Sovereign debt bubble thread

[Admiral Yi]

The reasons I gave.  Overall debt and economic situation, to which I'd possibly add debt sustainability.  If you include those factors I think there's plenty of reasons and they should be part of the factors - as well as credibility of proposals presented to the Commission (I imagine Berlusconi's plan may be viewed with some scepticism) - that give a reasonable timeline.  Most important though is that this is an artificial political policy, it should be as flexible and able to accommodate and reflect reality as possible rather than a one-size-fits-all.

Once everyone's at the same size of deficit, roughly, those terms of the fiscal pact should operate and the same process should begin with reducing debt levels in countries above the limit.

Your original post didn't mention any of that.  It just talked about 8% country getting more leeway than 4% country.

[Sheilbh]

Not in the bit you quoted

I mentioned debt and thought I implied credible deficit reduction plan (the Dutch costing of election promises for example), but you're right I didn't talk about economic situation or debt sustainability.

[The Minsky Moment]

I'm not referring to debt deflation a la Fisher.  I'm referring to the fact that the Greek economy is structurally uncompetitive which is a key fundamental factor driving the fiscal problem.  In in this context that the deal has to involve pro-growth policies from the center to ease the structural adjustment.   Putting the entire brunt of structural and fiscal adjustment would mean forcing the public sector to become a net saver while savaging the private sector ability to spend.  That's a formula for cutting GDP in half.

I'm afraid you lost me after structurally uncompetitve Joan.

It's like hauling a leaky boat out of the ocean, draining out all the water, and then putting it back in.
Result: it still sinks.

[Iormlund]

So, things aren't looking good over here. We have won no projects in the last few months. After this week's 13-hour marathon in Madrid there's pretty much no work in sight for the foreseeable future. And the few local firms still afloat are all in the same boat.

So here am I: Mid thirties, fluent English, salvageable German, many years of useful experience in SCADA/PLC systems ... and Crohn's. Fuck. Anyone knows how much of an obstacle will that pose to obtain access to health coverage and work in Schengen countries that still have jobs?

[MadImmortalMan]

I hear the Argies have a new oil company that might need some of that kind of work. 

[Barrister]

So, things aren't looking good over here. We have won no projects in the last few months. After this week's 13-hour marathon in Madrid there's pretty much no work in sight for the foreseeable future. And the few local firms still afloat are all in the same boat.

So here am I: Mid thirties, fluent English, salvageable German, many years of useful experience in SCADA/PLC systems ... and Crohn's. Fuck. Anyone knows how much of an obstacle will that pose to obtain access to health coverage and work in Schengen countries that still have jobs?

Any interest in coming to latin america?  Know any portuguese (Brazil)?

[Admiral Yi]

I heard a story on NPR the other day about German firms that are turning down work because they can't find workers.

[Iormlund]

Any interest in coming to latin america?  Know any portuguese (Brazil)?

Latinamerica wouldn't be my first choice, to be honest. Not wild about wide income disparity and I'm not sure how much expertise on IBDs I would find, incidence seems to lag industrial development, so it is a somewhat new development there.

[PDH]

Come to Laramie.

[Barrister]

Any interest in coming to latin america?  Know any portuguese (Brazil)?

Latinamerica wouldn't be my first choice, to be honest. Not wild about wide income disparity and I'm not sure how much expertise on IBDs I would find, incidence seems to lag industrial development, so it is a somewhat new development there.

Some parts of latin america sound better than others (and more developed).  Brazil, Argentina, Chile, Mexico.

[MadImmortalMan]

Chile seems to have the least drama.

[Admiral Yi]

It's like hauling a leaky boat out of the ocean, draining out all the water, and then putting it back in.
Result: it still sinks.

It's not like that at all.  You're asserting that Greece's root problem is uncompetitive unit labor costs.  Fine so far.  But there's no requirement that says a country with uncompetitive labor *must* run a fiscal deficit.

[The Minsky Moment]

It's not like that at all.  You're asserting that Greece's root problem is uncompetitive unit labor costs.  Fine so far.  But there's no requirement that says a country with uncompetitive labor *must* run a fiscal deficit.

No . . .
go back to the basic sectoral balances.
An increase in public saving must be offset by an increase in private dis-saving or improvement on the current account.
If we assume there isn't going to be an export boom in Greece, then private dis-savings is the key mechanism.  That can be achieved either by higher household expenditure or business investment OR by having GDP decline.
If a country is undergoing a fundamental adjustment by cutting labor costs, it makes it very difficult to maintain private spending levels, so in such a situation allowing the public deficit to grow in the short run can cushion the adjustment.  I.e. let the government take of the slack of the decline of domestic speding and demand.  It is what Germany did in the Schroeder era BTW when they busted the G&S Pact.

What makes this concerning with Greece is that both the fiscal and fundamental adustment programs are so aggressive in goals that doing both simultaneously cannot be achieved without causing income (GDP) to decline very severely.  That of course makes the fiscal adjustment that much harder and has a negative feedback effect loop with declines the real economy and greater difficulty in hitting the deficit target.  Which just happens to dovetail very closely with what has actually happened to Greece.

[Admiral Yi]

If we assume there isn't going to be an export boom in Greece,

Why do we need to assume this?  The first place a lowering of unit labor costs should show up is the current account.  Lower the price of an Aegean vacation.  Lower the prices of olives and Authentic(tm) feta cheese.

[MadImmortalMan]

An increase in public saving must be offset by an increase in private dis-saving or improvement on the current account.

Then how can you ever possibly fix the boat? In order to fix the holes that are in the hull, you have to stab different ones? You can see where this sounds intuitively wrong.

Of course GDP will shrink if there is public saving. That's taking a 1:1 number off the GDP calculation for every euro in spending decrease. Why is that bad? Besides, Greece is not in a state of public saving.