Pablo Iglesias

Pablo Iglesias is right to evoke the guillotine and the French revolution by Olivier Tonneau

Carthaginian Peace

Athenae Delenda Est by Krugman

OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:

The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.

Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP. 

There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing. 

I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work. 

Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I. 

Either way, the lack of wisdom is astonishing and appalling.

It was pointed out that Varoufakis alluded to the Melian dialogue.

Davies on Greece

Greece: looking on the bright side … by Daniel Davies

O'Brien on ECB QE

The ECB takes out the bazooka: It’ll buy over 1 trillion euros of bonds to save Europe’s economy by Matt O'Brien

And finally, QE is a little bit of a bailout, but not in the way that Germany's afraid of. Think about it like this: When a country buys its own bonds with newly printed money, it doesn't have to pay interest on that debt anymore. Now it still does, but this is just an accounting fiction. It's moving money from your right hand to your left hand, and then back again to your right. That's because the government pays the central bank the interest that's owed on the bonds, but the central bank turns around and gives the government all the money it just got paid. 

As economist Paul De Grauwe points out, this wipes out each country's interest payments, so it's not as if Germany is bailing out everyone else. They're all bailing themselves out in equal measure. And this matters a lot for a country such as Italy, which would be running a surplus if not for all the interest it owes on its debt. Those payments, together with its still-shrinking economy, are why Italy's debt burden has actually increased despite all its austerity. QE will help this. 

But it might be too little too late. Or maybe too late too little. It's hard to tell in Europe.

macro

The entirely predictable recession by Simon Wren-Lewis

How did America's austerity beginning in 2011 compare? How did QE compenstate?

The Dismal Science 'Seven Bad Ideas,' by Jeff Madrick reviewed by Paul Krugman

New Left Review criticizes Lords of Finance

War, Crash, Slump by Tom Mertes

Keynes and the Macmillan committee by Simon Wren-Lewis

1926 United Kingdom general strike

French government collapses

Objecting to Austerity, French Style by John Cassidy

Europe

MORNING MUST-READ: BARRY EICHENGREEN: THE ECB TRIES AGAIN by DeLong

Barry Eichengreen: The ECB Tries Again: "In June the European Central Bank announced a sers of new steps to counter deflation....

...Rather than bemoaning the failure of President Draghi & Co. to move earlier, it is more productive at this stage to ask: are the central bank's measures now up to the task?... The ECB's conventional measures, reducing its benchmark interest rate from 0.25 to 0.15 per cent and charging commercial banks 0.1 per cent on the money they deposit with the central bank, will make little difference.... Conventional monetary policy has run its course.... Thus, if policy is going to make a difference, policy will have to be unconventional. Here the ECB unveiled... one and a half... initiatives in June... 'Targeted Long-Term Refinancing Operation'... €400 billion, or some US$550 billion, cumulatively over four months. Recall that the Federal Reserve, under QE3, had been injecting $85 billion a month into U.S. financial markets before starting to taper in December. This makes TLTRO look like a substantial commitment.... The additional 'half an initiative' announced in June was that the ECB would study the possibility of security purchases.... These cautions should not be taken as a council of despair. If ECB officials conclude that the impact of TLTRO and securities purchase will be marginal, they should not give up hope; rather, they should strive to do more...

Emphasis added.

Bundesbank shifts stance and backs unions’ push for big pay rises

The Bundesbank has backed the push by Germany’s trade unions for inflation-busting wage settlements, in a remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check. 

Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent.

In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official. 

The push for higher pay underlines the heightened concern among even the most hawkish members of the ECB’s governing council over the eurozone’s low inflation and signs that the region’s fledgling recovery is stalling. On Monday, the Bundesbank acknowledged the German economy was unlikely to have grown at all over the three months to June.

negative interest rates and the Euro

The ECB is about to introduce negative rates. Can it save the euro? by Matt O'Brien

Why Negative Rates Won't Work In The Eurozone by Frances Coppola

So much for the zero bound by Scott Sumner

neoliberalism

The Italian Disaster by Perry Anderson

IMF bailouts

NYT Says Obama Administration Thinks the Government Has Obligation to Protect Investors Who Are Too Dumb to Judge Risk by Dean Baker

I.M.F. Shifts Its Approach to Bailouts

DeLong on East Asian Crisis & European Feedback Cycle of Doom

DeLong seems to be partly reacting to Baker's criticism of Summers and the Clinton administration's handling of the East Asian Financial Crisis. At least it is the same subject.

The Long and Large Shadows Cast by Financial Crises: The Future of the European Periphery in the Mirror of the Asian Pacific Rim 1997-98 by DeLong

And yet that is not what happened. On the Asian Pacific Rim in 1997-8, the fact that so much of the region’s debt was denominated in dollars meant that bouncing the value of the currency and thus of domestic production down far enough raised universal and valid fears of bankruptcy, and sharply raised risk premia: the Asian Pacific Rim thus had to, to a certain extent at least, defend its currency. And in Europe’s periphery nations are tied by treaty, by the deep and close technical integration of the financial system, and by hopes for a united and peaceful European future into the euro zone. Thus when the crisis comes both regions must generate rapid adjustment of the current account: a sudden stop.

The problem is general. There are lots of reasons why the natural market’s bounce-the-value-of-the-currency-down adjustment mechanism will not work. Overwhelming reasons to maintain a fixed parity. High levels of harder-currency debt. A tight coupling of import prices to domestic inflation and a belief that the costs of accepting domestic inflation are unacceptable–cough cough, why we all today feel sorry for Raghu Rajan. In any of these cases, when the crisis comes you must generate a rapid adjustment in your current account, and the easiest and the most straightforward way to do this are via domestic investment collapse. This is the first failure of the veil of the financial system to be merely a veil–the first coupling of financial distress to destructive real economic consequences.

German current account balance & Euro

NYT Reinvents History of Euro Crisis by Dean Baker
15 November 2013 06:09

The Money Trap by Krugman
Nov. 14, 2013


latest German current account balance linklist

Germany-Eurozone link list

Germany’s Lack of Reciprocity by Krugman
Nov. 12, 2013

updated linklist

Europe/Germany

Europe’s Macro Muddle (Wonkish) by Krugman

One last point: the Germans are very proud of their own adjustment between the late 1990s and 2007, during which they emerged from economic doldrums and became very competitive. But that adjustment, from a European point of view, looked like my first figure: German belt-tightening was accompanied by what amounted to a highly expansionary monetary policy, which led to fairly high inflation in Southern Europe. So when Germany asks why other countries can’t do what it did, it isn’t just forgetting that we can’t all run trade surpluses; it’s also insisting that other countries replicate its success while denying them the kind of external environment that made its success possible.

updated German current account surplus link list

original link

Edit: added
Europe’s Macro Muddle (Wonkish) by Krugman
Nov. 11, 2013

Sadowski on sterilization
Nov. 4 at 1:34 pm

How Do Those Germans Do It and What Does it Mean for the US? by Jared Bernstein
Nov 04, 2013 at 12:12 pm

China and the EU: Beggaring Neighbors by Dean Baker
Sunday, 03 November 2013 16:26

Eureka! Paul Krugman Discovers the Bank of France by David Glasner
Published November 3, 2013

The real problem with German macroeconomic policy by Simon Wren-Lewis
Sunday, 3 November 2013

Blame Germany, or Frankfurt? by Ryan Avent
Nov 3rd 2013, 21:41

Europe’s Inflation Problem by Krugman
November 4, 2013, 10:20 am 

The Changing Geography of Beggar-thy-Neighbor by Krugman
November 3, 2013, 3:16 pm

German Surpluses: This Time Is Different by Krugman
November 3, 2013, 6:41 am

Those Depressing Germans by Krugman
Published: November 3, 2013

Is the Paradox of Thrift Actually a Paradox? by Henry Farrell
Nov. 2, 2013

France 1930, Germany 2013 by Krugman
November 2, 2013, 6:00 pm

Sin and Unsinn by Krugman
November 2, 2013, 4:35 pm 

Germany's Export Obsession Is Dooming Europe to a Depression by Matt O'Brien
Nov 2 2013, 9:30 am

Defending Germany by Krugman
November 2, 2013, 9:23 am

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans? by Charlemagne (The Economist)
Novemeber 2, 2013

More Notes On Germany by Krugman
November 1, 2013, 4:54 pm

The Harm Germany Does by Krugman
November 1, 2013, 11:41 am

Germany’s Blind Spot by New York Times Editorial Board
October 31, 2013

Raw Nerve: Germany Seethes at US Economic Criticism  By Christopher Alessi (Spiegel Online)
October 31, 2013 – 06:26 PM 

U.S. Accuses Germany of Causing Instability by Sarah Wheaton
October 30, 2013

Semiannual Report on International Economic and Exchange Rate Policies by U.S. Treasury
October 30, 2013

Borgen

AV Club review of "Sins of the Past" from Borgen

Right Wing’s Surge in Europe Has the Establishment Rattled

4% / 6%

from the German link list in the post below:

Fawlty Europe: Will the European Commission dare to utter the unmentionable to the Germans?

Many urge Germany to stimulate its economy to help its crisis-hit partners. On October 30th America’s Treasury Department criticised Germany’s export-led growth model, in unusually sharp language, as a reason for the weakness of the euro zone’s recovery. But in an open trading area the connection between one country’s surplus and another’s deficit is complex. Boosting demand in Germany may suck imports from America, China or eastern Europe, more than from the Mediterranean. Even so, say Eurocrats, that would help indirectly. Buying more imports could help arrest the rise of the euro, which is making it harder for southern countries to rebalance their economies.

The euro zone’s toughened rules of “economic governance” are lopsided. Under the so-called macroeconomic imbalances procedure, a current-account deficit greater than 4% of GDP can trigger an alert, possibly followed by “in-depth analysis” carried out by the European Commission, policy recommendations and, ultimately, the threat of sanctions. Yet a country’s surplus must rise above 6% of GDP before Eurocrats start to take notice. Germany was let off last year because its surplus (averaged over three years) was a shade below the warning threshold and was expected to shrink. Now statisticians have revised that figure to 6.1%, and it has grown since then. It stood at 7% in 2012.

So will the EU dare to mention the surplus? The test will come later this month, when the commission issues its latest economic forecasts and launches the “European semester”, an annual cycle of economic and budgetary assessments that culminate in the spring with “country-specific recommendations”. These edicts from Brussels have already irritated France, which told the commission not to “dictate” reforms. But given France’s slow progress in pension and labour reforms, more criticism is inevitable. Now that America’s Treasury has blazed a trail, can the commission afford not to speak out if it wants to be seen as independent?

 And yet the commission is wrong about France.

Germany

The New York Times Sees the Solution to Euro Zone Imbalances as a Problem by Dean Baker

Using complex economics, it is possible to determine that in order to reduce the southern country trade deficits, it will be necessary for northern countries to see more rapid inflation, thereby raising the price of their output relative to the price of output in southern Europe. However the New York Times see this prospect as a serious problem. A story discussing Germany's relative prosperity told readers:

...

It is also worth noting that Germany's growth has not been quite as impressive as this article implies. Since the beginning of the downturn in 2007 its growth has been virtually identical to growth in the United States. While it does have lower labor force growth, and therefore lower potential growth, the main difference in outcomes has been due to the fact that Germany encourages employers to keep workers on the payroll in a downturn, even at shorter hours, rather than laying them off. In other words, labor market policy rather than growth explains Germany's relative prosperity.

Economic History

Panics of 1792, 1796-97, 1813, 1819, 1825

Panic of 1837

Panics of 1847, 1857, 1866

Free-Banking Era (1837-1862)

The Long Depression (1873-1896)

Starting with the adoption of the gold standard in Britain and the United States, the Long Depression (1873–1896) was indeed longer than what is now referred to as the Great Depression, but shallower. However, it was known as "the Great Depression" until the 1930s.

...Many argue that most of the stagnation was caused by a monetary contraction caused by abandonment of the bimetallic standard, for a new fiat gold standard, starting with the Coinage Act of 1873.

The Great Deflation (1870-1890)

Panics of 1884, 1890, 1893, 1896, 1901

1884 - a panic within the context of the Long Depression and Great Deflation. Fun. (By the way, did you notice that the Great Deflation is dated as beginning 3 years earlier than the Long Depression and ending six years earlier?)

Panic of 1907

Such is his power that JP Morgan single-handedly organizes a private sector bailout, rescuing the American economy. In 1910, America's leading financiers decide to create a National Reserve Bank to prevent future panics from getting out of hand. The "most interesting man in the world" won't always be around to save the day, they reason.

The British Empire maintained the gold standard until Franz Ferdinand's assassination and the onset of World War I.

By the end of 1913, the classical gold standard was at its peak but with the advent of World War I in August 1914, many countries suspended or abandoned the gold standard. According to Lawrence Officer the main cause of the gold standard’s failure to resume its previous position after World War 1 was “the Bank of England's precarious liquidity position and the gold-exchange standard.” A run on sterling caused Britain to impose exchange controls that essentially neutered the international gold standard; convertibility was not legally suspended, but gold prices no longer played the roles that they did under the Classical Gold Standard.

David Glasner argues

According to the Hawtrey-Cassel explanation, the source of the crisis was a deflation caused by the joint decisions of the various central banks — most importantly the Federal Reserve and the insane Bank of France — that were managing the restoration of the gold standard after World War I.

The earlier countries left the gold standard, the earlier they exited the Great Depression. There was also the fiscal government stimulus of arming for World War II.

The Bretton Woods system (1944-1971)

Triffin's Dilemma

In 1960 Robert Triffin, Belgian American economist, noticed that holding dollars was more valuable than gold because constant U.S. balance of payments deficits helped to keep the system liquid and fuel economic growth. What would later come to be known as Triffin's Dilemma was predicted when Triffin noted that if the U.S. failed to keep running deficits the system would lose its liquidity, not be able to keep up with the world's economic growth, and, thus, bring the system to a halt. But incurring such payment deficits also meant that, over time, the deficits would erode confidence in the dollar as the reserve currency created instability.

The rise of Japan and Europe.

In the late 1960s, the dollar was overvalued with its current trading position, while the Deutsche Mark and the yen were undervalued; and, naturally, the Germans and the Japanese had no desire to revalue and thereby make their exports more expensive, whereas the U.S. sought to maintain its international credibility by avoiding devaluation.[21] Meanwhile, the pressure on government reserves was intensified by the new international currency markets, with their vast pools of speculative capital moving around in search of quick profits.[20] 

In contrast, upon the creation of Bretton Woods, with the U.S. producing half of the world's manufactured goods and holding half its reserves, the twin burdens of international management and the Cold War were possible to meet at first. Throughout the 1950s Washington sustained a balance of payments deficit to finance loans, aid, and troops for allied regimes. But during the 1960s the costs of doing so became less tolerable. By 1970 the U.S. held under 16% of international reserves. Adjustment to these changed realities was impeded by the U.S. commitment to fixed exchange rates and by the U.S. obligation to convert dollars into gold on demand.

Nixon cancels the dollar's direct convertibility into gold.

Stagflation

Misery Index

Okun found by adding the unemployment rate to the inflation rate.

1 percent inflation better than 4 percent inflation? Really? Deflation reduces misery? Really?

Misery Index (band) - a deathgrind band from Baltimore, Maryland

Jimmy Carter and Ronnie Raygun deregulate as a means to promote growth (or what their wealthy campaign contributors want). Carter's deregulation and inflation czar was Alfred E. Kahn. Reagan signals war on organized labor by breaking PATCO. Income redistributes upwards. Volcker breaks inflation and tosses many people out of work.

Kahn's strong advocacy of deregulation stemmed largely from his understanding as an economist of marginal-cost theory. In his time at the New York Public Service Commission he was instrumental in using marginal costs to help price electricity and telecommunications services; this was novel at the time but is routinely performed today.

Deregulation (privatization)

LBJ privatizes Fannie Mae (housing)

Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks' financial practices, broadened their lending powers, allowed credit unions and savings and loans to offer checkable deposits, and raised the deposit insurance limit from $40,000 to $100,000 (thereby potentially lessening depositor scrutiny of lenders' risk management policies). 

In October 1982, U.S. President Ronald Reagan signed into law the Garn–St. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s. 

In November 1999, U.S. President Bill Clinton signed into law the Gramm–Leach–Bliley Act, which repealed part of the Glass–Steagall Act of 1933.

W. Bush attempts to privatize Social Security but fails.

Obama makes noises about "reforming" Social Security (via price index) and Medicare but hasn't yet. 

Obamacare incomplete (far from it) step in right direction towards single-payer.

Creation of Consumer Finance Protection Bureau 

Krugman says real interest rates were above historic norms during the 80s and 90s.

Savings and loan crisis (1980s)

Black Monday (1987)

Early 1990s jobless recovery Unlike Volcker's recovery, similar to subsequent recoveries after the dot-com and housing bubbles.

Japanese asset price bubble (1980s)

Lost Decade (Japan, 1990s-)

Abenomics

End of the Soviet Empire. West Germany absorbs East Germany. China abandons Marxism, embraces Capitalism. TINA.

European common currency (1 January, 1999)

Swedish banking crisis (early 1990s)

Latin American debt crisis (late 1970s and 80s)

1994 crisis in Mexico Improvised bailout of U.S. banks works.

1997 Asian financial crisis Harsh IMF-imposed structural adjustment programs (courting "investor sentiment") don't work well. China resolves to build up reserves even as its capital controls helped it avoid currency run.

1998 Russian financial crisis

Dot-com bubble followed by jobless recovery in 2000s

Argentine crisis of 2001-2002

US housing bubble (2002-2006)

Global financial crisis of 2007-2012

European Feedback Cycle of Doom

Republicans in Congress push sequestration and fiscal austerity while the Fed maintains ZIRP and quantitative easing.