Friday 11 May 2012

Eurofudge part 999

The astounding, no, amazing news this morning is that under intense pressure the Greek socialists have put together what might prove a workable coalition - workable for a few months anyway.

Who would have believed that eurofudge would win yet again. instead of a nice resolution to the real issue, namely Greece's massive uncompetitiveness due to its over-valued currency, we get some more, delicious fudge.

However, as with all sweet goods, the initial rush and taste will be welcome but the side effects wear off quickly. For a start, Greece will ask for better terms on its debt repayments and other concessions - all these things cost other people, not Greeks, more money. Moreover, when the inevitable default arrives, this is more money that has been wasted.

Now of course, with a magic money printing machine this money was in many senses never real anyway. The reality of monetary economics is of course under huge attack from the efforts of central banks playing with fire by printing money whilst hoping trust in paper currency does not collapse.

I don't think we are anywhere near that point yet; indeed, whilst the bailouts and eurofudge continue, the chimera can continue. The turning point will be the first default when the ECB should go technically bust, but somehow miraculously won't.

What will people think then of the digits they have in their bank accounts? Scary as the prospect is I am intrigued to see what the reaction is when people start actually questioning what money is and what has value. That way of course lies hyperinflation - policies today are determined to keep us in a Japan style financial repression for the foreseeable future to prevent this scenario from occurring.

Let's see what the next week brings....


hovis said...

"...hoping trust in paper currency does not collapse.
I don't think we are anywhere near that point yet"

hmm I feel I have to disagree as we are now even considering it shows how quickly and much closer it has become. Never in my lifetime has there been an open questioning of what money actually is. Hwne the trusr evaporates it will flow away very very swiftly.

We all aware it's worthless but for the moment it is partially working so are through inertia and utilty continuing to use it. Howver I am not so sanguine about the situation.

Anonymous said...
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CityUnslicker said...

I rarely delete comments, but advertising, particularly the poxy Olympics is too much!

DJK said...

"...hoping trust in paper currency does not collapse.
I don't think we are anywhere near that point yet"

Interesting you say that. Exactly what the digits mean in my bank account has been bothering me for a while, there at the back of my mind.

When I was a boy a Labour government fell because that month's trade defecit was a few million pounds in the red; on Black Wednesday in 1992 the government lost 3 billion. Nowadays central banks spray trllions with gay abandon (and some of it sticks to the bankers), so clearly the value of money at government level has largely evaporated. Eventually, that loss of any real value must filter down to us plebs.

SumoKing said...

Yes but it's always just a bit of grease for a barter economy. I sue someone for you, you give me a pig. The paper money is just effectively a claim against a future pig that I can give to Mr Tesco so I can have 1/2 a Cow instead of pig and then he can go get the pig.


And this is not a CAW specific thing, but we have had "MOOOOWAAAHAHAHAHAHAHAHA Now the Euro is going to collapse and hyper inflation is about to appear and the Tories banning guns is going to come back to bite us in the arse and the Economy just BLUDDY WELL WILL behave as I say it will this time!" 3/4 times a week and I don't think anyone is really prepared to believe it anymore, so you are sort of struggling against inertia, you know, like when there is a food scare and everyone says "yeah but those dopey buggers say that all the time, I'm still going to eat Pineapples"

Timbo614 said...

I've been saying this for 2 years now ad have to agree with hovis above. I keep pointing out (even here) that the ECB "printed" a Trillion in about 3 months in 2 hits - and it really has affected nothing to do with the crisis - just made my "money" baterable(word?) for less and less. Now we have British Gas saying "Ohh just another 15% rise this year"! When ND keeps telling me Gas is everywhere and in glut (without shale at the mo.)

The amount of money Countries and Governments owe is joke. Jubilee - voluntary, accidental or forced is the only way this crisis is going away. The rest is fantasy.

andrew said...

there will be no mass write-down or forgiveness of debt. psychologically impossible.
i have 20k in unsecured debt and you have 20k in savings - are you going to give me that money - i wouldnt give it to you. on the other hand if inflation ran at about 5%, i got 2% on savings and you paid 15% on a loan it would all even up eventually.
we will either run into the buffers and see societal collapse or a decade of low growth and above average inflation like japan
i think option b

Anonymous said...

Is it worth maxing out personal debt now ?

Timbo614 said...

@andrew: As I understand it, that is not what happens, in a jubilee you stay where you are +20 I move from -20k to Zero. That's it. The debt is removed from the system not because the debtors won't pay but because they can't pay. And before you ask - yes, you get mugged because you could have enjoyed 40k of spending on stuff that is physical (car/house/gold whatever) to end up back at zero yourself.

hovis said...

@SumoKing I'm not suggesting that it is binary choice between paper money and barter. Instead it is that the trust in what we call money and is, and is therefore accepted as such will go. At least in your future example you currency is pig and cow backed rather than the nothing that we have now.

Andrew - time for some cognitive dissonace then. The japanese scenario is the best you can hope for and that is without shocks. The debt will be removed, and I unsuprisingly agree with Jimbo, jubilee will be the only real option, unless of course you happen to believe that society will hold as it is and people will happily live as indentured serfs to pay off debt that in the public case at least, they could not really influence. It simply will not hold, even if the opath away is a random walk it will be random walk away from what we have.

Electro-Kevin said...

People can't pay their debts.

So isn't it right that they should go to prison ?

Isn't that what they used to have ? Debtor's prisons ???

Default on debt is a crime. It is theft. It should be treated as such.

That way you restore faith in money.

That way you restore society rather than the pig-bartering system people are suggesting.

BTW - when was the last time any person here saw a pig ?

Or a chicken ?

Think about those two questions seriously.

dearieme said...

Should I be encouraging my daughter to borrow heavily and get on "the housing ladder"?

CityUnslicker said...

Ok - personal debt, don't do it! very stressful if your wrong...

I don't think it is house buying time either, how will houses hold value if interest rates have to treble?

andrew said...

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.

money is something you are given for your work or goods that you can use to buy other goods and services.
it works on trust and yes, in many ways fiat money is a fiction as well as something you need to have faith in.
i just looked and m4 is negative - the money supply is not growing which you might expect in a time of
irresponsible inflation.
whilst it is true that the value of and belief in a currency can be destroyed very quickly - in just a decade or so, i do not see that happening here.

what i do see is a different problem or maybe two.

we are talking about the end of currency and the rise of barter partly because of problems in greece and that a remote village there has moved back to barter.
the underlying issue is that there are not enough jobs there so that people who live in the village can earn enough money to buy what they want with the outside world, so they exchange goods with each other.
we have the same problem in this country - part of the issue with high pay is that there is a group of people who cannot get a 'reasonable' job because it is cheaper to pay someone in china and ship it here.
how do you run a society or an economy where a significant part of the population are not able or excluded from the growth in living standards of the rest?
in the uk you give them unemployment benefit, in the us they move to another state, what do you do with greece

the other problem is that rather than there not being enough money it seems more that there are not enough new things to invest in and this is more worrying to me

Laban said...

"BTW - when was the last time any person here saw a pig ?

Or a chicken ?"

Friday for the pigs - a field full, with little Anderson shelters to live in, on the A-road I travel to work.

This morning I took the dog out for "ablutions", then fed and watered the chickens - 4 hens (one broody) and 2 cockerels.

Timbo614 said...

@ andrew: It's late, I'm probably pished, but there is another aspect: The banks and Gummint are trying to get rid of your cash as in folding so they can control every aspect of everything.

"i just looked and m4 is negative" I bet its not negative for banks!

Time to Un-Invent the computer.

I have a big box of Tide here...
(google it)

Electro-Kevin said...

Laban - Good for you. I live in the countryside and I haven't seen a pig or a chicken for months.

ND - Have you seen a chicken recently ?

BQ - Have you ?

CU - ???

Anonymous said...

I see the Greek President is 'inviting' an assortment of extremists to try and form a government as the people are in a ferment over the economic collapse. Shades of Hindenburg inviting Herr Hitler to become Chancellor?

hovis said...

Pigs ? Chickens - hope it's not Sprint planning .. anyway enough computer nerdery- chickens most days - the bloke across the road keeps them, pigs yesterday when I went o buy food.

Anon:in Greece anyone who isn't part of the thieving political elite i hoc to the euro establishment and the banks is labelled an extremist here, oh and then there are extremists....

electro-kevin said...

Hovis - I must be the only one here who doesn't see chickens. And I live in the country !

Where are all these pigs and chickens going to come from that we're going to be bartering with ?

What do I say to my passengers when I refuse to drive my train because fiat has failed and my wages are worth less than the virtual pay slip sent to me ?

"I'm not driving you to D*****h until one of you has given me a chicken."

What will drivers take in payment during the Notting Hill Carnival ? Ganja ?

Nick Drew said...

EK - I see pigs twice-monthly at least but, I have to admit, chickens less often

had never really thought about that ...

(however, barter is not to be thought of as anything other than highly retrograde: say after me, Liquidity is a Public Good)

electro-kevin said...
This comment has been removed by the author.
electro-kevin said...

Liquidity is a public good
Liquidity is a public good
Liquidity is a public good...
Liquidity is...a no place like... place like ... home..

There's no place like home
There's no place like home
There's no place like home...

Laban said...

"What will drivers take in payment during the Notting Hill Carnival ? Ganja ?"

On my late father's council estate in County Durham, it was not unknown for taxi drivers (delivering customers to the local dealer) to be paid in "wraps", whether heroin or cocaine I know not.

Bill Quango MP said...

EK - There's loads of pigs along the road by Stonehenge. And most of my friends keep chickens.

Where are you living?

Bill Quango MP said...

As for Greece.
They don't want to leave the Euro.
They don't want to go back to the hardship of the Drachma and high interest rates.
They don't want a new currency that is exchanged 1:1 for Euro and is worth 1:250 the following day.

The Greeks want to stay in the Euro club, using Euro money and they want foreign aid to make most of their debts go away. In exchange they promise to not go beserk on high speed trains, yacht clubs, motorways and bridges anytime soon.

This may not be appealing to the German taxpayers but they may not have a choice. If the Germans want to keep Greece in the club and ensure the euro benefits their exports, they might have to print up the cash and post it with a note "Here it is. Now please behave."

andrew said...

I sort of agree.
Even as a commentator on R4 says that there is a 75% chance or a 'grexit' (his term not mine),

I think that the germans will print enough that they will be very unhappy, but put up with it and will print so little that the greeks will be very unhappy, but put up with it.

Having said that I did say that shorting the index @5608 was unwise on Sunday.