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So if Greece still would have had the Drachme, Germany would have bought more olive oil, Greece would have bought less machines and everything would have been h
by Paradigma11 2y ago
So if Greece still would have had the Drachme, Germany would have bought more olive oil, Greece would have bought less machines and everything would have been honky dory?
- lazide 2y agoAnd Greece could go insolvent periodically to reset. Can’t do a reset on a currency that isn’t yours.
- Paradigma11 2y agoNobody would have lent Greece any money in Drachma.
- neilwilson 2y agoGreece would lend money to itself given Greece is the currency issuer of the Drachma. That happens automatically when government makes a payment
- lazide 2y agoHuh? They did all the time, albeit at higher rates. Do you think Greece never had any national debt before joining the EU? They’ve had multiple defaults, and then built up more debt, etc. long before joining. [https://www.toptal.com/finance/financial-consultants/greek-debt-crisis https://www.toptal.com/finance/financial-consultants/greek-d...] Same with Argentina, Brazil, etc. Someone is always willing to lend money, just rarely at the rate the country is willing to pay.
- neilwilson 2y agoLending in Drachma to Greece is very different to lending dollars to Argentina. It’s a category mistake to conflate the two
- lazide 2y agoCare to explain? Bonus if you can compare lending to Russia too.
- neilwilson 2y agoLending is really a balancing item on the accounts. By default it happens automatically and costlessly in the currency of issue. It’s only when the currency in question is somebody else’s currency that what most people understand as lending and borrowing actually happens. With a country’s own currency it’s more refinancing to a higher interest rate to provide a basic income to those who already have money - all based upon the belief that there is a magical unobservable interest rate that will balance the system. If only we could find it. A state operating its own currency is self financing. [0] Russia is like China. They are technically lending to us, and it doesn’t matter. Nor does it matter to them if we delete that debt as they use the rouble [1] [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4890683 [1] https://new-wayland.com/blog/why-the-russian-oil-price-cap-wont-work/ https://new-wayland.com/blog/why-the-russian-oil-price-cap-w...
- lazide 2y agoAh yes - the issue I’m referring to is that Greece w/the Drachma controlled one half of the currency exchange involved in foreign debt. They could inflate or deflate that half they had when they needed to do other things. It wouldn’t always work well, but it existed. With debt denominated in Euros AND a local economy operating on Euros, they control zero halves. So defaulting now screws them out of their grocery money too, and not just out of their lambo money like it did before. The same (pre-Euro) situation is true of all the other examples, including Russia.
- Paradigma11 2y agoSure but then it is just like a ponzi scheme, where the lenders hope they get out before the default and others are left holding the bag. Argentina shows that most lenders are not willing to take that risk and demand far more strings attached to their loans.
- lazide 2y agoSure, also BRICs were/are a thing for that reason.
- neilwilson 2y agoIt would all be hunky dory because for Germany to export as much as it has done to Greece it would have to hoard Drachma, the drain of which the Greeks could then simply accommodate via a fixed wage Job Guarantee - ending unemployment permanently. As it stands the ECB refuses to do the necessary reflection of the German Target2 hoard into the Greek economy and the result is excessive unemployment and reduced production in Greece due to lack of monetary circulation. All to service a belief about the medium of exchange that isn’t actually the case - that people won’t hold it without monetary incentive (aka an interest payment). We need to chuck out this damaging interest-obsessed monetary religion. The price anchor and stabilisation policy needs to be in the market for labour, not the market for money.
- Paradigma11 2y ago"...the Greeks could then simply accommodate via a fixed wage Job Guarantee - ending unemployment permanently." So this was the case before Greece joined the Euro?
- paulmd 2y agoWas Germany following a policy of stockpiling Greek drachmas to an internationally-significant extent before Greece joined the euro? You left off the prior in your rush to attack the conclusion, but no, if you separate the necessary condition then the event will no longer occur.