and to Europe.
The real challenge is satisfying those two constituencies, which want very different things. And though there’s space for negotiations, Greece is still in thrall to European institutions: both the E.C.B. and the I.M.F. have already voiced concerns about the reform plans that Greece submitted last Monday. If you owe three hundred billion euros and need Europe to save your banking system, you’re bound to be supervised, but Greece has so far negotiated without its most powerful weapon—the threat of leaving the euro and defaulting on its debts. Such a move, known as the Grexit, was off the table, because Syriza had campaigned on staying in the eurozone, and polls show that this is what most Greeks want. But they may soon need to reconsider.
The conventional wisdom is that returning to the drachma would be a catastrophe for Greece. Certainly, it would be traumatic: there would be an immediate devaluation; the value of savings would tumble; the price of imported goods would soar. But Greek exports would become cheaper and labor costs even more competitive. Tourism would likely boom. And regaining control of its monetary and fiscal policy for the first time since 2001 would give Greece the chance to deal with its economic woes. Other countries that have endured sudden devaluations have often found that long-term gain outweighs short-term pain. When Argentina defaulted and devalued the peso, in 2001, months of economic chaos were followed by years of rapid growth. Iceland had a similar experience after the financial crisis. The Greek situation would entail an entirely new currency rather than just a devaluation. Weisbrot says, “It could work. You have to go through a crisis, but then the economy would recover, and probably more quickly than people expect.” Although Europe is much better equipped to deal with the economic consequences of a Grexit than it was three years ago, the political consequences would be devastating to the European project. That’s why, even if Greece wants to stay in the euro, a credible Grexit threat could help keep Europe from pulling the leash tight again.
For now, Syriza will try to change Europe from within. The fight over Greece’s budget isn’t just a fight about finances; it’s a fight about the ideology of austerity and about whether smaller countries will have a meaningful say in their own economic fate. As Weisbrot told me, “Countries like Greece have lost sovereign and democratic control over the most important macroeconomic policies that any country has. Greece is trying to take some of that control back.” The skirmish may have been successful. The real battles are yet to come. ♦
Wednesday, March 04, 2015
Because not all institutions have access to the IOER rate, we will also use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, eligible counterparties may invest funds with the Fed overnight at a given rate. The ON RRP counterparties include 106 money market funds, 22 broker-dealers, 24 depository institutions, and 12 government-sponsored enterprises, including several Federal Home Loan Banks, Fannie Mae, Freddie Mac, and Farmer Mac. This facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the Fed. Indeed, testing to date suggests that ON RRP operations have generally been successful in establishing a soft floor for money market interest rates.
Monday, March 02, 2015
The Eurozone Counterfactual by David Beckworth
Disgorge the Cash by JW Mason