Friday lay day

Friday, and its my short or no blog day day. Today, I am hosting a Workshop in Newcastle on the Eurozone crisis. We have three papers and a panel discussion. I will post video once it has been processed. But earlier this week there was a meeting in Lindau, Germany where several Nobel prize-winning economists attended along with the German Chancellor Angela Merkel. Some of the economists are starting to voice their opinions more vocally now and they are very critical of the European policy makers. One might say, what took them so long.

The UK Telegraph report (August 20, 2014) – Nobel economists say policy blunders pushing Europe into depression – tells us that several economists (who have won the Nobel Prize) have been extremely critical of the Eurozone policy stances.

MITs Peter Diamond said:

Historians are going to tar and feather Europe’s central bankers … Young people in Spain and Italy who hit the job market in this recession are going to be affected for decades. It is a terrible outcome, and it is surprising how little uproar there has been over policies that are so stunningly destructive … It could be avoided with better use of stimulus, and spending on infrastructure. That would boost growth and helped the debt to GDP ratio.

Joseph Stiglitz concluded that the “austerity policies” had been a:

… disastrous failure” and are directly responsible for the failed recovery over the first half of this year … “There is a risk of a depression lasting years, leaving even Japan’s Lost Decade in the shade. The eurozone economy is 20pc below its trend growth rate” …

Christopher Sims, listed as a “US expert on monetary policy” said the EMU had “basic design flaws”, which forced nations to impose “pro-cyclical austerity”. He said:

If I were advising Greece, Portugal or even Spain, I would tell them to prepare contingency plans to leave the euro. There is no point being in EMU if all that happens when you are hit with a shock is that the shock gets worse … It would be very costly to leave the euro, a form of default, but staying in the euro is also very costly for these countries. The Europeans have created a system that is worse than the Gold Standard. Countries are in the same position as Latin American states that borrowed in dollars.

I agree with all of this.

But Sims also claimed that the ECB was limited in its ability “to carry out a mass of purchase of bonds” because a “speculative attack could put the ECB balance sheet at risk”.

Which suggests he isn’t as expert in monetary matters as the article claims. The ECB could purchase all outstanding debt and write it off without suffering any operational disadvantage. There is no solvency issue about its ‘balance sheet’. It could operate with negative capital forever with no negative consequences.

Why? It issues the currency! Please read my blog – The ECB cannot go broke – get over it – for more discussion on this point.

Anyway, some progress is being made.

Angela Merkel addressed the same meeting and berated Italy and France for not imposing larger austerity cuts. Go figure!

Music and civil riots

The riots in Ferguson over the last two weeks gave me cause to recall the fabulous Nigerian jazz singer and multi-instrumentalist Fela Kuti, the inspired leader of the big bands Africa 70 and Egypt 80.

A documentary of his life has just been released – Finding Fela – after its premier at the 2014 Sundance Film Festival.

I have seen snippets of the movie and will be very keen to see it in its entirety. I have always loved his tenor saxophone playing.

This article – Finding Fela In Ferguson: What Police And Protesters Can Learn From The Fela Kuti Documentary – relates the movie to the Ferguson riots.

Kuti was a revolutionary in music and political activism and used music “to educate Africans about their history, removed from European narratives. He was a progressive voice who openly decried dictatorship, corruption, and human rights abuses characteristic of the Nigerian government”.

So get your dancing shoes on but keep focused on the message …

Saturday Quiz

The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:

That is enough for today!

(c) Copyright 2014 Bill Mitchell. All Rights Reserved.