Inflation: Chicken or Egg?

The argument that "there is no subtler, no surer means of overturning the existing basis of society than to debauch the currency" (J M Keynes, 1921) may well be true. But it still makes one wonder what comes first: the dysfunction of society or the destruction of money. These days one could argue that in a lot of countries it is a mal-functioning political system that leads to desperate measures like Quantitative Easing as cooked up by the Frankenstein economists running the Fed, Bank of England, ECB and Bank of Japan. See also Dylan Grice

Nominal GDP Targeting - Witches Brew

The absurdity of this 'policy' that is the latest mantra propagated by the political and economic policy establishment should be clear at first sight: if an economy is dead in the water all that will happen if any nominal level of GDP is targeted is that the level of inflation is pumped up. No one seems to be interested in explaining why this should have any meaningful - or permanent - influence on real economic activity

Bernanke & Co: Hero or Villain?

It is absurd that a professor of economics - who should know better - has no other solution to offer for the lack of growth in the world's major economy. Apart from the question whether or not eternal growth is really feasible - or desirable - he would only have to look a closer look at the relevant textbooks and he would find that pumping freshly printed dollar bills into the financial system is not the only (temporary and superficial) answer to what is in essence a question of fiscal indiscipline and wrong micro-economic measures.

More Micro and less Macro please!

Gavyn Davies provides another 'analysis' (Financial Times) that is based on observing just a few datapoints, not even close enough to the data one would need to have a reasonable basis to draw conclusions that should be the basis for policy decisions. The problem is that other factors are never equal. We all would love to have a multiplier larger than 1 on a sustained basis. Life would be easy, just let the government spend and spend. But in the case of the UK for example this simplistic view leaves out the fact that at some stage the policy would hit the buffers - when foreigners no longer support this policy. The Greeks can tell a story. A bit of deflation in the UK would be more than welcome, some factors of production would have to find better uses, people who are paid to sit at home or are surplus in certain sectors (some MP's?) would have to lower their wage demands, this would increase the buying power of the rest of the population and a virtuous circle of wealth creation would start. Less 'Macro' and more 'Micro' in policy making! Unfortunately the media, think tanks and the commentariat in the financial industry love the former and spend little or no time on the latter.

IMF: Expensive Plagiarism

A complicit media again gives headlines to the latest insights concocted by the bureaucrats of the IMF. With the best of intentions these cannot be called original research. Any first-year economics student could put together the reports as nothing more than a diligent reading of the economic research produced by the national agencies and research institutes is required. The sad thing is that the electorates in all member states are forced to pay for generous terms of employment while the belt tightening in many countries is accelerated. We would also love to hear if any staff member ever has been fired - apart from the hapless Dominique Strauss-Kahn (who fell victim to the weakness of his flesh and the bloodhounds in the NYPD and his political enemies in France).

Spanish Debt - an alternative solution

Given the overwhelming consensus view that Spain will have to go cap-in-hand to the ECB/EU/Troika and ask for a bailout one has to ask if there really is no alternative for EU member states that find themselves in a tight spot. Is it really necessary to impose the costs of any restructuring on the weakest members of society? Why not just impose a unilateral debt restructuring and let the creditors - domestic and foreign - carry a much larger burden of any restructuring? There is no reason why a country choosing to go down that route could not remain in the Eurozone, if anything such a radical measure would make it easier to remain in the Eurozone. Capital flight would be reduced as there would be less fear that an exit from the Eurozone would be imposed in order to solve the debt crisis.

Euro in the last chance saloon

Today's 'surprise' announcement by the figurehead of the ECB, Mario Draghi, that the Euro would be defended with another dose of a highly addictive drug, i.e. paper money in hitherto unimaginable amounts, also amounts to the end of any rational economic policy in the Eurozone. Trying to patch up a wrongly designed currency zone with more and more desperate measures may buy time, even quite a long time, before the next - and terminal - crisis erupts. Banking union, fiscal union etc may all happen - without a shred of democratic legitimacy - but in the end there is no guarantee that no member state of the Eurozone will not some day give notice of its intention to quit - and leave all its obligations behind. This Damocles's sword will from now on always hang over the heads of all investors that have a financial stake in the Eurozone. Like our warning back in 2005 when we argued that investors were deluded to buy Italian government bonds that yielded a tiny spread versus German paper this warning may also sound premature - the Commentariat will certainly pour scorn on it - but investors ignore it at their peril.