Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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My family has a saying: “Good comes from bad.” Certainly, Greece’s suffering has been awful. But perhaps some good can come from it. Perhaps the world at last will understand the folly of restricted government spending and the need for Monetary Sovereignty.
(U.S. Tea Party, are you listening?)
BBC News, Europe
EU central bankers ponder Greece euro exitEuropean central bankers have been openly expressing views on the possibility of Greece leaving the eurozone as its leaders struggle to form a government.
Germany’s top banker said it was up to the Greeks to decide, but if they did not keep to their bailout commitments, they would receive no new aid.
This is the best thing that could happen to Greece: Leave the euro and don’t accept any more “aid” (i.e additional indebtedness, unemployment, poverty and austerity).
After last week’s elections in France and Greece, two things began to change in the eurozone. First was the talk that “spending” could replace “austerity” as a way out of the crisis. That’s perhaps more aspirational than practical but it pleased the voters.
This is news??? The voters are smarter than their leaders. Government spending is the only way out of a recession or depression. Reduced government spending (ala the U.S. Tea Party foolishness) always has the same consequences: Worse recession and deeper depression.
Second was the growing confidence amongst eurozone ministers that Greece could – and maybe should – quit the euro. Some speculate it’s a PR exercise to manage expectations – slowly re-introducing the notion that the 17 Euro nations could soon be 16. Others suggest it’s a long overdue move, that would have eased the problems much sooner.
I said this more than six years ago.
If the country simply quits the euro and resurrects the drachma, while still trying to pay off its debts, an inevitable slump in the value of the drachma would make those debts even more unaffordable.
Absolutely false. First, there is no evidence, one way or another, that the drachma would be valued less than the euro. I personally would rather lend to a “drachma Greece” than to a “euro Greece.” More assurance of being paid.
Second, even with inflation, a Monetarily Sovereign nation (which Greece then would be) can pay any debt of any size, any time. No debt is “unaffordable.” Using the word “unaffordable” demonstrates ignorance of the difference between Monetary Sovereignty and monetary non-sovereignty.
Greek voters punished mainstream parties which backed the bailout at last Sunday’s parliamentary election.
As well they should have. Only the EU would call additional lending to a nation that already is unable to pay its debts, a “bailout.” The U.S. banks did exactly the same thing, which led to the Great Recession.
Visualize the Mafia extending additional credit to a guy who already can’t pay what he owes them. Is that a “bailout”?
Syriza – a leftist, anti-bailout party – firmly rejects the terms of the most recent EU-IMF bailout, which requires tough austerity measures in return for loans worth 130bn euros.
They reject additional, unaffordable debt and more austerity. As the kids say, “Well, DUH!
On Saturday, German central bank chief Jens Weidmann said: “If Athens doesn’t keep its word, it will be a democratic choice. The consequence will be that the basis for fresh aid will disappear.”
Translation: The basis for deeper Greek austerity will disappear, and all of us “1%ers” who foisted the euro on an innocent public, will look like total idiots, and possibly lose our jobs. Hey, are they building a guillotine outside my window?
“We’re a breath away from the drachma and disaster,” liberal Greek daily Kathimerini warned on Saturday.
Translation: We’re a breath away from fiscal freedom.
Within two years after Greece leaves the euro, and re-adopts the drachma, its economy will grow, while the other euro nations sink deeper and deeper into austerity.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
If the country simply quits the euro and resurrects the drachma, while still trying to pay off its debts, an inevitable slump in the value of the drachma would make those debts even more unaffordable. Utterly wrong. Even if it kept the debts denominated in Euros, Greece would be near enough to real monetary sovereignty that these debts would be much more payable than if it stayed on the Euro, which is destroying its economy, causing massive unemployment.
These masses unemployed by the criminal Eurocrats could be producing real goods and services which could be traded for Euros. Has nothing to do with the value of the drachma. People – who often seem to have been formally educated in economics – like Ben Thompson, Business reporter, very often argue against us free-spending inflationists as if the foreign exchange value of a currency can and will magically go to zero so fast that it cannot earn any foreign exchange by exporting – a complete absurdity. As if Greece can’t just put a price in Euros on its olive oil, say.
An odd situation: The (relatively) good guys, Syriza, are so confused, drank so much Kool Aid, that they want to stay on the suicide pact euro. The definitely bad guys, the Eurocrats, actually believe their own insane, idiotic, innumerate lies, so they threaten Greece with expulsion from their suicide pact.
It’s like a slavemaster threatening a slave: If you don’t let me whip you to death – I will set you free!
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ASSUMING Greece does adapt its own currency, and that Greece does re-negotiate its old debts to be paid in the new currency.
Zero Hedge was floating the idea that Greece should adapt the US dollar. And last I heard, Iceland was talking about adapting the Canadian dollar. Ugh !
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“Ugh,” for sure. Adopting a foreign currency (aka “pegging”) automatically surrenders Monetary Sovereignty. Greece already has a “foreign” currency: It’s called the “euro.” Look what that got them.
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Yes, Ugh.
My counterproposal:
Canada could adopt the Icelandic króna. The USA could adopt the Greek drachma. If the little country gets big ideas – send an aircraft carrier over there to show ’em it was just a joke, and to start spending the kronur & drachmas.
Crazy – of course. But it makes a lot more sense than the other way around.
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What prevents Greece from going hyper if the world doesn’t trust the Drachma?
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Hoonose,
1. Hyperinflation is an extremely rare event, caused not by “trust,” but rather by an extreme circumstance. The Weimar hyperinflation, lasted just three years, and preceded Germany’s building and paying for the greatest war machine ever known. It was caused by the onerous post WWI conditions put on Germany by the Allies.
2. In the event of an inflation, Greece simply would make its drachma more valuable by increasing interest rates. That is the system the U.S. Fed has used successfully, to hold inflation near its target rate of 2%-3%.
3. In the unlikely event interest rates don’t control inflation, as a last resort, Greece could increase taxes or reduce spending. Again, this is a last and unlikely resort.
For reasons I cannot fathom, debt-hawks fear inflation more than recession and depression. Yet, for a Monetarily Sovereign nation, inflation is easily controlled, while recession exists, today.
In America, debt-hawks continue to rant about inflation and “unsustainable debt,” while millions suffer from the ongoing recession. It’s truly amazing.
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RMM,
Do you think unlimited and renewable nationalized energy ought to be a top priority for a country? Some major benefits:
1) Price stability due to non-fluctuating input-energy costs
2) National security – not dependent on foreign energy for domestic production
3) Stimulative – energy is a cost to every business and household… unlimited “free” (think national highway system) energy would unleash a lot of diposable income
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JK,
Ecologically benign energy supply should be a government priority, though price stability is not possible. What with so many sources — oil, coal, coal, wind, solar, atomic, vegetable, wave and who knows what else — I doubt it would be possible for the U.S. to control the price.
The idea of giving energy away has some merit, but there are so many considerations, one could write volumes on the subject.
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Giving away energy is what I meant.
For example, imagine the U.S.Gov builds a solar farm, lays the necessary high tech underground grid.. cables lines and battery technology.. to connect it to all the major cities (etc), gives block grants to states to connect the cities to towns and rurals areas (etc), and provides all households and businesses federal tax write-offs for “electrifying” their energy consumption. (In essence… makes it happen)
It seems to me that free (renewable) energy would lead to explosive economic growth, and would at the same time deal with pollution issues related to global warming. It seems like a win-win (win-win-win-etc). Yhe .U.S. Gov could even subsidize diversification of renewables energies… all hooked up to the same smart-grid.
The losers would be non-renewables.. any person or company involved with non-renewables. But indusries come and go. No big deal here.
What are the major considerations you think are important?
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JK,
The government already does some of what you suggest. The Tennessee Valley Authority is an example. Hoover dam is another.
If the government supplies free electricity, what is the motivation for renewable, ecologically clean energy? Presumably, free energy will increase energy usage. Will this be beneficial?
Under today’s technology, solar farms would need to be gigantic, even in the sunny South. In the north, they might need to cover half a state.
Wind farms, too, have been under criticism for noise, appearance and, believe it or not, for damping the wind. And their electrical output is minimal compared with the acres they require.
What I’d prefer is to see the government support research and development, then turn the patents over to the public. R&D is the costliest, most risk-prone business effort, in today’s technological world, and is a perfect place for federal support.
More federal support for clean energy R&D would help America and the world far more than federal support for supplying energy.
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RMM,
I don’t understand your question: “if the government supplied free electricity, what is the motivation for renewable, ecologically clean energy?”
I’m saying that the free energy offered would (and only would) be renewable ecologically clean energy. That’s the point. We as households and businesses can choose to pay for “dirty” energy, or we can use free clean energy. It seems a sure fire way to encourage the transition to renewables.
Why would increased energy usage not be beneficial? Is their a downside? Would it matter if we “energize” more of our lives, so long as that energy is raining on us for free from the sun? The only downside I can think of is an accelerated use of scarce natural resources. But really (!)… is a for profit/capitalist system at all concerned about long term resource scarcity? “Everything is for sale” (almost)
Maybe right now solar farms would need to be gigantic. That’s why I’m suggesting massive funding for R&D into how to make solar smaller and more cost efficient. It seems things getting smaller is the natural progression for technology, e.g. look at computers now vs. computers 30 years ago.
I think the big picture goes back to the question: what should be “for profit”, and what shouldn’t be? It seems like “public goods” should not be for profit (or not entirely). Things like education, law enforcement, healthcare.. and maybe banking and energy… should be considered the commons… public goods.
As you’ve said before, in a sense the private sector does everything. When the government builds a bridge, it hires private contractors. The same would be true for building the energy grids and farms. I think of it as similar to the national highway system. It’s basically free outside of maintenance costs. Big Deal! Right?
Why should we be paying for energy? I think that ought to be a universal public good. And I think unlimited free energy would do wonders for the world. For example, as a result, energy intensive desalinization would be cost efficient (because there’s no energy cost!). There is so much water in the oceans. This alone would do wonders for the worldwide human condition.. through both clean drinking water and irrigation.
Do you disagree?
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I think providing free energy may have some unintended consequences. For example, as it is, some hot regions during the summer already have some issues keeping up with the demand as everyone cranks their A/C. If electricity were free, people wouldn’t have much incentive to try and conserve and use it wisely.
And yea, for the most part, technology advances makes things smaller and more efficient. Solar has a limit as to how efficient it can be, though, so I’m not sure if it’s realistic to expect relatively small solar farms that provide a lot of power.
http://arstechnica.com/science/2012/04/solar-cells-must-emit-light-to-attain-perfection-research-suggests/
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As I said in my response, I agree with the government doing energy R&D, but not supplying free energy until energy can be created in a renewable and ecologically benign manner.
Until then, supplying free energy will increase the use of non-renewable, non-ecologically benign energy. So far, solar fields are neither renewable nor ecologically benign.
Consider the manufacture and servicing of solar cells and their steel supports — a dirty business — and the placement of solar cells on land that otherwise could grow trees, food crops, wildlife and nature preserves.
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I see. Thanks for my response.
As for the land the solar cells would be on, I imagine the ideal place for solar farms would be barren desert areas (southwest USA). But it’s a good point.. opportunity cost should be considered.
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http://www.nbcnews.com/science/environment/burned-birds-become-new-environmental-victims-energy-quest-n184426
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Would Greece need to introduce some capital controls if it announces it is returning to the drachma? I was thinking of the scenario where wealthy Greeks move their euros out of the country on the assumption that if they leave them to be converted to drachma then their value will decline.
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If that were going to happen, I assume it largely has happened already. It’s not much of a secret that return to the drachma is a distinct possibility.
I can visualize a bank holiday, in which all Greek banks close for one day, and all euro accounts are converted to drachmas for the next day’s opening.
There would be many details, of course. I assume (hope) the Greek government is making contingency plans.
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Here we go again
http://seekingalpha.com/news/2203695-germany-prepared-to-let-greece-leave-euro-zone
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