Sovereign debt bubble thread

[Tamas]

Someone really, really needs to read some Keynes

Yeah like Keynesians. Yi has a point. They tend to be all over the Keynes when it's stimulus time, but even when it's not stimulus time, they think it's stimulus time. They're like crack addicts, and they are using Keynes' name to do evil. It makes rational economists look foolish because they're at the whim of dumbass politicians.

Is that really such a surprise? Do you think there was ANY other reason why politics subscribe to the Keynesian model rather than the Austrian school? Any other than the fact that the Keynesian one gives them more excuse to buy votes and spend money, and extort influence and power over the economy?

[Sheilbh]

Is that really such a surprise? Do you think there was ANY other reason why politics subscribe to the Keynesian model rather than the Austrian school? Any other than the fact that the Keynesian one gives them more excuse to buy votes and spend money, and extort influence and power over the economy?

But politics generally isn't Keynesian.  That's why, in response to the crash, there was talk about the 'return of Keynes'.  His wasn't the dominant economic school of the last 30 years.

Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life. 

I very much start to doubt that. I am slowly turning into Nigel Farage and I think so is the German electorate. Europe will be truely fucked if Germany develops anti-bailout or even anti-EU parties. 

True.  I think I'll be voting to withdraw from the EU when we get a referendum.

[Tamas]

Leaving the sinking ship, ha?

[Richard Hakluyt]

I shall also be voting to leave the EU when we get our referendum on the matter. In principle I am in favour, but the execution has been abysmal.

[Tamas]

But politics generally isn't Keynesian.  That's why, in response to the crash, there was talk about the 'return of Keynes'.  His wasn't the dominant economic school of the last 30 years.

Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life. 

Well, I can be easily convinced otherwise as I am not educated enough on the matter, but I would think that an economy based on fiat money and boom cycles generated by cheap artifical credit could be qualified as Keynesian.

As for the economic theory cults, yes, you have a good point there, but also this is understandable.
The very basic distinction between the main schools (for the laymen at least), largely depends on their take on politics and personal freedom. As such, it is not less a matter of conviction and character than political affiliation.

[Sheilbh]

Well, I can be easily convinced otherwise as I am not educated enough on the matter, but I would think that an economy based on fiat money and boom cycles generated by cheap artifical credit could be qualified as Keynesian.

I'm not educated enough either.  I'd simply make two points.  The first is that the presiding economic tone of the last 30 years was set by Reagan, Volcker, Thatcher and shock therapy.  It was one of low inflation, at the risk of high unemployment (not Keynesian).  Now I think it was a necessary corrective that went too far, but there's no way it was Keynesian.  You can't say the economic policies that initially did well in the post-war era and then led to stagflation were Keynesian and then that the liberalising and monetarist policies that initially did well after that and then led to a financial crisis were also Keynesian.

Secondly my view of the cheap credit boom is that basically what's happening in the Eurozone happened on a global scale.  There were large capital imbalances that were looking for investments and ended up building houses in America and Ireland and Spain and just going everywhere in the UK.  I think the failure in the US and UK was that our central banks were a bit too laid-back (again, Greenspan's a Rand fan, not a Keynesian) and lending wasn't being well-regulated enough.  The credit wasn't artificial it was based on the surpluses all over the developing world, built up because their financial crises destroyed them and they mostly didn't get bailed out by anyone unlike our banks.  There was insufficient control or understanding global capital in my view.  It wasn't based on printing which is what you seem to imply.

The very basic distinction between the main schools (for the laymen at least), largely depends on their take on politics and personal freedom. As such, it is not less a matter of conviction and character than political affiliation.

I don't see economics as like politics though.  Politics is about choices, that's why I always get annoyed when people talk about 'rational' politics because there are lots of rational policies that deliver different, perfectly justifiable results and what defines ideology is how you prioritise and choose.

Whereas for me economics is more like history - it's too dismal to be a science - in that it's a sum of knowledge and theory that you can use to explain how things work and to try and shape politics.  I disagree with Marxist theory, but it is a useful thinking tool and made important insights.  Similarly Keynesianism or the Austrian school have useful perspectives and explanations but they're not holy dogma.  But I'm not an economics buff so, I don't know, maybe that's how they should be.

[Sheilbh]

On the Euro-crisis apparently there's some hope before the summit (as usual), but from what I can see Hollande's proposal of Eurobonds have been shot down by three separate senior German figures and were called a 'nonsense proposal' by Austria's Finance Minister (who does she think she is? ) and Germany's opposing allowing the EFSF or ESM to recapitalise banks.  On the upside it looks like a deal's being agreed on project bonds - which I think'll be a disaster and are the worst of the proposals floating around, but hey-ho.

[Syt]

Austria's Finance Minister (who does she think she is? )

Austrians wonder that, too. She's a bit tactless in general and not really known for her subtlety. She used to be a rather hard-ass minister of interior before cabinet reshuffling (esp. getting tough on asylum seekers).

[Iormlund]

To make it a little more clear Zanza, Joan's bazooka is Germany writing a check for $200 billion.

Yes. But you have to keep in mind that just German TARGET2 claims are already over half a trillion € and growing.

[Iormlund]

East Germans.

Hey, not below the belt!

I very much start to doubt that. I am slowly turning into Nigel Farage and I think so is the German electorate. Europe will be truely fucked if Germany develops anti-bailout or even anti-EU parties. 

I know how you feel.

I did everything right. I don't have a mortgage, bought a practical car made in Slovenia instead of a big German saloon, only used my CC for emergencies and generally lived within my means. I voted out the government that started the bubble. Voted against the next one, that once in power pretended it didn't exist.

And yet I find myself bailing out those who acted irresponsibly with my taxes, suffering lack advancement and rises due to the general economic malaise.

Pff, we can do something much more cynical: We wait until the Southern nations drop out of the Euro by themselves. Our industry currently benefits from the low value of the Euro. Why give that up?

Because instead of a managed crisis, you'll get a clusterfuck when the € collapses. What you are doing now is no different than what Spain did the last decade.  Things are coming along fine, why change anything?

[DGuller]

Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life. 

That's generally true for the Austrian school.  I have yet to hear from an Austrian who tries to shape the model to fit the reality, rather than try to shape the reality to fit the model.

[Tamas]

Although I hate the way people talk about economic schools, it makes them sound like cults you sign into for life. 

That's generally true for the Austrian school.  I have yet to hear from an Austrian who tries to shape the model to fit the reality, rather than try to shape the reality to fit the model.

Yeah, interventionalists don't want to bend reality. NOT ONE BIT!

[DGuller]

Yeah, interventionalists don't want to bend reality. NOT ONE BIT!

Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.

[Tamas]

Yeah, interventionalists don't want to bend reality. NOT ONE BIT!

Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.

Right. Much good it is doing to us.

[DGuller]

Yeah, interventionalists don't want to bend reality. NOT ONE BIT!

Not nearly to the same extent, not least of which because their theory actually does have some predictive power as an economic theory, especially during a crisis.

Right. Much good it is doing to us.

The Great Depression has not been renamed the World Depression I yet, has it?  And to the extent that the risk is still there, it is there because of misguided and utterly predictable austerity-led disaster.