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That was an extremely well written explanation of his viewpoint on the future. Government providing guarantees leads to a weaker central bank and all the ramifi

by xfour 4y ago

That was an extremely well written explanation of his viewpoint on the future. Government providing guarantees leads to a weaker central bank and all the ramifications that would have.

eru 4y ago
It doesn't just lead to problems for the central bank, it's also a waste of taxpayer money and shares many of the same issues as any other kind of central planning. High inflation also only makes a dent in existing long duration debt. It doesn't do anything to reduce existing short-term debt, nor to reduce the real cost of new debt that comes from new deficits (at least for government debt). (That is because short-term debt needs to be either paid off or rolled over.)
manholio 4y ago
I'm unconvinced that the power of those load guarantees can be in any way compared to the massive post war interventionism that, at least in Europe&UK saw large scale nationalizations in key areas. Sure, a green loan guarantee spurs investment in that area but the business model must still be sound or it will be falter in the marketplace. And if government steps in and, say, also guarantees an energy price, that's just another form of taxation for the consumers that must pay the costs of a political choice in energy. This will quickly hit a wall of resistance from consumers if that particular technology is a mallinvestment. Furthermore, the loan guarantees themselves might not be officially counted in the debt to GDP ratio, but rational investors will be aware of them and price government bonds accordingly. A state that over-guarantees bad loans will see trouble servicing their debt in the marketplace, and at least in Europe the well known structural fragility of the Eurozone will amplify those shocks and bring them into the foreground.
- shawndrost 4y ago
  Would you approve of the comparison to postwar interventionism if you saw large scale nationalizations in key areas? Like if big EU energy companies, say EDF and Uniper, were to be nationalized?
  - manholio 4y ago
    Post war interventionism included energy utilities, which in many cases were rebuilt from the ground up, but also transport, rail in particular, telecommunication, extractive and heavy industries - and it happened in economies with a much smaller tertial services sector. I don't know what the equivalent contemporaries would be, but in any case we would need to see public spending or nationalization on a scale incomprehensible to the current neo-liberal european business climate, not just some puny guarantees & price ceilings, which are not very sustainable anyway.

by xfour 4y ago

That was an extremely well written explanation of his viewpoint on the future. Government providing guarantees leads to a weaker central bank and all the ramifications that would have.

eru 4y ago

It doesn't just lead to problems for the central bank, it's also a waste of taxpayer money and shares many of the same issues as any other kind of central planning. High inflation also only makes a dent in existing long duration debt. It doesn't do anything to reduce existing short-term debt, nor to reduce the real cost of new debt that comes from new deficits (at least for government debt). (That is because short-term debt needs to be either paid off or rolled over.)

manholio 4y ago

I'm unconvinced that the power of those load guarantees can be in any way compared to the massive post war interventionism that, at least in Europe&UK saw large scale nationalizations in key areas. Sure, a green loan guarantee spurs investment in that area but the business model must still be sound or it will be falter in the marketplace. And if government steps in and, say, also guarantees an energy price, that's just another form of taxation for the consumers that must pay the costs of a political choice in energy. This will quickly hit a wall of resistance from consumers if that particular technology is a mallinvestment. Furthermore, the loan guarantees themselves might not be officially counted in the debt to GDP ratio, but rational investors will be aware of them and price government bonds accordingly. A state that over-guarantees bad loans will see trouble servicing their debt in the marketplace, and at least in Europe the well known structural fragility of the Eurozone will amplify those shocks and bring them into the foreground.

shawndrost 4y ago
Would you approve of the comparison to postwar interventionism if you saw large scale nationalizations in key areas? Like if big EU energy companies, say EDF and Uniper, were to be nationalized?
- manholio 4y ago
  Post war interventionism included energy utilities, which in many cases were rebuilt from the ground up, but also transport, rail in particular, telecommunication, extractive and heavy industries - and it happened in economies with a much smaller tertial services sector. I don't know what the equivalent contemporaries would be, but in any case we would need to see public spending or nationalization on a scale incomprehensible to the current neo-liberal european business climate, not just some puny guarantees & price ceilings, which are not very sustainable anyway.