If Greece had its own currency there would be certain compensations against economic downturn. One example of this relates to the international demand for Greek goods. If the output of the Greek economy slows down one way to get out of recession is to increase the level of external demand. If Greece was able to devalue the currency by creating an inflationary gap through seniorage it would increase the demand and investment from foreign entities due to the low costs in real terms. Also the labour force would become more desirable as the willingness to work and for less money is created through economic hardship. As the Euro is based on the cumulative value of the monetary units across the Eurozone the Greek relationship with economic forces is altered. In short the Greek government cannot use the above technique to entice economic growth due to the single European currency and the objective of maintaining currency value. There is a deeper dimension however. As repayments of loans relate to the purchasing value of the currency any inflationary of deflationary gap will have an effect on the relationship with the investor. Due to Greece being highly geared and having to pay enormous amounts of debt back with interest this relationship becomes strangulated. If there is deflation the relative repayments become higher and could cause economic damage. The converse is true also if inflation occurs the repayment is diminished in real terms. This adds greater emphasis to the point raised above in relation to the limitations of monetary control as a result of being in the Euro. However, even if the Greek government did not increase the money supply there would be a natural compensation if the economy deteriorated. If the output declined and the money supply stayed at the same level it would create a supply shock resulting in an inflationary gap. This inflationary gap would reduce the repayment cost of the debt in real terms the situation is the same. As the Euro is based on the overall Eurozone stability this natural compensation is unlikely to occur due to the reduction in output not being directly offset by a domestic currency. Creating an environment where the Greek repayment costs could increase in real terms. What makes the situation perhaps more serious is that rather than this natural inflationary compensation occurring due to the relationship with Euro it could make it worse. If the Euro moves in wrong direction and increases value there would be a deflationary gap, which would make the repayments even more expensive pushing Greeceâs economy into an even worse position. Although this may be unlikely, there is a possibility of this and even if it was only for a short period could do irreversible damage. Any comments.
In my view, the focus of the world is on the wrong topic. The west keeps saying it is trying to "balance trade, deficits, debt," etc. This is a the topic selected by the very rich elite. The focus should be: The west should tax goods coming into the west at the inverse of the standard of living of the exporter. That sounds a little contorted...so, let me reword that: If a country wants to export a product from a country with a low standard of living...then the product should be heavily taxed. If a developed country wants to export to a developed country...the tax should be light. This would act as an incentive for the developed countries to compete amongst themselves, but it would also give an incentive to undeveloped countries to increase their standard of living. There could be "good standard of living" areas in undeveloped countries that can export at low tax rates to developed countries, but not any old area from an undeveloped country could export cheaply to the west. This would avoid the "race to the bottom" which the west is experiencing now. Think about it...would there really be a financial crisis if overall wages were going up? I don't think so -gastropod edit: I am saying that the problem is not the euro or the pound or the dollar. The problem is the deficits caused by trying to maintain a standard of living while trying to compete in the race to the bottom for wages and prices.
very good post. can i ask do you think from my comments above the situation in greece is irreversible with the current tools. also hav you heard other people make those comments. because to my knowledge no one else has.
The only way any country (Greece USA, etc etc etc) to prosper is to print it's own currency for it's own use. Instead of IMF giving you loans Instead of FED giving you loans every time they print dollars. Currency has to become responsibility for Legitimate government of that country. And not Private Global group of bankers. http://video.google.com/videoplay?docid=-515319560256183936#
Ok, morganist...you asked for it ;-) I am a conspiracy theorist I think this has been the intention of certain groups around the world. I think the process is irreversible. I won't get into Mayan mambo jumbo or the writings of Nostradamus or other stuff...BUT, I believe the "power elite" have planned an economic collapse for the world scheduled for 2012. I think their plan has to do with the fact that fiat currencies can't survive forever. I could go on ad infinitum...I'll spare you ;-) Oh, I answered a bit more in my response above. Oh - I think I am one of the first to promote tax based on standard of living...I hope it catches on! -gastropod
The collapse is an opportunity for consolidation and New Laws that make sheeple bigger sheeple All for their protection of course
Let me see if I can articulate my thoughts here (I am not always so good at doing that ) I will only TRY to "hint" at my bigger thoughts - they would take too much space to write out here...that said... Beliefs: 1.) Is there an inherently "smarter" race? My answer is NO! Smart people can come from any race. 2.) Is there an inherently "smarter" class? My answer is NO! I have seen smart poor people and dumb rich people...to me...class doesn't appear to be a predictor of intelligence. 3.) Can poor people (living in squalor) do "great" things? Yes, just look at the great pyramids...made by slaves. 4.) Mating and producing children and leaving a "legacy" appears to be important to some people. 5.) Monetary systems can affect productivity and creativity. "Hard" currencies limit expansion...fiat currencies allow almost limitless expansion...until they collapse. My conclusions from those beliefs... 1.) There is a power elite that are hell bent on having their kids be the "leaders" regardless of their kids' limited intelligence and worthiness.....most monarchies...the Bush family...the North Korean families...the Rockefellers (sic)...etc. 2.) Our present fiat monetary system has reached the limit...where it is no longer possible to prop up the stupid and undeserving children of the elite. Intelligence is being banned as a means of success...in favor of nepotism, despotism and a host of unsavory terms. 3.) The present fiat system has produced a world economy that could now just as happily survive without a LOT of the people presently living - that is a harsh statement. End result...the power elite have a "takedown" planned...in a few years there will be a LOT less people on this planet...and a lot less opportunity for the non-elites still living. -gastropod
A vid from February but he's a laugh Max Keiser from 7.20 <object width="480" height="385"><param name="movie" value="http://www.youtube.com/v/4A_1AB81KLo&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/4A_1AB81KLo&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="480" height="385"></embed></object> <object width="480" height="385"><param name="movie" value="http://www.youtube.com/v/5RKaRjDF7j0&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/5RKaRjDF7j0&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="480" height="385"></embed></object>