Post Tagged with: "currency sovereignty"

Muddling through in Europe

Muddling through in Europe

The scenario I laid out for Europe for 2014 in three posts on the global economy last week is one of muddling through. However, whereas in the US, there are upside risks, in Europe the risks are mostly to the downside, politically and economically. A few thoughts on the situation follow.

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Full employment policy in the periphery without the euro exit

Full employment policy in the periphery without the euro exit

In the case of Greece, with fuel, food, and medicine making up a large share of the import bill, further economic disruption and destabilization would likely result from a choice to exit the eurozone. Exiting the euro does not appear to be an option – at least not one without a large risk of introducing further turmoil. The task then becomes to thread the policy needle – namely, to exit austerity, without exiting the euro. The following simple proposal introduces an alternative financing mechanism, along with safeguards to minimize the risk of abuse of this mechanism, which may accomplish this threading of the needle.

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Former Bank CEO and Treasury official: Issuing Treasurys isn’t government “borrowing”

Former Bank CEO and Treasury official: Issuing Treasurys isn’t government “borrowing”

Newman: “in my own book the explanation starts the cycle with government spending, thus adding to the money supply, and then issuing treasuries for roughly equivalent amount. The bond vigilantes really have it backwards.

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Austerity is still the prevailing paradigm right across Europe

Austerity is still the prevailing paradigm right across Europe

Despite Europe’s continual moving of the goalposts to give countries more breathing room, the economic paradigm in Europe is still the same: austerity. This will dampen growth in Europe for the foreseeable future and increase government debt to GDP ratios, making debt deflation and crisis a background threat which will result in sovereign restructurings regardless of recovery.

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How to Think About Government Debt and Deficits: Don’t Think of an Elephant

How to Think About Government Debt and Deficits: Don’t Think of an Elephant

Deficits present governments with the sole challenge of making good on future promises without inflation. For nations sovereign in currency, the constraint is inflation, not solvency.

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Today’s European crisis trilemma is reminiscent of interwar Europe

Today’s European crisis trilemma is reminiscent of interwar Europe

The Eurozone’s tangle of conflicting goals – a series of ‘trilemmas’ – is not without precedent. This column argues that it is reminiscent of the interwar situation. The interwar slump was so intractable not just due to financial issues, but also a crisis of democracy, of social stability, and of the international political system. The big difference in the EZ is that nations cannot go off the euro as they went off the gold standard. That is why the initial EZ crisis may not have been so acute as some of the gold standard sudden stops, but the recovery or bounce back is painfully slow and protracted.

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The US government shutdown, currency sovereignty and sovereign default

The US government shutdown, currency sovereignty and sovereign default

As the US government shutdown continues, the risk of default grows. Below are some thoughts on why this has played out as it has and what the outcome may be.

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Abenomics and Japan’s disastrous macro plans

Abenomics and Japan’s disastrous macro plans

Abenomics has been very successful in goosing the Japanese economy thus far. However, the question remains whether this success will be short-lived or durable. I believe it is likely to be short-lived because of the policy constraints that all countries face irrespective of whether they have fiat currency.

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How bond market vigilantes force rates higher

How bond market vigilantes force rates higher

I see that Paul Krugman has shifted his rhetoric in a recent post on British government economic policy. Let me explain how in this post so that I can make a point as to how bond market vigilantes actually work.

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Why austerity in Europe will continue

Why austerity in Europe will continue

The reality of course, is that euro zone governments do have to worry about losing market favour. They cannot rely on the central bank as a debt buyer of last resort the way the Japanese, the British or the Americans can. If, for whatever reason, sovereign debt buyers become skittish about euro zone sovereign obligations, the impact is immediate and yields rise. In a worst case scenario, you get a crisis and default as we did in Greece. So the impetus to keep sovereign debt levels manageable is clear. This makes the euro zone different from other currency areas that have currency sovereignty and flexible nonconvertible currencies.

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On Japan’s widowmaker trade and Reinhart and Rogoff

On Japan’s widowmaker trade and Reinhart and Rogoff

I was on the Daily Ticker with Lauren Lyster talking about Japan yesterday. My view is that there is no material negative change in Japan’s sovereign debt outlook nor will there be in the medium term because of Abenomics. The video is at the bottom of this post. Before you watch it let me say a little bit about why I take this view on Japan and speak more generally about government debt and deficits. Mike Konczal wrote a post that is getting a lot of buzz on high deficits and Reinhart and Rogoff that will be a good jumping off point for discussion.

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Kyle Bass gets it wrong on Japanese bonds

Kyle Bass gets it wrong on Japanese bonds

This is a good interview with Kyle Bass because it cuts to the heart of the matter. If you are a partisan in the Bass debate on Japan, you can see him as being either correct or incorrect. Now, I have covered this before and I have stressed that he is looking to make an asymmetric bet on outlier events to hedge his market-long portfolio. He is not taking a flyer via outsized risk exposure to short JGB trades. And Bass does make this clear in his commentary. Nonetheless, his macro view of the way interest-rate targeting central banks operate in a fiat currency system is completely wrong.

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