Dutch, Austrian and Finnish bonds start to sell off.

[Wonkish1]

Absolutely not. Inflation also depends on the velocity of money. A rise in nominal interest rates is not a rise in the cost of capital.

And trust me, a cluster of European sovereign defaults would be the worst economic catastrophe since the 1930s (at least), and a repeat of the 1930s is unacceptable.

Yeah but if your printing money like crazy you have to rely on the velocity of money to fall by equal amount to keep things stable. Not going to happen. You increase the quantity of money(especially if its fast becoming 'hot' money) the velocity skyrockets too.

Not true. The velocity of money is a simple mathematical identity with quantity in the denominator. So if you create a lot of new money, the velocity of money falls by definition. Its tendency is to fall. It requires positive action for it to rise. The Fed created a ton of money in 2009 and it didn't result in high inflation at all. Inflation is still lower than it was in the 1980s.

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There will be no Weimar Republic. The Weimar Republic is a boogeyman and what people dont understand is that, that was a deliberate situation and there were all kinds of complications involving reparations and the Ruhr and French invasion. No comparison.

I mean, first of all if you are admitting it will be worse than the 1930s then you already have admitted surrender. In the 1930s there were kids starving in the streets. The consequences of the 1930s were unacceptable... even the consequences of 1 year of that would be unacceptable. And it wouldn't just last one year.

As for Argentina it is running super high inflation and suffered an 80% currency devaluation.

That is not the definition of the velocity of money. Its the rate at which money transfers through the economy.


Its not a boogeyman. The reparations was spending they couldn't afford and they decided to monetize it. If you read back to the initial decisions back then they were firmly convinced that a small amount of printing wasn't going to do anything. And then a little more wasn't going to hurt. And all of sudden it was like, BOOM! You're choosing to ignore economic reality. The Weimar had everything to do with money printing. Over the course of a couple years they printed almost exactly the amount of their entire GDP and they had thousands of percent inflation. So you think that printing 1/3 of GDP for example will be just peachy with stable pricing? Please!

I didn't admit surrender at all. And the 1930s it was prolonged. I'm trying to make it clear that there is no reason to see this as prolonged as the 1930s were for the Europeans. What I'm saying is that its hit that point no matter what you do. You refuse to acknowledge that. By the way Argentina is the best example just because its a modern case. But yeah there were people bartering furniture out of their homes for a stockpile of food. There were people picking up scaps off the street. White collar workers woke up one day and their home was worth 1/20 of what it did before the default. You act like I haven't been saying over and over and over again that we are talking about real human tragedy here. And this is serious. A lot of people are going to be hurt by this and you think they can just escape it with a quick fix. Well if you want to add to the problems so that the future fall in standard of living is even bigger and more profound because you can't deal with its consequences than fine, but I'm not advocating making an already dire situation worse.

[Beet]

Absolutely not. Inflation also depends on the velocity of money. A rise in nominal interest rates is not a rise in the cost of capital.

And trust me, a cluster of European sovereign defaults would be the worst economic catastrophe since the 1930s (at least), and a repeat of the 1930s is unacceptable.

Yeah but if your printing money like crazy you have to rely on the velocity of money to fall by equal amount to keep things stable. Not going to happen. You increase the quantity of money(especially if its fast becoming 'hot' money) the velocity skyrockets too.

Not true. The velocity of money is a simple mathematical identity with quantity in the denominator. So if you create a lot of new money, the velocity of money falls by definition. Its tendency is to fall. It requires positive action for it to rise. The Fed created a ton of money in 2009 and it didn't result in high inflation at all. Inflation is still lower than it was in the 1980s.

You must be logged in to read this quote.

There will be no Weimar Republic. The Weimar Republic is a boogeyman and what people dont understand is that, that was a deliberate situation and there were all kinds of complications involving reparations and the Ruhr and French invasion. No comparison.

I mean, first of all if you are admitting it will be worse than the 1930s then you already have admitted surrender. In the 1930s there were kids starving in the streets. The consequences of the 1930s were unacceptable... even the consequences of 1 year of that would be unacceptable. And it wouldn't just last one year.

As for Argentina it is running super high inflation and suffered an 80% currency devaluation.

That is not the definition of the velocity of money. Its the rate at which money transfers through the economy.


Its not a boogeyman. The reparations was spending they couldn't afford and they decided to monetize it. If you read back to the initial decisions back then they were firmly convinced that a small amount of printing wasn't going to do anything. And then a little more wasn't going to hurt. And all of sudden it was like, BOOM! You're choosing to ignore economic reality. The Weimar had everything to do with money printing. Over the course of a couple years they printed almost exactly the amount of their entire GDP and they had thousands of percent inflation. So you think that printing 1/3 of GDP for example will be just peachy with stable pricing? Please!

I didn't admit surrender at all. And the 1930s it was prolonged. I'm trying to make it clear that there is no reason to see this as prolonged as the 1930s were for the Europeans. What I'm saying is that its hit that point no matter what you do. You refuse to acknowledge that. By the way Argentina is the best example just because its a modern case. But yeah there were people bartering furniture out of their homes for a stockpile of food. There were people picking up scaps off the street. White collar workers woke up one day and their home was worth 1/20 of what it did before the default. You act like I haven't been saying over and over and over again that we are talking about real human tragedy here. And this is serious. A lot of people are going to be hurt by this and you think they can just escape it with a quick fix. Well if you want to add to the problems so that the future fall in standard of living is even bigger and more profound because you can't deal with its consequences than fine, but I'm not advocating making an already dire situation worse.

Not true at all. Hyperinflation is always a choice, as it was with Weimar. That is a complete red herring and trust me, there will be NO Weimar with the ECB. They are not that stupid. We are not anything CLOSE to that. Even when the inflation rate reaches 10% annually, come back and we'll talk. Even then I won't agree with you.

There are ways to avoid crisis. It's not the end of the world if policy makers act smart. You are going to take a problem that is serious but not a historical disaster and turn it into one.

[Wonkish1]

Absolutely not. Inflation also depends on the velocity of money. A rise in nominal interest rates is not a rise in the cost of capital.

And trust me, a cluster of European sovereign defaults would be the worst economic catastrophe since the 1930s (at least), and a repeat of the 1930s is unacceptable.

Yeah but if your printing money like crazy you have to rely on the velocity of money to fall by equal amount to keep things stable. Not going to happen. You increase the quantity of money(especially if its fast becoming 'hot' money) the velocity skyrockets too.

Not true. The velocity of money is a simple mathematical identity with quantity in the denominator. So if you create a lot of new money, the velocity of money falls by definition. Its tendency is to fall. It requires positive action for it to rise. The Fed created a ton of money in 2009 and it didn't result in high inflation at all. Inflation is still lower than it was in the 1980s.

You must be logged in to read this quote.

There will be no Weimar Republic. The Weimar Republic is a boogeyman and what people dont understand is that, that was a deliberate situation and there were all kinds of complications involving reparations and the Ruhr and French invasion. No comparison.

I mean, first of all if you are admitting it will be worse than the 1930s then you already have admitted surrender. In the 1930s there were kids starving in the streets. The consequences of the 1930s were unacceptable... even the consequences of 1 year of that would be unacceptable. And it wouldn't just last one year.

As for Argentina it is running super high inflation and suffered an 80% currency devaluation.

That is not the definition of the velocity of money. Its the rate at which money transfers through the economy.


Its not a boogeyman. The reparations was spending they couldn't afford and they decided to monetize it. If you read back to the initial decisions back then they were firmly convinced that a small amount of printing wasn't going to do anything. And then a little more wasn't going to hurt. And all of sudden it was like, BOOM! You're choosing to ignore economic reality. The Weimar had everything to do with money printing. Over the course of a couple years they printed almost exactly the amount of their entire GDP and they had thousands of percent inflation. So you think that printing 1/3 of GDP for example will be just peachy with stable pricing? Please!

I didn't admit surrender at all. And the 1930s it was prolonged. I'm trying to make it clear that there is no reason to see this as prolonged as the 1930s were for the Europeans. What I'm saying is that its hit that point no matter what you do. You refuse to acknowledge that. By the way Argentina is the best example just because its a modern case. But yeah there were people bartering furniture out of their homes for a stockpile of food. There were people picking up scaps off the street. White collar workers woke up one day and their home was worth 1/20 of what it did before the default. You act like I haven't been saying over and over and over again that we are talking about real human tragedy here. And this is serious. A lot of people are going to be hurt by this and you think they can just escape it with a quick fix. Well if you want to add to the problems so that the future fall in standard of living is even bigger and more profound because you can't deal with its consequences than fine, but I'm not advocating making an already dire situation worse.

Not true at all. Hyperinflation is always a choice, as it was with Weimar. That is a complete red herring and trust me, there will be NO Weimar with the ECB. They are not that stupid. We are not anything CLOSE to that. Even when the inflation rate reaches 10% annually, come back and we'll talk. Even then I won't agree with you.

There are ways to avoid crisis. It's not the end of the world if policy makers act smart. You are going to take a problem that is serious but not a historical disaster and turn it into one.

All I'm going to say is that history has shown its a drug every single time. Its just a constantly moving target of what is tolerable and each time it seems reasonable until one day you wake up and you wonder how you got in the case of the 1970s(which wasn't even that bad) 20% prime interest rates, double digit inflation, businesses being pinched across the country, and the inflation is all of sudden accelerating really fast.

[Gustaf]

One problem with monetizing the debt is the long-term impact. If that is the solution you're basically telling bond markets that lending to eurozone governments sucks.

Beyond that I'd point out that the 30s gave us Hitler and WWII. I don't want to be a paranoid alarmist, but seriously. We don't want to have those levels of economic distress again. We have enough fascism on the rise as it is.

[Wonkish1]

One problem with monetizing the debt is the long-term impact. If that is the solution you're basically telling bond markets that lending to eurozone governments sucks.

Beyond that I'd point out that the 30s gave us Hitler and WWII. I don't want to be a paranoid alarmist, but seriously. We don't want to have those levels of economic distress again. We have enough fascism on the rise as it is.

Well sorry to be a bearer of bad news, but the social fabric of much of the EU is about to be put to the test. And radical beliefs will become more common as people look for people to blame. Now whether that is the wealthy, immigrants, capitalism, governments, people from a different part of the Eurozone, etc. things could get ugly.

[Gustaf]

One problem with monetizing the debt is the long-term impact. If that is the solution you're basically telling bond markets that lending to eurozone governments sucks.

Beyond that I'd point out that the 30s gave us Hitler and WWII. I don't want to be a paranoid alarmist, but seriously. We don't want to have those levels of economic distress again. We have enough fascism on the rise as it is.

Well sorry to be a bearer of bad news, but the social fabric of much of the EU is about to be put to the test. And radical beliefs will become more common as people look for people to blame. Now whether that is the wealthy, immigrants, capitalism, governments, people from a different part of the Eurozone, etc. things could get ugly.

Yep, I know. And it worries me.

That's why I still think letting the euro go is the best option for the long run.

[opebo]

Look I always laugh a little at the Armageddon folks.. ..we might be looking at severe problems for these countries and these people, but trade will not cease. And they'll bounce back without the huge debt burdens they have now.

Actually no, there is no reason for a 'bounce back'.   How can you bounce back without demand?  As long as one is in a deflation - which is what you are prescribing - there is no reason for anyone to ever invest or buy, and thus the downward spiral continues forever.

This is not going to be anything like the Russia, Argentina defaults. Those economies were marginal. This is NOTHING like them. If all of Europe defaults, it will be massive.

If on the other hand the ECB massively intervenes, there will be no hyper-inflation. Things will be much better.

Correct Beet.  There can't be inflation when all the printing does is replace money that would be 'going out of existence' anyway, which is precisely what happens when debt is defaulted.  If there are 10 trillion in loans to be defaulted - to go out of existence - and you instead print 10 trillion and give it to the bond-holders, you haven't changed the net amount of money whatsoever.

[Wonkish1]

Beet here is why the Eurozone banking system will bounce back considerably when the defaults start happening.

http://www.economist.com/node/21538739


While I work for a firm that doesn't have the capability to go out there and make plays at these future piles of distressed debt(God I wish) out there I'm going to try to go after whatever I can indirectly.

We're looking at a huge change in the who makes up the wealthy going forward. And something that people aren't talking about today is that the new crowd that is buying up a lot of these distressed assets out there during these black swan events are Libertarians. They are Austrians and Monetarists and the ones that are getting taken to wood shed are Neo-Keynesians who still believe the crap their Keynesian econ professor taught them 20 or 30 years ago.

[opebo]

We're looking at a huge change in the who makes up the wealthy going forward. And something that people aren't talking about today is that the new crowd that is buying up a lot of these distressed assets out there during these black swan events are Libertarians. They are Austrians and Monetarists and the ones that are getting taken to wood shed are Neo-Keynesians who still believe the crap their Keynesian econ professor taught them 20 or 30 years ago.

Um.. Wonk, the rich are the rich.. and probably only very few of them know what is a Monetarist or a Keynesian.  They will be the rich regardless of what happens in the world economy, and for sure their opinions about economic theory are irrelevant to their position at the top of the heap.

[Wonkish1]

We're looking at a huge change in the who makes up the wealthy going forward. And something that people aren't talking about today is that the new crowd that is buying up a lot of these distressed assets out there during these black swan events are Libertarians. They are Austrians and Monetarists and the ones that are getting taken to wood shed are Neo-Keynesians who still believe the crap their Keynesian econ professor taught them 20 or 30 years ago.

Um.. Wonk, the rich are the rich.. and probably only very few of them know what is a Monetarist or a Keynesian.  They will be the rich regardless of what happens in the world economy, and for sure their opinions about economic theory are irrelevant to their position at the top of the heap.

That is factually inaccurate. There is a lot of turnover among the very wealthy especially in the United States. Just looking at the changes among the top 500 wealthiest people in the last decade is a pretty interesting exercise. A large number of them come from nowhere and there is a lot of people that just fall right off the list with a huge and sudden drop in their net worth.

[opebo]

That is factually inaccurate. There is a lot of turnover among the very wealthy especially in the United States. Just looking at the changes among the top 500 wealthiest people in the last decade is a pretty interesting exercise. A large number of them come from nowhere and there is a lot of people that just fall right off the list with a huge and sudden drop in their net worth.

Nonsense Wonk.  You're looking at the business page headlines rather than understanding class.  There is no functional way for the classes to interchange their positions - class is permanent.