Wednesday, Jul 16, 2008
Inflate your way out of trouble - like the UK
Irish Independent: If all else fails, maybe it's time to ditch the Euro
With banks shares in free-fall, lending collapsing and bad debts rising by the hour, what can we do?
The hollow platitudes of the "soft landing" merchants and the various paid PR men who rabbitted on about our "fundamentals" have been exposed.
What we are talking about here is pulling out of the euro.
Look at what is happening in the UK and the US. Both countries find themselves in the same bind as we do.
Once this ponzi scheme was revealed, they let their currency fall. This allows them to recharge their exporting sector, making it more competitive and, more significantly, it gives them the opportunity to inflate their debts away.
Ireland, in contrast, is trying to fight its way out of a recession without any macroeconomic policy.
Posted by little professor @ 07:42 AM (575 views) Add Comment
9 Comments
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1. quiet guy said...
"Inflation in a debt crisis bails out debtors and penalises lenders -- those with savings suffer, those with debts prosper. It's simply a transfer of income from one section of the society to another. Yes, this is unpalatable but arguably, it's an obvious way out of our present dilemma."
Wow. David McWilliams doesn't f*** about does he? Straight to the point. Bail out the reckless borrowers by letting inflation rip. Top marks for chutzpah. I'm not so sure about marks for economic competence and I cannot help wondering if he has a big mortgage to pay off.
2. sold 2 rent 1 said...
Letting inflation fly is not always possible.
Japan in the 1990s couldn't do it with zero IRs
3. mken said...
"Think about Ireland now. We do not get any dole transfers from the EU. Quite the opposite, we are net contributors to the EU budget."
Ireland has been a net contributor to the EU for maybe 4 out of 35 years. Does he argue for more handouts?
This makes the talk about "counter-intuitive situation whereby our taxes go to pay Romanian farmers" a bit rich.
What if Germany had thought this way too?
Wise after the event, this article acknowledges that much of the "boom" did not really exist.
It argues that the correction to the boom that went too far could itself go too far - if Ireland sticks to the Gold Standard of the Euro.
But "go too far" is very much in the eye of the beholder. It depends how much of the illusory boom one wants to
hold on to after all (and as a reporter the level of one's own exposure).
"As a result, unemployment will rise to a much higher level and house prices will fall much further THAN NECESSARY in the next few years."
If jobs that don't really exist, cease to exist - is this a loss?
If banks that don't really exist, cease to exist - is this a loss?
If wage levels are too high - take a cut.
If house prices go down - so what.
Or is this going too far?
Whatever you think of his analysis of the Germany Economy the fact is that Germany is once again hailed as a
good economy.
He argues that Ireland can take a quicker route to recovery than Germany by adopting a kind of Atkins Diet.
But to where exactly? A strong manufacturing economy? A service based ecomony? Another housing boom?
With those same Leaving Cert economics students who engineered the mess in the first place?
That would be an interesting article.
4. jackas said...
I have been convinced for a while now that inflating away the debt burden is the clandestine policy of both the US and to a lesser extent the UK.
On second thoughts, maybe I'm crediting the policymakers with too much intelligence - maybe they have just fugged it up. Either way the genie is out of the bottle, and now everyone will suffer due to the whims of the "overstretched" (irresponsible) borrower.
Watching your hard earned savings lose their purchasing power is a death by a thousand cuts - a fate in many ways worse than just taking a big hit on house prices, a recession, regrouping and starting again. But of course, in this debt ridden "buy now - pay later" culture it turns out that it is the saver who is the real fool.
How delightful.
5. sold 2 rent 1 said...
jackas,
"the saver who is the real fool"
Only if you don't own gold.
6. Jackas said...
S2R1,
Got a bit of gold and happy with it, but I can't suffer the lack of diversification that would be required to take a position large enough to fully protect my savings. In other words, I aint putting all my eggs in one golden basket. If I did that, from an asset allocation point of view I would be no better than the people that dedicate all of their current and future life savings to a single asset class like property.
Have you got every penny you own in gold?
7. waitingfor hpc said...
what is the best way to put 100K in gold?
8. sold 2 rent 1 said...
bullionvault.com, goldmoney.com, physical coins, gold stocks unit trust.
Better act fast. The money laundering rules always take a few days to clear.
9. Jayk said...
I never heard the Irish complain about the EU club and all it entails while billions and billions of pounds/Euros were being pumped into their economy as various indices showed them already to have climbed up to near the top of the international rich league.......