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The crash has begun!; It’s official - the crash has begun!
Topic Started: 4 Mar 2011, 02:16 PM (11,096 Views)
Sydneyite
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Veritas
18 Sep 2014, 12:17 PM
They widened.

Take Ireland. By October 2010, Government bonds were trading at a rate above 7% (which was unsustainable) which is why the ECB/IMF had to step in.
You are talking about spreads, but then you are quoting yields? Are you sure you know what you are actually talking about???

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So basically the bond markets didn't believe that Ireland was going to pay the money back.

With good reason given a) the scale of the debts it had appropriated as a result of backstopping its rotten banks and b) its structural fiscal deficit.

Is b_b suggesting that had Ireland had its own currency that the bond markets would have continued to lend to it at a manageable interest rate unperturbed by its debt/GDP ratio et al?
If Ireland wasn't not in the Euro, would the ECB have had to "step in"??? Do you think if Ireland had their own currency still then, that their own central bank may have been able to take action that would have resulted in their bond yields remaining "normal"? Also why do you think that 7% bond yield Ireland had was "unsustainable"? Australian government bonds (3 year) were yielding that only a few years ago - was that "unsustainable" for Australia? (There is a specific answer to this Q - interested to see if you get it).

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If that's true why would any nation state ever default? Why did this lot default if they could just MMT their worries away?
There are always long back stories behind the examples you cited - eg most of the south american ones (including Argentina's most recent one) involved borrowings in $US or other non-sovereign to those countries currencies, and/or occurred during the gold standard era, before floating exchange rates and so on, which was a whole different ball game. As I understand it, for any of the MMT mechanisms/ideas to work, you need to have pure legal and universally accepted fiat currency, it must be sovereign, and you must have a floating exchange rate.
Edited by Sydneyite, 18 Sep 2014, 12:43 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Veritas
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We know it was unsustainable, because the Irish Government had to go cap in hand to the IMF/ ECB and ask for a bailout.

Do you think the Irish Government would have surrendered its economic sovereignty easily?

We also know that Ireland had a horrendous debt/gdp ratio and that is what spooked the bond markets in the first place. Sure, if Ireland had its own currency it might have had some scope to help itself e.g. currency devaluation but the fact remains that its debts were enormous and its productive economy had just collapsed and with it, its ability to service that debt.

Are you saying these factors have no bearing at all on a countries ability to honour its debts/ sell bonds?

Having its own central bank/ floating currency would have made it all go away?

If that's true, how come so many other countries who did have their own central banks defaulted?




Edited by Veritas, 18 Sep 2014, 12:56 PM.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Jimbo
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Sydneyite
18 Sep 2014, 12:41 PM
There are always long back stories behind the examples you cited - eg most of the south american ones (including Argentina's most recent one) involved borrowings in $US or other non-sovereign to those countries currencies, and/or occurred during the gold standard era, before floating exchange rates and so on, which was a whole different ball game. As I understand it, for any of the MMT mechanisms/ideas to work, you need to have pure legal and universally accepted fiat currency, it must be sovereign, and you must have a floating exchange rate.
And the end result is exactly the same. You default by devaluation.

If someone buys a 1000 unit bond from you for ten years at a 5% coupon, they get back 1000 units plus 200 interest. If your unit devalues by 50%, they lose purchasing power. That is a default. They can't buy as much stuff as they could with their money.

They wont buy your bonds again unless they are cheap enough to cover any loss from devaluation.



Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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Veritas
18 Sep 2014, 12:55 PM
We know it was unsustainable, because the Irish Government had to go cap in hand to the IMF/ ECB and ask for a bailout.

Do you think the Irish Government would have surrendered its economic sovereignty easily?

We also know that Ireland had a horrendous debt/gdp ratio and that is what spooked the bond markets in the first place. Sure, if Ireland had its own currency it might have had some scope to help itself e.g. currency devaluation but the fact remains that its debts were enormous and its productive economy had just collapsed and with it, its ability to service that debt.

Are you saying these factors have no bearing at all on a countries ability to honour its debts/ sell bonds?

Having its own central bank/ floating currency would have made it all go away?

If that's true, how come so many other countries who did have their own central banks defaulted?




If Ireland wasn't part of the EUZone and had retained it's own currency then their issues would have been far less.

I can't tell you where but your hero Krugman has made the same point time and time again not just for Ireland but Spain and Portugal as well. Krugman's views are not the polar opposite of MMT.

Japans debt is about 250% of GDP, but they are a powerful manufacturing country and most of the their debt is to residents of Japan.

Ireland would have been able to print all the money it needed to for the re-capitalisation or nationalisation of their banks were they not reliant on the Euro. The bonds could have been bought by their own central bank.
Edited by peter fraser, 18 Sep 2014, 01:49 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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Sydneyite
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Jimbo
18 Sep 2014, 01:27 PM
And the end result is exactly the same. You default by devaluation.

If someone buys a 1000 unit bond from you for ten years at a 5% coupon, they get back 1000 units plus 200 interest. If your unit devalues by 50%, they lose purchasing power. That is a default. They can't buy as much stuff as they could with their money.

They wont buy your bonds again unless they are cheap enough to cover any loss from devaluation.


Rubbish - so you think the US has defaulted then currently because their currency devalued since 2009? Did the world stop buying their bonds as they ran QE? Did the yields rise or fall? Did Australia "default" on our issued bonds when our currency fell to under $US0.50 in the late 90s? Did the CGS yields blow out to "cover any loss from devaluation" as you claim they should have? Sorry but all the evidence flies in the face of your assertion.
Edited by Sydneyite, 18 Sep 2014, 01:51 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Veritas
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peter fraser
18 Sep 2014, 01:48 PM
If Ireland wasn't part of the EUZone and had retained it's own currency then their issues would have been far less.

I can't tell you where but your hero Krugman has made the same point time and time again not just for Ireland but Spain and Portugal as well. Krugman's views are not the polar opposite of MMT.

Japans debt is about 250% of GDP, but they are a powerful manufacturing country and most of the their debt is to residents of Japan.

Ireland would have been able to print all the money it needed to for the re-capitalisation or nationalisation of their banks were they not reliant on the Euro. The bonds could have been bought by their own central bank.
Oh FFS.

By that logic, Governments shouldn't bother having budgets at all.

Borrow and spend to their hearts content.

What does it matter? There is no consequence because they issue their own currency.

Japan didn't get into trouble because there were people ( Japanese and otherwise) that were willing to fund their deficits. The markets did not lose heart. Same as in the US now.

I have already posted numerous examples of countries who weren't so lucky and had to default.

And Ireland was fubarred as I have explained three times already because

1. They took on the debts accrued by their property bubble blowing banks.
2. It had a massive fiscal deficit as a result of the collapse of said bubble.

But in your mind, none of that would have mattered if only they had their own currency. :re:
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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peter fraser
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Veritas
18 Sep 2014, 01:58 PM
But in your mind, none of that would have mattered if only they had their own currency. :re:
Correct.
Any expressed market opinion is my own and is not to be taken as financial advice
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Veritas
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peter fraser
18 Sep 2014, 01:59 PM
Correct.
Its not fucking correct Peter.

And I have asked you a few times now to back up that statement and tell me why.

If it was correct, there would be absolutely no need for countries to try to balance their budgets at all.

Not one of you MMT headcases have been able to refute these points made about 40 posts ago now.

Please tell us why Mr Krugman is wrong.

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In a way, I really should not spend time debating the Modern Monetary Theory guys. They’re on my side in current policy debates, and it’s unlikely that they’ll ever have the kind of real — and really bad — influence that the Austrians have lately acquired. But I really don’t feel like getting right back to textbook revision, so here’s another shot.

First of all, yes, I have read various MMT manifestos — this one is fairly clear as they go. I do dislike the style — the claims that fundamental principles of logic lead to a worldview that only fools would fail to understand has a sort of eerie resemblance to John Galt’s speech in Atlas Shrugged — but that shouldn’t matter.

But I do get the premise that modern governments able to issue fiat money can’t go bankrupt, never mind whether investors are willing to buy their bonds. And it sounds right if you look at it from a certain angle. But it isn’t.


Let’s have a more or less concrete example. Suppose that at some future date — a date at which private demand for funds has revived, so that there are lending opportunities — the US government has committed itself to spending equal to 27 percent of GDP, while the tax laws only lead to 17 percent of GDP in revenues. And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds.

The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills.

But what happens next?

We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals. So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services. And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue.

For it is. And in my hypothetical example, it would be quite likely that the money-financed deficit would lead to hyperinflation.

The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.

The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility.

Now, I am not predicting hyperinflation for the US — I am not Peter Schiff! Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.

OK, I have no illusions that this will convince anyone in this area. (Can you imagine John Galt admitting that he was wrong?) But I thought I should put it down.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Dr Watson
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Veritas
18 Sep 2014, 02:04 PM
Its not fucking correct Peter.

And I have asked you a few times now to back up that statement and tell me why.

If it was correct, there would be absolutely no need for countries to try to balance their budgets at all.

Not one of you MMT headcases have been able to refute these points made about 40 posts ago now.

Please tell us why Mr Krugman is wrong.

Veritas raises an interesting question here. If there is absolutely no need for countries to run balanced budgets, then why do they keep attempting to do so?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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peter fraser
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Veritas
18 Sep 2014, 02:04 PM
Its not fucking correct Peter.

And I have asked you a few times now to back up that statement and tell me why.

If it was correct, there would be absolutely no need for countries to try to balance their budgets at all.

Not one of you MMT headcases have been able to refute these points made about 40 posts ago now.

Please tell us why Mr Krugman is wrong.

I don't disagree with Krugman on his point that a government printing money and spending it into the economy could cause inflation, but we were discussing whether or not Ireland recapitalising or nationalising it's banks with money they borrow from their own central bank, and that money will end up as reserves and it isn't spent into the economy.

A government has to be careful how it spends money. If they spend into the wrong area of the economy they will cause chaos, but that in itself doesn't mean that they can't run a deficit

Tell me how many times has the USA had a surplus in it's entire history?
Dr Watson
18 Sep 2014, 02:16 PM
Veritas raises an interesting question here. If there is absolutely no need for countries to run balanced budgets, then why do they keep attempting to do so?
Very few government have a surplus. In fact the only US presidents to reduce the deficits in recent times are Obama and Clinton, yet the GOP claim to be more fiscally responsible.

Maybe they are, and maybe a small deficit every year is the more responsible option.
Edited by peter fraser, 18 Sep 2014, 02:38 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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