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Professor Mundell, Euro, And 'pessimal Currency Areas'

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http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011689/professor-mundell-euro-and-pessimal-currency-areas/

After all these years, I have finally been able to sit down for an hour with Robert Mundell, the great theorist of currency unions and the godfather of the euro.

“We’re in very serious danger. The world is in a depression in the Big Three of America, Europe and Japan, a mini-depression that we have not seen since the 1930s,” he said, speaking at the Lindau conference, where half the world’s Nobel economist are gathered on one tiny island with cobbled streets looking across Lake Constance to the Alps.

Few economists inspire such devotion and fury as Professor Mundell.

He is a hero to America’s free-market Right for sponsoring the Reagan tax cut agenda, and has not relented on that front. “Any country with public debt over 40pc of GDP needs its head examined,” he said.

His prescription for America’s ill today is to slash corporation tax to 20pc (from an effective rate of 52pc, he says), and kill the entitlement behemoth. By the way, he blames the Fed for triggering the Lehman crisis by keeping money too tight in mid to late 2008. There is very little inflation risk now from QE because M1 money velocity has collapsed “by half” and is likely to stay there.

But equally he is a villain to the eurosceptic Right on this side of the Pond, having made it a life mission to sponsor the Europe’s fixed exchange experiment. Some say he has bent the theory of “Optimum Currency Areas” (OCA) to justify combining the vastly different economies of Europe in monetary union – whatever this implies for freedom and democratic legitimacy.

If you read his own pioneering work on OCAs – “A Theory of Optimum Currency Areas” in the American Economic Review of 1961- it is hard to see how the eurozone can possibly qualify. He argued then that even Canada and the US might have benefited from a break-up into East and West dollars to reflect regional economies.

Does one see hints of doubt now, as EMU disaster unfolds? Not really.

We’re in the midst of a very big crisis because nothing has been done yet to convince the markets that there has been a fundamental change. To save Europe there has to be a move in the direction of shared government.”

We are in a very big crisis because there's a huge amount of debt and no possible way to pay it back.

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I am with AEP on this one: Mundell is completely wrong and the Euro is a Pessimal Currency Area.

So, pegging the Euro to the Greenback at 1.30 will magically fix the EZ problem? The man is insane.

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His prescription for America’s ill today is to slash corporation tax to 20pc (from an effective rate of 52pc, he says), and kill the entitlement behemoth.

This always makes me laugh- that 52% rate is paid by who exactly? Most of the corporates keep their money offshore and some even claim back rebates from the government!

So the plan is to enrich the wealthy and screw the poor- again. And this is bound to work because it's the same strategy they have following for 20 years- and look how well that worked out.

So we can assume that the ongoing collapse in global demand is due to the fact that corporate america is not sitting on big enough piles of cash?

US firms pile up cash, but not jobs

By Juliette Michel (AFP) – Aug 11, 2011

NEW YORK — Piles of cash built up since the financial crisis have left big US companies sitting pretty as financial markets gyrate, but their reluctance to invest is holding back US growth.

The result is that while corporate America is looking good amid all the instability, the country is still suffering a 9.1 percent unemployment rate two years after the "Great Recession" officially ended.

Or maybe not.

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This always makes me laugh- that 52% rate is paid by who exactly? Most of the corporates keep their money offshore and some even claim back rebates from the government!

Corporations don't really pay taxes, they collect them (from customers, employees, and shareholders). Useful as propaganda for both sides, and a good tool to use to push the private sector in the approved direction.

Far better to drop the farce completely and just tax the customers, employees, and shareholders directly.

So we can assume that the ongoing collapse in global demand is due to the fact that corporate america is not sitting on big enough piles of cash?

Even if "corporate America" is sitting on a pile of cash, where do you think this is kept? Do you really think it is held in gold coins in the company basement?

This "we are poor because they have all the money" idea is just silly.

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As a child I lived opposite a chap who made his fortune buying up houses for peanuts in the Depression. I think we use the term 'Depression' far too frequently.

People were homeless, hungry, jobless, often having only one set of worn-out clothes and not knowing where the next meal came from.

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  • 338 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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