European Debt Crisis: Talk by Dr. Heiner Flassbeck

OK. TV Time again. Take 20 minutes to understand the cause of the European debt crisis. http://www.youtube.com/watch?v=TFKzAAd_1W8&feature=player_embedded

Back in the 1990’s , just before the initiation of the euro, the Germans tried to institute a full employment policy by holding down wages for an extended period of time. That failed. They did succeed in beggaring their neighbors, however.

Or you can get it, where I first got it, at: http://www.nakedcapitalism.com/2011/12/class-war-low-wages-and-beggar-thy-neighbor.html

Where I was pointed by: http://yanisvaroufakis.eu/2011/12/15/never-bailed-out-europes-ants-and-grasshoppers-revisited/ (Although I visit nakedcapitalism.com regularly.)

Dr. Flassbeck concludes with a few words about the US, worth noting also.

Still like the idea of Import Certificates, since they force the balance of trade, and each country's policy is independent of any other country's policy, even if with a currency union.
http://anamecon.blogspot.com/2011/10/import-certificates-problem-and.html

Trade Certificates: Solution to the European Debt Crisis

Trade Certificates: Solution to European Debt Crisis

Here’s a nice discussion of the European debt crisis:

http://streetlightblog.blogspot.com/2011/09/estimating-cost-of-eurozone-crisis.html

It’s the third of three articles on the thing, so click on the blog title to access the rest.

We reduce it to the producer-consumer problem. See:http://anamecon.blogspot.com/2010/05/greek-debt-and-producer-consumer.html

But Kash describes the crisis per se is a result of the sudden cessation of capital flows from the center of the Eurozone to the periphery. These flows had to cease, and probably suddenly, some time, as the debt imbalance inevitably piled up. Kash also notes a fair percentage of those flows were for investment. The periphery countries weren’t exactly squandering the money, but that really doesn't matter, except to make the tragedy more poignant. He suggests shared responsibility for the crisis. Yes, the central countries have to pay. Actually, have already paid, they just have to swallow their losses. Making the peripherals pay is just going to make them less able to consume German surplus production. In fact, the peripherals have to achieve a trade surplus. Germany will have to find other markets for its surplus. Inflicting pain on the periphery, except to the point where they have to live within their means, is graceless. Of course, the entire process of- inflicting surplus production on them has reduced their ability to do this. The same thing has happened to the US with its trade deficit. Its ability to live within its means, actually the means itself, its industry, has been compromised.

Now Greece borrowed a lot of foreign money. That money had to be, eventually, spent on foreign goods. Or else they would still have it, in cash, and be able to give it back. We observe that debt, if you don't have the cash, must be ultimately be payed with goods, services, or assets. Nothing else will do.

So what is to be done? Austerity works for households. For nations? You might think. But the problem is deflating a nation's economy destroys productive components while it is reducing consuming elements. Indeed, the productive elements need the consuming elements to continue consuming unless they have compensating export opportunities. For it is only by exporting that the deficit country can pay back the debt, but will the surplus countries allow this to happen? Or instead is the deficit country is forced to sell assets, which worsens its ability to pay in the future?

In fact, the entire process, in the absence of any debt forgiveness, has a dubious- morality. The surplus country lowers prices, drives businesses in the deficit country out of business. See:

http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html

Runs up the debt in the deficit country, then buys up the deficit country's assets. Moral? Or a form of war?

Greece, for instance, had a significantly deteriorating trade balance since about 1990. It seems to be a self-reinforcing thing. And now its assets are being sold. Germany's trade surplus has been increasing steadily since 1990. Is it buying Greek assets?

We recommend the introduction of import certificates, to force a balance of trade, and pay off reasonable debt. See: http://seekingalpha.com/article/203422-how-import-certificates-could-balance-trade-and-budget

Or for a brief description on import certificates, see: http://en.wikipedia.org/wiki/Import_Certificates

Rather than the targeted certificates, we merely encourage all deficit countries to phase in general certificates, not aimed at any country. Indeed, once the process starts, certificate trading will quickly become the norm, since deficits will be forced and focused on those deficit countries which do not practice it, and trade wars will ensue between surplus countries.

Better than selling the farm. Certificates could be phased in, to prevent economic trauma. The goal would be exporters would be issued 1 euro worth of import certificates for each euro they exported. This certificate would allow the importation of 1 euro worth of goods or services. These certificates could be bought and sold. For the deficit country, these could be phased in, starting near the percentage of deficit. Thus, for a country with a 30% trade deficit, they could be originally issued at 1.25 euro worth of imports allowed, say, for each euro worth of export, and then reduced in periodic increments until one euro of import per euro worth of export, at which point trade would be balanced. In fact, if this were practiced by Greece, eventually their trade and capital flows would each be balanced. Problem solved. To pay back what is already owed, eventually Greece must have a trade surplus, so it would, for a while be issuing certificates allowing say .9 euros of imports for every euro worth of exports. This would force it to have a 10% trade surplus, with which to pay back its debts. It also implies that they willl be consuming at less than their production, which is the point of the austerity process. Of course, the process would take longer than any interest on the loans Greece presently owes to compound to unpayable heights. Do the Germans have any intention of allowing Greece to pay them back, since this would damage their own economy? Or are they instead after Greek assets?

But Greece can be the master of its own fate, if it so chooses. With a little help. And so can the US.

And the peoples of the Germanys and Chinas of the world will have to consume to their ability to produce.

Meanwhile, with each country issuing trading certificates, international trade wold be balanced on a nation by nation basis. No country could be claimed to exploit its surplus to cripple the economy of another, and expand its own economy at the other country's expense. All countries would have to live with in their means. And the benefits of otherwise free trade could be enjoyed at a maximum sustainable amount.

The Greek Problem Again

Well, it's 12 days since my post on the Greek Debt. Euro 440B from the eurozone, euro 60B from the European Commission, and euro 250B from the International Monetary Fund. Never let it be said the IMF doesn't take care of its own. Plus the US and other countries are going to guarantee dollars. Couldn't find out how much.

So that's a lot of money. But it is all loans, and the fans are not impressed. A The markets seem to think that this is just pushing the problem down the road. And it is. Germany doesn't want to bite the bullet and let Greece, and the other countries it has a current accounts surplus with, off the hook. But it will let the bankers and other speculators off, and put the European taxpayers on instead. We are talking about a massive transfer of wealth here. And the problem: Still the producer-consumer problem. The only way out is to give the Greeks, and the other PIIGS for that matter, back their money, so they can spend it on German goods again, and keep those factories in the Ruhr humming. So, with the people of the European Union somewhat poorer from the experience, they can all go back to work. Will they be wiser?

Meanwhile, a trillion dollar contribution to sovereign debt. The wise banker should be shaking in his shoes, because bankers the world over are going to succeed beyond their wildest dreams. If things play out.. wrong, and this is a giant step in that direction, they're going to end up with all the money! What a happy day that will be for them!

All our banker has to do is give it away. But, like the monkey with his hand in the jar, he won't let go of the banana. And if the monkey won't let go of the banana, he can't get his hand out of the jar. So he's stuck there.

Clues you in to how smart our masters are. Unfortunately running a monetary system requires a little more intellect, and a lot more balls, and pandering to the powers isn't going to do it.