Worldwise: Addicted to Fudge (Henry Farrell & Alex Massie)

[Bloggingheads]

[Stapler Malone]

Kudos to Henry & Alex for doing yeoman's work covering the terrifying/boring crisis in Europe. Also, this is probably the best 30-second sum-up of the EU I've ever heard.

[Florian]

At last a diavlog that isn't about American politics or the Middle East.

Excellent tour d'horizon by Henry Farrell---as usual. Alex Massie seems to be on the ball too, but perhaps a wee bit too pessimistic and Eurosceptical, as befits a denizen of gloomy, whisky-sodden Edinburgh. But I would rather hear a Scot talk about European politics than an Englishman anyday. They dislike the English almost as much as the English dislike the continent.

So much gloom and doom though made me wonder if I should start shorting the euro.

[BornAgainDemocrat]

Interesting, well-informed, persuasive. A 100' tsunami is clearly on its way towards Europe and America following the magnitude 9.0 earthquake in the sub-prime real estate market in L.A.

But not to worry, Bernanke will bail us all out in the end. He alone has the tools and knows how to use them. Count your blessings that he cannot be removed from office.

I foresee a reprise of the 1970's in my neck of the woods -- much higher inflation, falling wages, and a rising burden of taxation. I also foresee (fear?) a replay of the 1930's in East Asia. Let us pray I am wrong about that (and that we don't get involved if I'm not).

[bkjazfan]

BornAgainDemocrat,

Do you foresee another recession in the next 8 months?

[Sulla the Dictator]

Between the desire
And the spasm
Between the potency
And the existence
Between the essence
And the descent
Falls the Shadow

For Thine is the Kingdom

For Thine is
Life is
For Thine is the

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

Trust T.S. Eliot to capture the situation in Brussels.

[T.G.G.P]

It seems like a never ending wait for the shoe to drop.

I hadn't heard much bad about the German liberals. Perhaps because I hadn't heard much about them at all.

[ginger baker]

I'm a fan of Henry but I'd never know it from watching him on bhtv. He's done lots of great work on neo-liberalism, certainly an important topic these days but one strangely left at the wayside on bhtv. What gives?

[Florian]

Originally Posted by Sulla the Dictator

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

Trust T.S. Eliot to capture the situation in Brussels.

How melodramatic, sulla. Even if the euro ends with a whimper and Greece bows out (unlikely), the EU will continue to muddle along, as it has for 60 years. The nations of Europe have no other option.

[Ocean]

Originally Posted by Florian

How melodramatic, sulla. Even if the euro ends with a whimper and Greece bows out (unlikely), the EU will continue to muddle along, as it has for 60 years. The nations of Europe have no other option.

There's the optimism!

[Florian]

Originally Posted by Ocean

There's the optimism!

You spotted the contradiction. This is the moment to trot out Gramsci: pessimism of the intellect, optimism of the will.

If indeed it was Gramsci who first said it. Apparently the saying has also been attributed to Romain Rolland.

[ohreally]

Originally Posted by Florian

: If indeed it was Gramsci who first said it. Apparently the saying has also been attributed to Romain Rolland.

Yes, but don't forget the Iron Law of Intellectual Attribution. Credit goes to the last guy to discover something, not the first. That's why we credit Columbus with discovering America: not for being the first guy who did so but the last one. After him, America became so famous no one could ever discover it again. Same with Gramsci. He popularized Rolland's saying: that's why he gets the credit. I wonder now that if bhtv makes a concerted effort to credit you, Florian, for that saying, perhaps posterity will give you credit for it (and in a century or two, a blog poster will write something like "If indeed, it was Florian who said it first. Apparently the saying has also been attributed to Gramsci."

In Math you have theorems named after people whose sole contribution was to give an incorrect proof of a result that had been proven correctly 100 years earlier. (Bezout is the classic example.) In physics, you have phenomena named after physicists whose only connection to the phenomenon in question was to deny its existence and fight those who claimed it.

[Sulla the Dictator]

Originally Posted by Florian

How melodramatic, sulla. Even if the euro ends with a whimper and Greece bows out (unlikely),

It is almost to the point where there is no question, and I'm surprised to see that you're skeptical even of a Greek expulsion/withdrawl. But the PIIGS are almost besides the point now. The collapse of the Irish finance industry showed that the ECB stress tests on banks was actually pretty meaningless. This has cast a shadow over European finance in a larger sense (France's most recently). Combine a freeze of private lending with a sovereign debt crisis on the Mediterranean and you have a catastrophic economic failure.

the EU will continue to muddle along, as it has for 60 years. The nations of Europe have no other option.

There is always another option. You might feel the Euro is overvalued, but the Germans, whose credibility the Euro is actually based on, feel otherwise. The Euro as Franc rather than Deutche mark doesn't come close to meeting German economic needs, nor does it fit a German model of currency stability held for the last sixty years. The need for a more Northern European orientation is becoming clear in light of the irresponsibility of the Southern European experience.

[ledocs]

bhtv does not seem to be hospitable to anything left of...hard to say what, exactly, I've been saying Matt Yglesias, but that is probably too harsh. But I don't understand why Farrell would feel compelled to be less left than he actually is on bhtv. But, then, some of the many "libertarians" also tone down their acts on bhtv, or so Bob Wright himself seems to suspect. "Maybe I should ask Matt Welch if he is revealing his true colors," he said on a recent Commenter Klatch. Anyway, I hope to be discussing this with Bob himself in the near future.

This particular dv was OK, hardly revelatory. There was at least one important point, however, that I have not heard elsewhere, namely that a "northern country Euro" would probably be quite expensive relative to other currencies and would hurt export-driven economies, such as Germany's or that of the Netherlands. This begs the question of whether countries like Greece were invited into the euro precisely in order to reduce its weighted-average value. I have heard that Greece has been an important market for German goods, but I have not heard about an advantage to big exporters in having a lower valued currency, I mean that I have never heard this mentioned as an explanation for why Greece would have been allowed into the euro in the first place. It would be nice if someone would explain in some detail the more important of the mechanical problems for the European banking system which would ensue if Greece were to default or to try to abandon the euro. I know someone who has worked for the EU for years in a high middle-management capacity in the financial part of the EU, and he explained to me that there would be runs on banks, not just in Greece, but in other peripheral countries, as soon as it seemed really possible that Greece could leave the euro and abandon some or all of its euro-denominated obligations. So the mechanics of orchestrating an exit for Greece are very, very difficult, for Greece, for the rest of Europe, for everyone. Hence, no exit, no exit strategy. But then the alternative is to mark Greece's sovereign debt to market and enforce austerity on Greece, a strategy that appears to create very serious problems for northern Europe's banks, which are undercapitalized.

But I am optimistic, it's all good.

[Florian]

Originally Posted by Sulla the Dictator

It is almost to the point where there is no question, and I'm surprised to see that you're skeptical even of a Greek expulsion/withdrawl. But the PIIGS are almost besides the point now. The collapse of the Irish finance industry showed that the ECB stress tests on banks was actually pretty meaningless. This has cast a shadow over European finance in a larger sense (France's most recently). Combine a freeze of private lending with a sovereign debt crisis on the Mediterranean and you have a catastrophic economic failure.

There is always another option. You might feel the Euro is overvalued, but the Germans, whose credibility the Euro is actually based on, feel otherwise. The Euro as Franc rather than Deutche mark doesn't come close to meeting German economic needs, nor does it fit a German model of currency stability held for the last sixty years. The need for a more Northern European orientation is becoming clear in light of the irresponsibility of the Southern European experience.

Sulla is not only an historian, he is also an economist and a prophet. The fate of the EU is independent of the fate of the euro.

Apparently the euro is overvalued, as it continues to lose value vis-a-vis the dollar. I couldn't care less about German "economic needs." As long as I can short the euro and make a tidy a little profit, why should I care?

[Sulla the Dictator]

Not to mention a sharp political reaction to austerity in Greece. One doubts the Greek people have the political will to support austerity governments for the foreseeable future. The recent Greek decision to raise taxes rather than cut spending should be alarming to Europeans.

[Sulla the Dictator]

Originally Posted by Florian

Sulla is not only an historian, he is also an economist and a prophet.

I wear many hats.

The fate of the EU is independent of the fate of the euro.

Perhaps, but it is the Euro that makes the EU consequential. Without it, the EU might as well be the EEC again as it relates to international and economic matters.

Apparently the euro is overvalued, as it continues to lose value vis-a-vis the dollar.

It is ironic that the dollar is still seen as a safe haven.

I couldn't care less about German "economic needs." As long as I can short the euro and make a tidy a little profit, why should I care?

Because 600 million men and women wake in the morning, go to work, feed their families, and live their lives based on the promises of the European elite regarding their economic system and the value of the money sitting in their wallets?

[Florian]

Originally Posted by Sulla the Dictator

Because 600 million men and women wake in the morning, go to work, feed their families, and live their lives based on the promises of the European elite regarding their economic system and the value of the money sitting in their wallets?

So much sollicitude for 600 million Europeans! If only you and your ilk were capable of showing similar sollicitude for your fellow Americans.

The euro has been overvalued for years, mainly because the FED has done everything to prop up the dollar. The correction is long overdue.

[Sulla the Dictator]

Originally Posted by Florian

So much sollicitude for 600 million Europeans! If only you and your ilk were capable of showing similar sollicitude for your fellow Americans.

I support a strong dollar, so I don't quite know what you mean here.

The euro has been overvalued for years, mainly because the FED has done everything to prop up the dollar. The correction is long overdue.

Quite the opposite, really. The FED has done everything humanly possible to deflate the dollar. As to the Euro, its problems haven't been the dollar. The ECB and the Germans have both supported a strong Euro. It has allowed Germany to keep an export market that is essentially buying its goods with a Super Deutche Mark. If the Euro ends up trading .90 to the dollar (The modern dollar for God's sake), there is no value to Northern European export economies. The theoretical increase in demand for exports will be mitigated by a global recession in the first place, and the 35% increase in commodity prices in the second.

[Florian]

Originally Posted by Sulla the Dictator

Quite the opposite, really. The FED has done everything humanly possible to deflate the dollar. As to the Euro, its problems haven't been the dollar. The ECB and the Germans have both supported a strong Euro. It has allowed Germany to keep an export market that is essentially buying its goods with a Super Deutche Mark. If the Euro ends up trading .90 to the dollar (The modern dollar for God's sake), there is no value to Northern European export economies. The theoretical increase in demand for exports will be mitigated by a global recession in the first place, and the 35% increase in commodity prices in the second.

You are right. I spoke too quickly. The FED has done everything possible in the past year to deflate the dollar, but the euro is still overvalued. Anyone living in Europe and comparing prices here with prices in the US can see that the euro has much less buying power. Property, rents, cost of living, everything is much higher (see the "McDonald's index").

I am not an economist or a prophet, so I cannot comment on your last sentence. But I am not terribly worried about Germany, which is the only country in Europe that has low unemployment and a huge trade surplus.

[ledocs]

Florian said:

The euro has been overvalued for years, mainly because the FED has done everything to prop up the dollar. The correction is long overdue.

I think you misspoke here.

If the Fed had done everything to prop up the dollar, then it should now be overvalued relative to the euro, not undervalued, as I think you have said that it is on more than one occasion. Prior to "the market's" rather tardy realization that the euro had very significant problems of its own, the dollar had been falling in a secular way relative to the euro over the past five years, with the exception of that short period of two-three months after the US stock market crash in October, 2008, when, paradoxically, there was a safe-haven flight to the dollar, according to the conventional view one gets in the WSJ. In any case, my impression has been that, since I moved to France five years ago, the Fed has done far from everything in its power to prop up the value of the dollar. To the contrary, it has regarded the value of the dollar with benign neglect, in an attempt to reduce the US current account deficit. When the Fed maintains a large interest-rate differential on the negative side with Europe, that tends to decrease the dollar's value relative to the euro. The Fed did not have much choice but to reduce interest rates, but very few people think that the Fed has been working hard to create a strong dollar, ceteris paribus. There is some famous economist at Berkeley, Barry Eichengreen, he might have appeared on bhtv, I saw him somewhere, who was arguing recently that the euro would be trading, and should be trading, at about $1.75 - $1.85, I think it was, largely because of the US current account deficit. That really put the fear of God into me. That was before it was widely recognized that there was a sovereign debt problem in Europe, though. How it is that Eichengreen missed that part of the story, I don't know.

http://www.oup.com/us/catalog/general/subject/Economics/International/?view=usa&ci=9780199753789

[Florian]

Originally Posted by ledocs

I think you misspoke here.

I did, I did. Mea culpa. See my correction to Sulla. And thank you for pointing out my blunder.

If the Fed had done everything to prop up the dollar, then it should now be overvalued relative to the euro, not undervalued, as I think you have said that it is on more than one occasion. Prior to "the market's" rather tardy realization that the euro had very significant problems of its own, the dollar had been falling in a secular way relative to the euro over the past five years, with the exception of that short period of two-three months after the US stock market crash in October, 2008, when, paradoxically, there was a safe-haven flight to the dollar, according to the conventional view one gets in the WSJ. In any case, my impression has been that, since I moved to France five years ago, the Fed has done far from everything in its power to prop up the value of the dollar. To the contrary, it has regarded the value of the dollar with benign neglect, in an attempt to reduce the US current account deficit. When the Fed maintains a large interest-rate differential on the negative side with Europe, that tends to decrease the dollar's value relative to the euro. The Fed did not have much choice but to reduce interest rates, but very few people think that the Fed has been working hard to create a strong dollar, ceteris paribus. There is some famous economist at Berkeley, Barry Eichengreen, he might have appeared on bhtv, I saw him somewhere, who was arguing recently that the euro would be trading, and should be trading, at about $1.75 - $1.85, I think it was, largely because of the US current account deficit. That really put the fear of God into me. That was before it was widely recognized that there was a sovereign debt problem in Europe, though. How it is that Eichengreen missed that part of the story, I don't know.

http://www.oup.com/us/catalog/general/subject/Economics/International/?view=usa&ci=9780199753789

Quelle horreur! If the euro ever trades at $1.75 I will have to move back to the US. Quelle horreur!

[Sulla the Dictator]

Originally Posted by Florian

You are right. I spoke too quickly. The FED has done everything possible in the past year to deflate the dollar, but the euro is still overvalued. Anyone living in Europe and comparing prices here with prices in the US can see that the euro has much less buying power. Property, rents, cost of living, everything is much higher (see the "McDonald's index").

I'm certain that isn't entirely, or even mostly, a currency issue. Your continent's love affair with taxation is well known. Taxes on fuel and energy alone impact purchasing power.

I am not an economist or a prophet, so I cannot comment on your last sentence. But I am not terribly worried about Germany, which is the only country in Europe that has low unemployment and a huge trade surplus.

It won't for long. Germany is the engine for the broader EU economy. The system simply will not function in the event of a German slowdown.

[Florian]

Originally Posted by Sulla the Dictator

It won't for long. Germany is the engine for the broader EU economy. The system simply will not function in the event of a German slowdown.

Prognostications of doom like yours are a dime a dozen. Saying that "the system will not function" is about as illuminating as saying that the world is coming to an end. Professional economists are generally more nuanced.

Germany is the engine of growth.... of Germany. More than France or other European countries its economy depends heavily on trade with countries outside Europe, and its exports have benefited greatly from the existence of the EU (offshoring labor to former East Germany and other eastern countries with their lower labor costs). The main problem facing Europe today, as in the US in 2008, is the overleveraged banking system. Banks, among them several "too big to fail" French banks, lent too much money to the improvident Greeks, and now they find themselves undercapitalized as the bond vigilantes attack Greece and the other PIGS.

If Greece is forced out of the euro--a real possibility---the "system," the euro, will no doubt falter, but no one is talking about the end of the European Union.

[piscivorous]

The banks may be over leveraged but they at least hold the minimum legally required reserves; whereas many governments are over leveraged with only the printing press in reserve.

[Don Zeko]

Originally Posted by piscivorous

The banks may be over leveraged but they at least hold the minimum legally required reserves; whereas many governments are over leveraged with only the printing press in reserve.

This may be the dumbest thing I've read on this forum in the past month.

[sugarkang]

Originally Posted by Sulla the Dictator

Your continent's love affair with taxation is well known. Taxes on fuel and energy alone impact purchasing power.

When American Democrats said we should be more like France they don't need to feel completely disheartened; our unemployment rate is almost as high. Now, we just need to keep the unemployment range between 9-12% for the next quarter century.

[Sulla the Dictator]

Originally Posted by sugarkang

When American Democrats said we should be more like France they don't need to feel completely disheartened; our unemployment rate is almost as high. Now, we just need to keep the unemployment range between 9-12% for the next quarter century.

LOL Quoted for truth.

[ledocs]

Why is that statement particularly dumb? The first part is true. There seems to be too much government debt around. The second part is not true, there would be other ways of retiring government debt than by inflating one's way out of it. But that's just normal ideological hyperbole for, "The easiest, or most probable means by which governments will try to reduce their debt burdens is via inflation of their money supplies."

If that were the dumbest thing written here in a month, we would be in the smartest nearly universally available public forum ever to exist. I say this as someone who has piscivorous filtered. I suspect that your reaction to this post would not have occurred if you only read him via the quotations of third parties.

[Florian]

Originally Posted by piscivorous

The banks may be over leveraged but they at least hold the minimum legally required reserves; whereas many governments are over leveraged with only the printing press in reserve.

The banks hold the minimum legally required reserves....until the markets decide otherwise. When the value of their various "assets"--such as government bonds, credit default swaps etc. --is downgraded because bond vigilantes have decided that the debt of the PIIGS-- Portugal, Italy, Ireland, Greece, Spain--- is too risky and worth less than it was a year ago, then the banks find themselves, by the magic of the market, to be undercapitalized (their market capitalization plunges) and at risk of defaulting on their debt.

At least, that is how I, hardly an expert, understand the situation.

[miceelf]

Originally Posted by sugarkang

When American Democrats said we should be more like France they don't need to feel completely disheartened; our unemployment rate is almost as high. Now, we just need to keep the unemployment range between 9-12% for the next quarter century.

Do you have examples of such statements from American Democrats?

Is unemployment calculated the same in France as it is here?

[Don Zeko]

Originally Posted by miceelf

Do you have examples of such statements from American Democrats?

Is unemployment calculated the same in France as it is here?

It isn't. Here you have to be actively looking for work to count, so there are vast numbers of people who are underemployed or who have given up there job search. These people aren't officially unemployed here, but they are absolutely not working full time because of the bad labor market. In France, many of those people will appear in the headline unemployment rate.

[ledocs]

I have heard discussions of undercounting of the "unemployed" in France similar to those one hears in the US. There are differences in the way that unemployment is measured, but I don't think they are as simple as that "discouraged workers not actively seeking work" are counted as unemployed in France. I think such people are excluded from the labor force, as they are in the US.

The [French] labour force is defined as the number of people employed plus the number unemployed but seeking work. The nonlabour force includes those who are not looking for work, those who are institutionalised and those serving in the military.

http://www.tradingeconomics.com/fran...mployment-rate

Generally speaking, I have the impression that unemployment is measured quite similarly in France and the US. Any differences are subtle, probably having to do with survey techniques, data collection techniques, and so on. Perhaps the main difference is in estimating the number of people who work "outside the system" of tax collection.

http://brises.org/textbefore.php/a-s...xtbefBranch/4/

[sugarkang]

Originally Posted by miceelf

Do you have examples of such statements from American Democrats?

Michael Moore's Sicko. I think I was still a Democrat then.

[badhatharry]

Originally Posted by Don Zeko

These people aren't officially unemployed here, but they are absolutely not working full time because of the bad labor market.

or because they haven't exhausted their 99 weeks.