债临深渊　追本溯源

Jeff Little

Jan. 29, 1:06 p.m.

The solution part of the article is interesting, but it just waves it’s hand at the individual country level.  In any economic crisis, you have to first figure out what the missing element is.  Just like when a car doesn’t start and you figure out first whether the problem is spark, fuel, or air, when an economy fails you have to figure out whether the problem is missing capital investment, efficiency, or target market.  One of the biggest systematic economic problems we see is when economists, without understanding the problem, try to fix a target consumer market problem with measures designed to encourage capital investment, only to discover to everybody’s astonishment that companies with plenty of accessible investment funds won’t increase infrastructure to support a shrinking market.

The tools for making these determinations are out there, but they are universally ignored by people with religious faith in the free market or by people with a vested interest in catching large groups of people in a debt trap.

Eugene Mannacio

Jan. 23, 6:04 p.m.

The variety of takes on who is at “fault”, reflected in these replies, is an example of world politics in microcosm.  “It wasn’t the Euro it was the dumb banks”; “Mr. Maudlin doesn’t discuss the REAL issue here the European Welfare Sate”; “one cannot pay people to do nothing”.  Of course, none of these responses shows a clear understanding of behavioral economics.  Even Hamlet understood this: ” Use every man after his desert, and who shall ‘scape whipping? Use them after your own honour and dignity. The less they deserve, the more merit is in your bounty.”  That bounty, unfortunately, is gone from our current social order.  Unlike the country that came up with the “Marshall Plan” and used its own resources to get Europe and Japan back on their feet we now follow a precedent more similar to the reparations demanded after WWI that helped lead to the impoverishment of Germany and WWII.  The irony of fiscal conservatives and the Christian right sharing the same political views is the vary lack of Christian charity or compassion.

Some of us, like James Chaillet, label any trace of such compassion as Socialist.  Yet I don’t see the same abhorrence to CEOs who took millions from their failing companies, or those who lobbied for lower taxes for the rich (so that we could be the lowest taxed country in the Western World).

Could any of us focus on constructive ways to contribute answers to the problem that minimize the suffering of those who DO work and can least afford the coming depression?  As a very modest proposal I suggest that those who can most afford to pay do so:  Both in Greece, which has finally started to go after its wealthy tax cheats, and in the U.S. where the large majority of voters agree the budget balancing should include both tax increases and budget cuts while their representatives refuse to do either.

One last item.  John now seems to acknowledge that Greece leaving the Euro is possible though his book suggests any country leaving (Italy is the example cited) would be impossible to control.  Of course, it isn’t.  It would be expensive but the EU could issue an alternate currency during the bank holiday proposed above and allow citizens of its own country (or those who are not citizens of Greece) to exchange the old currency for the new during a limited time period.  Naturally, money laundering efforts by the Greeks would still have to be stopped therefore limits on the amount being exchanged without a formal accounting of where the cash came from would be prohibited.

Dmitry Gorshechnikov

Jan. 22, 9:51 p.m.

what about Croatia, they just voted to join the EU…

Dennis Michaud

Jan. 22, 5:45 p.m.

Thank You John for this wonderful ,insightful letter.

James Chaillet

Jan. 21, 6:37 p.m.

A great read and very helpful in understanding the “crisis”. However, Mr Maudlin doesn’t discuss the real issue here - The European Welfare State and can it continue or not. The debt crisis in Europe (and soon in the US) came about because politicians spent much more than their governments took in through taxes - taxes already high and focused on the wealth producers. The politicians did this to maintain popularity with the masses that vote and, thus, to maintain their own power and position.

Now, however, Europe overall is losing the competitive battle with the emerging nations of Asia and South America and China and India. The demographic landscape continues to change with fewer younger workers and more older retirees and retiree wantabees. The only near term solution to that is rapid and large scale immigration - which should go down well in France and Germany.

Otherwise, the only way to keep the problem from happening again ( assuming it is fixed) is to ,perhaps slowly, but steadily dismantle or significantly downside the welfare state. How likely is that to happen?

Oh! and downsize the bureaucracy because if it doesn’t happen, the hope of technological advancement bailing out Europe won’t go far.

andre therien

Jan. 21, 3:44 p.m.

The EURO was never the problem, just DUMB banks ( as everywhere else ) that lend excessively to bad credits. On the other hand, from my vantage, the Europeans have dealt with this problem much more effectively than the Americans ( remember 2008 ). US media have been knocking the Europeans
for the last two years and yet i fail to see the ABYSS that we all saw in 2008-09, made in the good old
USA .

Michael Gorback

Jan. 21, 3:39 p.m.

I wonder what would happen if the PIIGS decided to accept their bonds at par for payment of taxes. Sure it would be inflationary but so would leaving the euro and issuing a fiat currency backed by the “full faith and credit” of Greece, Portugal, Spain or Italy. What would you pay to own New Drachmas or New Lira? Not much.

It might even generate some buying interest. If you were Greek and could buy a bond for 50 cents on the euro and get 100 cents for it on your tax bill you’d start buying with both hands and the price would skyrocket.

Dan Murphy 33614

Jan. 21, 3:34 p.m.

If the ECB can issue free money (1pct) to all the banks that need it (which is most/all) how does the music stop?  Seems like the market has gone straight up since this facility was put in place. Quite clever, actually!  The music has to stop but when?  This week with Greece?  Also, do you think the entire PSI (including hedge funds) agrees this week to thee 70pct plus haircut?  If it fails do markets crash?