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The other problem is that the Economists who try to control it and debug it are terrible at understanding it. Every countries economy is subtly different, but t
by neffy 10y ago
The other problem is that the Economists who try to control it and debug it are terrible at understanding it. Every countries economy is subtly different, but they have a one size fits nobody, and doesn´t even have the right number of sleeves approach to it.
For example, Greece.
http://www.tradingeconomics.com/greece/money-supply-m3 http://www.tradingeconomics.com/greece/money-supply-m3
Expand it out to the max - this is an old style, US Great Depression monetary collapse. Their money supply has dropped by about a third since 2009. Some of that is loan write-offs, a lot of it is money being withdrawn from the country, either by rich people who want their money in safer banks, or as debt repayments to european banks. Cost of being in the Euro, very hard to stop this.
Knowing that the money supply has dropped by 1/3, we also know that the lending supply has dropped by 1/3, loans create money etc. Knowing that credit influences prices, we know that property prices are dropping through the floor. Knowing all that, we also know that tax revenue has dropped, because there´s less money circulating to be taxed. (Well, it´s a bit more complex than that but not much.)
The big issue in this kind of monetary collapse is very simple. In a market based economy, most prices can adjust to changes in the money supply and production over time. The one exception is debt, which keeps its coupon value until people default.
Revalue Greece debt though, and there goes a whole bunch of European banks with greek debt on their books, and a GFC style cascade failure to who knows where in the system.
It probably could still all be sorted out if we put some decent computer scientists on the case, but I certainly don´t expect the economists to get there in time.
So I guess Greece will just have to invade Germany.
- hx87 10y ago> Revalue Greece debt though, and there goes a whole bunch of European banks with greek debt on their books, and a GFC style cascade failure to who knows where in the system. If that's true, then one possible solution would be to let the cascade failure happen while the ECB prints enough money to replace the losses in money supply (and then some) and distribute the money equally to everyone in the Eurozone.
- aluhut 10y agoThe official answer to this that it would cause uncertainty regarding future decisions. And I won't even start with devaluation, the geopolitical position of Greece or the chaos on the streets.
- hx87 10y agoUncertainty would be less of a problem if the ECB's stated goal would be to defend the money supply in the Eurozone through mass distribution.
- aluhut 10y agoThere are many uncertainties. Like the one regarding the fact that you can get an absolution from the ECB if you cause enough havoc. Or the one where you shouldn't invest in any country that may even smell slightly endangered (which would actually cause that north/south europe contruct). On the other hand it may even lure in even more "evil" investments with the right insurance. All this with a fast devaluating Euro? Sounds pretty bad to me.
- hx87 10y agoI'm not sure how redistribution of wealth in case of a financial crisis counts as "absolution" from the ECB--if your 1000 person firm causes a 5000 Euro per capita loss in the money supply, your company is busted and everyone there ends up with 5 million Euros combined, which is small money by finance company/bank standards. It's not that much of a change from existing practice--all central banks defend their money supply to some extent. The only difference is that they would do so through every citizen in every country where the currency is official instead of only major banks, so the money actually gets spent instead of being hoarded and banks can't make massive profits through monetary arbitrage.
- aluhut 10y agoIt's not redistribution of wealth when with every Euro you print, the currency gets further devaluated. This wouldn't happen. Ever. They'd rather separate it in North and Sourth Euro before somebody would even seriously think about that for a second.