The Market Wants More Stimulus

[CrusaderFrank]

But of course the markets want stimulus, and dont care about our debt atm.

If the markets were concerned about debt you would see the following:
Interest rates climb as our borrowers became less willing to lend, and stocks would fall as interest rates constrain growth.

But what we see is that interest rates and stocks are low. Suggesting interest rates are being driven down by people that would rather invest in low yielding bonds than in risky equities.

In short we should spend to full employment, or until we become constrained by the bond market.

BTW, nice krugman copy-pasta. Half of the people here will crucify you for citing him, the other half think hes a brilliant economist. Count me in with the latter.

Krugman is dumber than you are.

The Markets are huge flight to safety right now. They care about debt that's why Greece and Italy are junk and Germany couldn't find buyers for their bonds; the USA is still the safest place to park money. That's why our rates are so low.

Oh dont even get me started on europe....

Germany has a surplus. It had to pay extra because the market is preparing for a break up of the euro in which germany returns to its own currency and then repays bonds issued in euros with less valuable deutschmarks. not because it was worried about debt

Italy is a solvent nation. The problem is that it doesnt have control over its own currency so it may become illiquid. Illiquidy scares investors, they demand higher interest rates, higher interest rates maybe lead to insolvency. Its a victim of a self fulfilling cycle because the ECB wont act as a lender of last resort.

But back to US debt...

You partially made my point. If people thought the US had a debt problem like those countries, they wouldnt finance our debt. Of course creditors worry about their delinquent debtors like greece (altough the problem is more complex than you understand). But we arent one of those delinquent debtors, thats why their buying our debt.

And your missing a fundamental point about the bond market. The flight into treasuries show that the market is concerned about GROWTH. When a country has low interest rates the market has little incentive to buy those bonds. Why invest in US treasuries that yield 1.8% over ten years when you could invest in equities that might yield 10% in a year? The fact that the treasury can still find buyers for 10 year notes at 1.86% is because investors dont believe equities or other investments will have higher yields, and may even think theyll have a negative yield.

The markets arent worried about our debt. thats a simple fact.

Italy is solvent? A country with Debt/GDP of 120% is many things, but solvent is not one of them.

The Italy bond is 7%+ because it's an economy in its death throes. Once its off the Euros is will have to pay for things, like say gasoline in liras, which is going to send the economy futher down the crapper.

In the USA airlines are starting to scrap entire fleets of small planes because the cost of fuel makes it uneconomical to continue, what do you think (new word for you, look it up) will happen to the Italian economy once its out of the Euro

 

[cbirch2]

Krugman is dumber than you are.

The Markets are huge flight to safety right now. They care about debt that's why Greece and Italy are junk and Germany couldn't find buyers for their bonds; the USA is still the safest place to park money. That's why our rates are so low.

Oh dont even get me started on europe....

Germany has a surplus. It had to pay extra because the market is preparing for a break up of the euro in which germany returns to its own currency and then repays bonds issued in euros with less valuable deutschmarks. not because it was worried about debt

Italy is a solvent nation. The problem is that it doesnt have control over its own currency so it may become illiquid. Illiquidy scares investors, they demand higher interest rates, higher interest rates maybe lead to insolvency. Its a victim of a self fulfilling cycle because the ECB wont act as a lender of last resort.

But back to US debt...

You partially made my point. If people thought the US had a debt problem like those countries, they wouldnt finance our debt. Of course creditors worry about their delinquent debtors like greece (altough the problem is more complex than you understand). But we arent one of those delinquent debtors, thats why their buying our debt.

And your missing a fundamental point about the bond market. The flight into treasuries show that the market is concerned about GROWTH. When a country has low interest rates the market has little incentive to buy those bonds. Why invest in US treasuries that yield 1.8% over ten years when you could invest in equities that might yield 10% in a year? The fact that the treasury can still find buyers for 10 year notes at 1.86% is because investors dont believe equities or other investments will have higher yields, and may even think theyll have a negative yield.

The markets arent worried about our debt. thats a simple fact.

Italy is solvent? A country with Debt/GDP of 120% is many things, but solvent is not one of them.

Stop making up definitions for words. Solvency is the ability to meet your obligations to creditors. Italy can do that, it is not insolvent. if it were the consequences would be deadly for the eurozone, it would most likely no longer exist. it is becoming harder and harder for italy to rollover its debt, however. In other words it is becoming less liquid.

Italy's `Liquidity Issue'; Spain's `Solvency Issue' - Video - Bloomberg

words...words...learn what they mean.

The Italy bond is 7%+ because it's an economy in its death throes. Once its off the Euros is will have to pay for things, like say gasoline in liras, which is going to send the economy futher down the crapper.

you literally have things backward. The problem in the periphery of the eurozone is that prices and wages have risen since the creation of the euro. this has made the economy less competitive because labor and materials cost more. The standard conservative argument is that italy, greece, portugal, spain, etc need to pursue "internal devaluation". They say greece needs to simply cut wages and cut production and prices will fall, and then save money and pay off debts, and they will become more competitive. The problem is that this just pushes the economy further into recession because laid off workers now have no income. When everyone is trying to deleverage (ie, pay off debt) everything deflates, and the economy just goes further into depression.

A return to the lira could allow italy to pursue actual devaluation. instead of cutting everyones wages and reducing output and lending, the market will just value your new currency at a lower value and the economy will become naturally more competitive.

In the USA airlines are starting to scrap entore fleets of small planes because the cost of fuel makes it uneconomical to continue, what do you think (new word for you, look it up) will happen to the Italian economy once its out of the Euro

this is just the ramblings of someone that thinks they have a slight grasp on economics.

 

[cbirch2]

There is not much literature about italy leaving the euro, but greece is another debtor and there is quite a bit about that. For example....

"Because of problems with financing Greek banks and pension funds, default would be likely to mean leaving the euro. But that’s a good thing, as it would give Greece control of its own monetary policy. This is especially important now, with Greek credit and liquidity severely restricted, most critically in its vital small-business sector. Moreover, since the “new drachma,” as the post-euro currency might be called, would depreciate, both tourism and exports would rise, and imports decrease, all of which would make Greece more competitive. "

http://www.nytimes.com/2011/11/10/opinion/how-greece-could-leave-the-euro.html

You can be sure that the same applies to italy. Having its own central bank and currency would be very beneficial.

 

[EdwardBaiamonte]

Having its own central bank and currency would be very beneficial.

Sorry, there are no free lunches. Having a central bank to print money ought to strike you as too good to be true. Its all over a liberal's head I'm afraid. This is why liberals will resort to magical government free lunches.

 

[cbirch2]

Having its own central bank and currency would be very beneficial.

Sorry, there are no free lunches. Having a central bank to print money ought to strike you as too good to be true. Its all over a liberal's head I'm afraid. This is why liberals will resort to magical government free lunches.

You took one thing that i said and then simply stated that you disagree with it. I layed out the reason for why it would be beneficial, because the free market could value its new currency at a price that accurately reflects its level of competitiveness rather than maintaining an economy pegged to an artificially high euro, and you didnt even address any of that.

Right now greece is pushing itself into a recession because its cutting wages and prices in an attempt to become more competitive. If it returned to the drachma the free market would value its currency at a lower level and the economy would become naturally more competitive.

What about the free market do conservatives not like now? Since when do they advocate that a country peg itself to a supranational currency like the euro that doesnt necessarily reflect the production of its nation.

Im not even saying that greece should monetize its debt, which it could with a central bank. Im simply saying that the presence of a single greek currency that has a lower exchange rate compared to the euro would naturally unwind the greek trade unbalance by making greek labor and goods cheaper.

 

[EdwardBaiamonte]

a lower exchange rate compared to the euro would naturally unwind the greek trade unbalance by making greek labor and goods cheaper.

Again, as a liberal you believe in magical government. The Greeks can export all they want by lowering the price in Euros or by dumping the Euro and selling at a price in Greek currency that would exchange at a rate identical to the lowered Euro price.

Sorry, no liberal free lunches!

 

[EdwardBaiamonte]

No sidetracks. I want you folks to explain what you want the US government's role in the economy to be.

If as a liberal you don't understand why not read Friedman or Sowell? If its over your head we'll do out best to explain it to you.

 

[cbirch2]

No sidetracks. I want you folks to explain what you want the US government's role in the economy to be.

If as a liberal you don't understand why not read Friedman or Sowell? If its over your head we'll do out best to explain it to you.

OMFG. this is basic friedman! its just money supply and exchange rates!! What dont you understand here?

Imagine the united states and china. Labor in china is cheaper because its currency is naturally worth less than ours. If china were to peg its currency to a higher one, effectively what greece does with the euro although not exactly, its labor market would become less competitive

Thats what greece is doing right now. The currency that the greeks use is artificially high relative to the greek economy. If it reversed that government intervention, and let the market dictate its exchange rate like the united states and most countries do, its labor would become more competitive.

Its the exact opposite of what i described with china and the US.

You must not understand what im talking about. Im saying the exact opposite of what your saying i am. I'm saying that the decision to use the euro as currency was artificial government regulation in the first place, and that if it repealed that regulation and let the free market dictate the price of its currency own national currency (like it did before 2000), it would have a better time of things right now.

 

[EdwardBaiamonte]

let the free market dictate the price of its currency own national currency (like it did before 2000), it would have a better time of things right now.

So sorry, there are no liberal free lunches. The market can dictate the price of the currency or the price of the goods and services. Either way it is identical.

Do you really think a liberal central bank can print money and somehow that will make Greek junk more valuable????

 

[cbirch2]

let the free market dictate the price of its currency own national currency (like it did before 2000), it would have a better time of things right now.

So sorry, there are no liberal free lunches. The market can dictate the price of the currency or the price of the goods and services. Either way it is identical.

Do you really think the liberal central bank can print money and somehow that will make Greek junk more valuable????

What are you talking about you child?

The central bank is irrelevant to my point. The important thing is that the free market controls the prices of a soverign greek currency. The currency greece has used since it entered the euro in 2000 is artificially high, its priced for the economy of europe as a whole. Im saying if greece had a currency that accurately reflected the production of its economy and was valued at market price, like it did for its entire existence before the year 2000, things would be easier than sticking with the artificially high currency it began using in 2000.

What exactly do you object to? Im advocating entirely free market principles, it couldnt be more friedman-esque! Im saying that the government intervention caused the economy to become less competitive in the first place, undoing that would be beneficial to the greeks.

 

[EdwardBaiamonte]

Im saying that the government intervention caused the economy to become less competitive in the first place, undoing that would be beneficial to the greeks.

In fact, goods from Greece can cost one Euro or 1 million Drachmas to foreigners. It does not change the actual value of the goods to foreigners so export volume would stay identical. Sorry, no free lunches.

Yes Friedman, in the interest of maximum efficiency, would have favored the free market setting the price of currency and of goods but he would not have said it would solve Greece's problem. Their problem can be solved by getting off their liberal behinds and working, rather than counting on liberal welfare programs, liberal pensions, liberal unions, and liberal make-work schemes .

 

[cbirch2]

Im saying that the government intervention caused the economy to become less competitive in the first place, undoing that would be beneficial to the greeks.

In fact, goods from Greece can cost one Euro or 1 million Drachmas to foreigners. It does not change the actual value of the goods to foreigners so export volume would stay identical. Sorry, no free lunches.

Yes Friedman, in the interest of maximum efficiency, would have favored the free market setting the price of currency and of goods but he would not have said it would solve Greece's problem. Their problem can be solved by getting off their liberal behinds and working, rather than counting on liberal welfare programs, liberal pensions, liberal unions, and liberal make-work schemes .

"Yes Friedman, in the interest of maximum efficiency, would have favored the free market setting the price of currency and of goods but he would not have said it would solve Greece's problem."

i said it would help. Regardless, having its own currency would make it more competitive. fact.

And a little off topic remark, this crisis is NOT due to walfare state in the periphery countries. Northern europe, the so called examples of fiscal discipline, arguably have larger welfare states than the periphery countries that supposedly spent too much. The problem is that the infusion of capital from the core to the periphery that occured with the creation of the euro cause massive trade imbalances in periphery countries like Greece, Ireland, Portugal, and Spain.

This infusion of capital raises prices and makes greece goods less competitive than they used to be

not caused by the welfare state....caused by the structure of the eurozone...

 

[cbirch2]

In fact, goods from Greece can cost one Euro or 1 million Drachmas to foreigners. It does not change the actual value of the goods to foreigners so export volume would stay identical. Sorry, no free lunches.

Crisis in Greece: Experts Call For Return Of Drachma - OpEd

Stay in euro:

"Ultimately,” he added, “Greeks would face reductions in their standards of living upwards to 50 percent, perhaps more, to generate the exports necessary to pay off foreign creditors. If everything goes as planned, Athens will still be saddled with a debt that is 120 percent of their GDP a decade from now. Everything hardly ever goes exactly as planned, and 120 percent of GDP is an amount most economists believe is unworkable. Hence, the Greeks may bleed a lot for no real purpose than to sustain a failed experiment in a single currency, and the odds are steep against the plan succeeding.”"

Leave euro:

"The alternative, as Professor Morici proposed, is for Greece to be “given the option of staying in the EU but dropping the euro — essentially the status the UK enjoys.” He added, crucially, “By readopting the drachma, re-marking sovereign and private debt to the reinstituted national currency, and letting the value of the drachma fall to levels consistent with a trade surplus that permits Greece to service its debts, Greece’s economy would begin growing again, and many of Greece’s army of unemployed would be put back to work.”

There is a massive difference

Before the tea party created a army of zombie conservatives that say whatever fits the situation, i would never have expected a conservative to claim that a country giving up its sovereign currency would have no net effect.

 

[EdwardBaiamonte]

i said it would help. Regardless, having its own currency would make it more competitive. fact.

You get more competitive by figuring out how to make a car in 30 hours when the other country takes 40 hours, not by changing your currency for God's Sake!

And a little off topic remark, this crisis is NOT due to walfare state in the periphery countries.

Of course it is!! The Greeks and Europeans are broke and in debt because they borrowed to pay for their welfare states!

Northern europe, the so called examples of fiscal discipline, arguably have larger welfare states than the periphery countries that supposedly spent too much. The problem is that the infusion of capital from the core to the periphery that occured with the creation of the euro cause massive trade imbalances in periphery countries like Greece, Ireland, Portugal, and Spain.

The infusion of which you speak was obviously idiotic and motivated by a liberal welfare mentality.

This infusion of capital raises prices and makes greece goods less competitive than they used to be

So why would you infuse capital, make goods less competitive, and expect to get paid back?? One would have to be a liberal. Jefferson wanted to make liberal debt illegal in 1792 and modern Republicans also want to make it illegal. Now there is a philosophy that would have prevented the entire crisis and prevent all future crises.

 

[EdwardBaiamonte]

re-marking sovereign and private debt to the reinstituted national currency, .

Sorry, no free lunches, "remarking" is just another way to say defaulting. It does not make them one bit richer or more competitive.
As I said competitive comes from a better mouse trap, not economic games.

 

[cbirch2]

wow. that post was just someone making up economics.

i said it would help. Regardless, having its own currency would make it more competitive. fact.

You get more competitive by figuring out how to make a car in 30 hours when the other country takes 40 hours, not by changing your currency for God's Sake!

This just shows you dont understand exchange rates. This isnt liberal interference, its actually free market libertarianism! Why dont you read that article i linked to. Is that economist just wrong when he said a return to the drashma would increase exports?

And a little off topic remark, this crisis is NOT due to walfare state in the periphery countries.

Of course it is!! The Greeks and Europeans are broke and in debt because they borrowed to pay for their welfare states!

So why do the states with surpluses have welfare states that are just as large as states with deficits?

Northern europe, the so called examples of fiscal discipline, arguably have larger welfare states than the periphery countries that supposedly spent too much. The problem is that the infusion of capital from the core to the periphery that occured with the creation of the euro cause massive trade imbalances in periphery countries like Greece, Ireland, Portugal, and Spain.

The infusion of which you speak was obviously idiotic and motivated by a liberal welfare mentality.

Then why did it flow from the arguably larger welfare states in the north to the ones in the south??

The real reason is that southern europe was vastly different from northern europe at the creation of the euro. The single currency provided the illusion to investors that the entire area was fairly homogeneous, that was the point of its creation! Investors that normally would have invested in northern european countries now saw no difference between investing in southern european states. So capital going to northern countries decreases, while capital going to southern countries increases.

Thats the real reason.

This infusion of capital raises prices and makes greece goods less competitive than they used to be

So why would you infuse capital, make goods less competitive, and expect to get paid back?? One would have to be a liberal. Jefferson wanted to make liberal debt illegal in 1792 and modern Republicans also want to make it illegal. Now there is a philosophy that would have prevented the entire crisis and prevent all future crises.

Foreign investors were the ones pouring money into greece. Idk what your thinking, did you think greece was infusing itself with capital somehow?? wtf??

 

[EdwardBaiamonte]

Is that economist just wrong when he said a return to the drashma would increase exports?

If I was willing to pay 1 Euro for something Greek that would mean it was worth one Euro to me. If the Greeks switched currency and then priced it at 10 million Drachmas I'd firstly ask, how many Euros will that cost me? If it was more than one I would not buy, of course. Therefore, exports stay identical. Sorry, no free lunches.

Is that simple enough for you? Do you think Mississippi should have its own currency since it is so poor??

 

[cbirch2]

Is that economist just wrong when he said a return to the drashma would increase exports?

If I was willing to pay 1 Euro for something Greek that would mean it was worth one Euro to me. If the Greeks switched currency and then priced it at 10 million Drachmas I'd firstly ask, how many Euros will that cost me? If it was more than one I would not buy, of course. Therefore, exports stay identical. Sorry, no free lunches.

Is that simple enough for you? Do you think Mississippi should have its own currency since it is so poor??

OMFG

Actually a return to the drachma would look like this:

Greece passes legislation that any government bonds are to be repaid in drachma at a 1:1 ratio with euros, and then the country lets the currency float.


In other words

If the Greeks switched currency and then priced it at 10 million Drachmas I'd firstly ask, how many Euros will that cost me?

if your a greek bond holder you dont even get to ask that. The government pays you 100 drachmas if you owe it 100 euros, and then the government lets the price float and the currency devalues.

Secondly a devalued drachma would make greece more competitive, its ust a fact!

http://www.nytimes.com/2011/09/12/business/returning-greece-to-the-drachma.html

"Economically, the drachma’s value would fall sharply. The price of a Mercedes would jump in Athens, but those of haircuts and moussaka would not immediately rise. The equilibrium drachma rate would make Greek workers internationally competitive, producing a decline in living standards between the 18 percent needed to match Portugal’s and the 50 percent to reach Bulgarian levels.

Greece also could quickly achieve a trade surplus. Inexpensive tourist offerings would help push unemployment down rapidly from its current rate of more than 16 percent. A debt restructuring similar to Argentina’s could then be undertaken, reducing the debt’s present value by around the same percentage as the Greek reduction in living standards."

Everything in greece becomes more expensive, but greek goods sold elsewhere become less expensive. a return to the drachma brings a decrease in the standard of living necessary to make greek more competitive. You could also get there through austerity and staying with the euro, but thats going to cause much more social pain, much more riots.

 

[EdwardBaiamonte]

Actually a return to the drachma would look like this:

Greece passes legislation that any government bonds are to be repaid in drachma at a 1:1 ratio with euros, and then the country lets the currency float.

notice how you are changing the subject? We were talking about exports, not how it would look. Currency can be pegged or it can float, but either way I won't pay more than one Euro for Greek good, hence exports stay identical. No free liberal lunch. Sorry.

Do you think Mississippi should have its own currency to boost its economy?




In other words

If the Greeks switched currency and then priced it at 10 million Drachmas I'd firstly ask, how many Euros will that cost me?

if your a greek bond holder you dont even get to ask that.

Secondly a devalued drachma would make greece more competitive, its ust a fact!

http://www.nytimes.com/2011/09/12/business/returning-greece-to-the-drachma.html

"Economically, the drachma’s value would fall sharply. The price of a Mercedes would jump in Athens, but those of haircuts and moussaka would not immediately rise. The equilibrium drachma rate would make Greek workers internationally competitive, producing a decline in living standards between the 18 percent needed to match Portugal’s and the 50 percent to reach Bulgarian levels.

Greece also could quickly achieve a trade surplus. Inexpensive tourist offerings would help push unemployment down rapidly from its current rate of more than 16 percent. A debt restructuring similar to Argentina’s could then be undertaken, reducing the debt’s present value by around the same percentage as the Greek reduction in living standards."

Everything in greece becomes more expensive, but greek goods sold elsewhere become less expensive.[/QUOTE]

 

[cbirch2]

Currency can be pegged or it can float, but either way I won't pay more than one Euro for Greek good, hence exports stay identical. No free liberal lunch.

Devaluing the currency allows one euro to buy more greek labor than previously. How dont you get that? Greek labor becomes cheaper. One euro buys more.