Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
A bit of a different blog today. I was rummaging through some boxes of papers today in search of some “non-digitised” notes which I wanted to consult as part of the development of our macroeconomic textbook, which Randy Wray and I hope to get out sometime next year. I came across some old drafts of papers I wrote in the early 1990s which had handwritten annotations etc. The old way of doing things. I thought it was interesting to compare the final published version of one such paper with the unpublished draft. That is what this blog is about – looking back to an article I wrote in 1993 (“Demystifying the Deficit”). A little journey back in time – but with alarming overlaps with what is going on today.
Its summer! After reading this blog – The ECB is a major reason the Euro crisis is deepening – many readers have written to me asking to provide more explanation of the “sterilisation” operations that the ECB is engaged in. It is clear that an increasing number of people are becoming interested in arcane things like central bank operations which can only augur well for creating capacity for better public debate. A lot of readers overnight have reacted one way or another to the announcement by several central banks that the swap lines are open again albeit at a lower “cost” than previously. There was also considerable interest in understanding what the “failed” sterilisation yesterday means. The answer is not much but we had better not tell the Germans that the ECB weekly deposit tender failed.
It is the season of “mini-budgets” with the Australian Treasurer launching the Mid-year Economic and Fiscal Outlook 2011-12 yesterday (November 29, 2011) and his British counterpart – the Chancellor of the Exchequer – releasing his Autumn Statement. At least Australia has summer coming tomorrow to look forward to. Both documents outline strategies of failed governments. I am watching the Australian Treasurer on the news screen at the airport right now as he asserts over and over again that even though they are now forecasting a rise in the unemployment rate over the next year there is “growth in the pipeline” and so aiming to achieve the largest fiscal consolidation in history (of the world) in one year is still a sensible strategy. I described the strategy on national radio last night as madness! Worse applies to the British government’s fiscal strategy. I consider that to be venal rather than misguided.
I noted a proposal overnight from so-called progressive American economist Dean Baker on Al Jazeera (November 28, 2011) – Time for the Fed to take over in Europe – which suggests that the US Federal Reserve Banks should insulate the US economy from the bumbling leadership crisis and “step in if the European Central Bank fails to deal with the debt crisis”. The proposal is that the US central bank should fund EMU nation deficits. This is another one of cases when friendly fire shoots the progressive movement in the foot. You can read the previous editions When you’ve got friends like this to see what the problem is. The simple point that far from protecting the US economy this proposal would likely cause a collapse in the currency and an inflationary surge that would divert attention of the US government away from creating employment, undermine the real standard of living of workers, and provide new ammunition for those who want to implement damaging austerity. For all that, the US government would only put the EMU nations into a holding pattern anyway.
As the economic crisis has dragged on and deepened, it has changed complexion. It clearly started out as a balance sheet crisis which means it originated from the excessive borrowing of the private sector driven by personal greed and an overzealous and often criminal financial sector. Hence the term GFC. It quickly moved into a real crisis (meaning it affected real GDP growth, employment and incomes) because governments around the world reacted too cautiously in terms of their fiscal intervention. However, it was clear that the fiscal responses that were introduced saved the world from another Depression. China’s fiscal intervention helped many nations including Australia. Now the crisis is all down to incompetent government policies – not before the crisis but now. Governments are now following strategies that defy the most basic principles of sound fiscal management – it is irresponsible to cut net public spending at at time when unemployment is rising. Or in other words, you don’t send more workers into the mine when the canaries start dying.
Here are the answers with discussion for yesterday’s quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
Welcome to the billy blog Saturday quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.
It is Friday and in Newcastle today it feels like Winter is back although I am aware that complaining about 19 degrees centigrade is somewhat disingenuous to the Northern Hemisphere and temperate region dwellers. But still we complain – more than one person today has said “isn’t it freezing”. So I have been bunkered down reading a lot. Which isn’t that much different to any other day real – hail, rain or shine. The European laboratory is dominating the daily news though and providing us with scripts that no professional playwright could conceive. This week we have seen the European Commission release its latest gee-whiz (you-beaut) plan to save Europe from itself and like all the previous announcements lots of speeches and photos were taken but the substance is missing. The only development that these plans seem to be leading to is a suppression of national democracy. That is my assessment of the EC’s latest proposal. From an economic perspective it maintains the rule – austerity begets austerity.
I woke up to the headlines this morning about the apparently failed German bond tender yesterday and all the experts predicting doom. In my E-mail box there was around 30 requests for an explanation from readers who had read the news and concluded that it was a major event in the current crisis but didn’t really understand what the implications were. The implications are fairly simple – the bond markets are working out that no EMU government is free of insolvency risk because they all use a foreign currency (the Euro). Germany is better placed to resist the crisis because of the relative strength of its economy but it is not immune from it. Its economy will also deteriorate as the effects of austerity spread out through trade. While the “experts” waxed lyrical about the crisis being confined to profligate EMU states (the PIIGS), it was always clear that the northern strong-hold states were going to be dragged in as the crisis deepened. That is because the problem is the Euro itself and the way the monetary system is designed. All the other emotional stuff about lazy Greeks is a sideshow. Germany is starting to find that out – yesterday, it received its first strong message. The crisis is going right to the top in Europe now.