Sovereign debt bubble thread

[Admiral Yi]

But to enable transactions across the Eurozone you need a Euro-wide clearing system (?). 

You don't need a clearing system of this type to enable transactions.  Transactions were possible before the euro was invented. 

[Sheilbh]

You don't need a clearing system of this type to enable transactions.  Transactions were possible before the euro was invented.

But domestic central banks were in charge of their own currencies and reserves then.

[The Minsky Moment]

OK, what's wrong with this?  Greek customers run out of money to buy Schikelgrubers, so no more Schikelgrubers.  What's the problem?

It's a problem for the Greek customer who wants to buy them and the Schikelgruber company that wants to sell them.
It became a problem for Bundesbank, the ECB and the Greek banking system when all three jointly decided to facilitate such transactions.

[The Minsky Moment]

No, my question is why do you need the clearing blahdy blah in the first place.  People who have money buy stuff.  People who don't, don't.

Because you have a bunch of separate countries with separate national banking systems sharing a single currency, where no individual country has the power to print that currency as would normally be the case in a fiat money system.

Thus, without the TARGET balances, the Eurozone would effectively act as a gold standard for all international transactions within the zone.  That is, all current account imbalances would have to be resolved by immediate payment of cold hard cash.  Adjustment would occur because those transfers would cause inflation in the net exporter and deflation in the importer.

This was considered undesirable for the reasons that the gold standard is typically deemed undesirable.  (eg it is not hard to understand why neither Germany nor Greece would be keen on an adjustment mechanism that causes price inflation in Germany and deflation in Greece).

[Sheilbh]

Apparently the ECB's rate cut was rather divisive within the bank, and Draghi sounded very luke warm on further actions.

The Finns have said they need private sector involvement and their Parliamentary Constitution Committee thinks the suggested fiscal union plan would be unconstitutional.

As ever before a summit this could be just staking out negotiation positions. But given the importance and expectations of this summit I think we need a little more.

Also I've seen March as the projected date for a new treaty which strikes me as hugely optimistic given the negotiating and ratification procedures needed.

Hopefully this'll all work out.

[Zanza]

Interesting post on the underlying reasons for the malaise of the Greek economy:

http://aristosd.posterous.com/greeks-behaving-badly-the-micro-origins-of-cr

[MadImmortalMan]

Big G20 plan to inject money into Europe spiked the market for about a half hour before everyone realized it was just a rumor. Anybody here have the ability to tweet for one of the major newswires? If so, I have a business proposition for you...

[Iormlund]

Interesting post on the underlying reasons for the malaise of the Greek economy:

http://aristosd.posterous.com/greeks-behaving-badly-the-micro-origins-of-cr

Yes. The guy explains very well the reasons why I have been so adamant about the imposition of structural reforms rather than austerity. It is something that also happens over here, though admittedly to a much lesser extent.

It also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.

[Zanza]

Austerity has its role in forcing structural reforms:

This is where the crisis becomes an opportunity. Fiscal constraints are making it very difficult for the state to continue to award incomes to special groups. Those rents that have a direct fiscal cost are already being cut.

[MadImmortalMan]

You guys operating under the hope that if they keep austerity up long enough the rentseeking culture will begin to change due to the strict limitations on the public teat?

[Jacob]

It also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.

Isn't how the hits are distributed determined more or less by the country itself?

[Iormlund]

Austerity has its role in forcing structural reforms:

This is where the crisis becomes an opportunity. Fiscal constraints are making it very difficult for the state to continue to award incomes to special groups. Those rents that have a direct fiscal cost are already being cut.

Only to a certain extent. It makes it harder to buy votes, which is a surprisingly extended phenomenon in Greece. It doesn't make it harder for the most privileged to keep perks and strangling regulations, which is the root of the problem.

For example, those who went into public service via legitimate exams lately will get the axe. Those who entered by virtue of being X's nephew will continue living the good life, entrenched in their positions.

[Iormlund]

It also explains why austerity is mostly going to hurt those who had nothing to do with the problem in the first place, those who not enjoy the perks of public employment or the ease of tax evasion of the wealthy self employed. Or in other words, why the "hard-working" countries' moral argument is complete bollocks.

Isn't how the hits are distributed determined more or less by the country itself?

Yes, that's the whole point. The country in this case means the government and various lobbies and unions who are responsible for this malaise in the first place. That's why someone OUTSIDE the system has to tear it down. It can't be done within Greece itself.

[Admiral Yi]

I have no problem with Greece being placed in receivership.

[DGuller]

I have no problem with Greece being placed in receivership.

Yeah, but who would want to receive that shit?