Monetary sovereignty and euro member states

[Hydesland]

Most of the time It was fiat "printed on gold" (nominalism dominates history).

True but that doesn't really change the argument.

If you think about some monarchy in old days that had gold coins circulating, then you have to ask yourself a question of why did the king tax in those gold coins. First of all they had to originate from the king, otherwise the king's name and face would not have been on those coins.

My recollection, at least for many many periods in history, is that gold coinage circulated wasn't all from a single King, and in fact could from other Kingdoms, or even individual banks that minted themselves. And ultimately the gold coinage in circulation was linked to the amount of gold mined and available, so again gold mining was key here.

his taxing wasn't for so that he can have more gold.

No, that's almost exactly what it was for. It was almost always to muster an army to go fight in some war.

[Hydesland]

No difference in between money financed deficits and bond financed deficits as far as inflation goes.

That's only true if action is taken to suppress bond rates, in which case you're talking about exactly the same thing.

That is monetarist thinking, "there is some correct interest rate", Austrians have pushed this idea too. Hayek could never defend his natural interest rate theory. He had nothing to say maeningful to against Sraffa's critique until he died.

He's not saying "there is some correct interest rate", only that pegging rates to zero is dangerous, those are not equivalent claims. It's also a very complex claim, and to argue against that you really need to produce a model of some kind - lack of a (clear, unambiguous - plain language descriptions are just a model with ambiguity and hidden assumptions) model is another very valid critique.

[Great Minarchistan]

I just read Krugman's article.

A question (to which I don’t have the full answer): why are the interest rates on Italian and Japanese debt so different? As of right now, 10-year Japanese bonds are yielding 1.09%; 10-year Italian bonds 5.76%.

I ask this because in a number of ways the two countries look similar. Both have high debt levels, although Japan’s is higher. Both have awful demography. In other respects, the numbers if anything favor Italy, which has a much smaller current deficit as a percentage of GDP.

So what’s going on? I normally argue that members of the euro zone that have excessive costs — which certainly includes Italy — face a straightjacket in the sense that they will be forced to go through a period of grinding deflation to restore competitiveness. But while Japan has its own currency, it’s suffering from its own deflation all the same.

What is true is that the Bank of Japan is keeping rates at zero, while the European Central Bank seems determined to raise rates. Is that enough to explain the difference? Or is it something about the absence of a proper lender-of-last-resort function?

Or, finally, do Japanese politics — for all their disappointments — just look more mature than those of Italy?

I actually don’t have a firm view. But it seems to be an important puzzle to resolve.

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

2- Japan and Italy do not have that big of a difference when it comes to bond yield (10Y):

http://www.tradingeconomics.com/italy/g ... bond-yield
http://www.tradingeconomics.com/japan/g ... bond-yield

3- Italy's biggest bank, Monti dei Paschi, is literally in the brink of collapse. BoJ on the other hand is quite "decent", at least when compared to Italy.

4- Japan's real growth forecast was 1,9% and Italy's real growth forecast was 0,5% last quarter. So Japan is doing way better than Italy.

5- I don't know much about Japanese and Italian politics (so someone correct me if I'm wrong), but Italy's political environment has been quite unstable recently.

6- Italy's governing party is leaning towards socialism, while Japan's governing party is leaning towards right-wing. And yea, this does have an effect when it comes to bond purchasing or foreign investment. Just look at Greek privatizations.

7- Italy got a big pressure to exit the eurozone, and that pushes bond interest rates to the sky. Check Greece once again.

So Japan has a better economical and political condition than Italy has.

[Great Minarchistan]

I want them as large as economy operating at full capacity, there is no constraints in our monetary system that prevent that from happening

Hyperinflation is a thing, y'know.

No difference in between money financed deficits and bond financed deficits as far as inflation goes. Palley is wrong. All the evidence suggests that I am right.

Could you rephrase that? Also, I'd gladly read "all the evidence".

That is monetarist thinking, "there is some correct interest rate", Austrians have pushed this idea too. Hayek could never defend his natural interest rate theory. He had nothing to say maeningful to against Sraffa's critique until he died.

Yeah, with the exception that we defend the abolition of a government controlled interest rate. Instead we would rely on LIBOR-like rates (and even those are unfortunately manipulated by State). I suppose you've got to read more about Austrian theory rather than puke fallacies and link them to our school.

[Theodorex]

Theodorex wrote:
No difference in between money financed deficits and bond financed deficits as far as inflation goes.


That's only true if action is taken to suppress bond rates, in which case you're talking about exactly the same thing.

There could be no bonds, pay interest on ecxess reserves and have nonzero overnight rate. Is that more inflationary than having bonds?

That is monetarist thinking, "there is some correct interest rate", Austrians have pushed this idea too. Hayek could never defend his natural interest rate theory. He had nothing to say maeningful to against Sraffa's critique until he died.


He's not saying "there is some correct interest rate", only that pegging rates to zero is dangerous, those are not equivalent claims. It's also a very complex claim, and to argue against that you really need to produce a model of some kind - lack of a (clear, unambiguous - plain language descriptions are just a model with ambiguity and hidden assumptions) model is another very valid critique.

It is not pegging, that is where the interest rate is when government doesn't offer places to park your money to earn interest. That is all the government debt is. I understand that under current regulatory framework the government has to do that(it has put limits in itself), I am talking functionally here what the debt is. This has a lot to do with a paradigm change, It happened in 70-s, before that most of European central banks were considered department of governments, they could finance government debt etc. That's when monetarist influence grew, before that Friedmanists were considered pretty much crazy freaks. Not that they have to be able to finance government debt, it happens any way in floating forex fiat, It just doesn't seem so.

his taxing wasn't for so that he can have more gold.


No, that's almost exactly what it was for. It was almost always to muster an army to go fight in some war.

I suggest you: David Graeber Debt the First 5000 Years

In it he explains it like this: A king wanted to have an army of 5000 men and he wanted to feed them and have some working system. Those 5000 men would have robbed people in surrounding villages. So he taxed the people and accepted the payment of taxes in the currency he issued himself. Now the soldiers got paid in this currency and they could buy food from the people, the people had tax obligations to meet in this currency, thatõs why they accepted the currency. This mechanism has been known for thousands of years. It seems that we have gone full retard on this.

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

It has nothing to do with that.

[Arkolon]

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

The BOJ has a yield target on the Japanese government's obligations of around zero percent while the ECB has no such target. This already explains the difference. You also need to link to Krugman's article, because it seems out of date: Japanese 10Y yield is currently 0.09%, while Italian 10Y yield is 2.19%.

3- Italy's biggest bank, Monti dei Paschi, is literally in the brink of collapse. BoJ on the other hand is quite "decent", at least when compared to Italy.

First off, Monte dei Paschi is a commercial bank while the BOJ is a central bank, so the two things aren't even comparable. Secondly, Monte dei Paschi is Italy's fifth biggest bank, not its biggest - actually Monte dei Paschi is roughly 5x smaller than the biggest Italian bank in terms of assets.

6- Italy's governing party is leaning towards socialism, while Japan's governing party is leaning towards right-wing. And yea, this does have an effect when it comes to bond purchasing or foreign investment. Just look at Greek privatizations.

This is just nonsense. Italy's governing party isn't "leaning towards socialism", to say that is to show your total ignorance of what socialism is. Both countries are developed, high-income industrialised mixed-market economies, both very far from socialism and free-market capitalism.

7- Italy got a big pressure to exit the eurozone, and that pushes bond interest rates to the sky. Check Greece once again.

What do you mean by "a big pressure to exit the Eurozone"? If investors thought Italy was going to leave the Eurozone, bond yields would spike to at least 20%, as they did for Greece. Anyway, the European Union has devised a strong and reliant defense against possible threats of leaving the Eurozone (the European Stability Mechanism, ESM), so this really isn't a problem anymore.

[Theodorex]

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

2- Japan and Italy do not have that big of a difference when it comes to bond yield (10Y):

http://www.tradingeconomics.com/italy/g ... bond-yield
http://www.tradingeconomics.com/japan/g ... bond-yield

3- Italy's biggest bank, Monti dei Paschi, is literally in the brink of collapse. BoJ on the other hand is quite "decent", at least when compared to Italy.

4- Japan's real growth forecast was 1,9% and Italy's real growth forecast was 0,5% last quarter. So Japan is doing way better than Italy.

5- I don't know much about Japanese and Italian politics (so someone correct me if I'm wrong), but Italy's political environment has been quite unstable recently.

6- Italy's governing party is leaning towards socialism, while Japan's governing party is leaning towards right-wing. And yea, this does have an effect when it comes to bond purchasing or foreign investment. Just look at Greek privatizations.

7- Italy got a big pressure to exit the eurozone, and that pushes bond interest rates to the sky. Check Greece once again.

So Japan has a better economical and political condition than Italy has.

At the time of writing there was a big difference, Mario had not come out with his whatevever It takes. At least Krugman understood It, you are still in denial.

[Hydesland]

There could be no bonds, pay interest on ecxess reserves and have nonzero overnight rate. Is that more inflationary than having bonds?

I don't know, not sure what relevance that has.

It is not pegging, that is where the interest rate is when government doesn't offer places to park your money to earn interest. That is all the government debt is. I understand that under current regulatory framework the government has to do that(it has put limits in itself), I am talking functionally here what the debt is. This has a lot to do with a paradigm change, It happened in 70-s, before that most of European central banks were considered department of governments, they could finance government debt etc. That's when monetarist influence grew, before that Friedmanists were considered pretty much crazy freaks. Not that they have to be able to finance government debt, it happens any way in floating forex fiat, It just doesn't seem so.

This was very rambly, you're going to have to rephrase this before I can make sense of it.

I suggest you: David Graeber Debt the First 5000 Years

In the realm of recent history, and economics, Graeber has major credibility issues.

[Great Minarchistan]

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

It has nothing to do with that.

Any arguments to back your "no"?

[Great Minarchistan]

1- Japanese bonds have a smaller interest rate because the government borrows from its own citizens, while Italy relies on bailouts and external debt. Investors are usually much more profit seeking than citizens are;

2- Japan and Italy do not have that big of a difference when it comes to bond yield (10Y):

http://www.tradingeconomics.com/italy/g ... bond-yield
http://www.tradingeconomics.com/japan/g ... bond-yield

3- Italy's biggest bank, Monti dei Paschi, is literally in the brink of collapse. BoJ on the other hand is quite "decent", at least when compared to Italy.

4- Japan's real growth forecast was 1,9% and Italy's real growth forecast was 0,5% last quarter. So Japan is doing way better than Italy.

5- I don't know much about Japanese and Italian politics (so someone correct me if I'm wrong), but Italy's political environment has been quite unstable recently.

6- Italy's governing party is leaning towards socialism, while Japan's governing party is leaning towards right-wing. And yea, this does have an effect when it comes to bond purchasing or foreign investment. Just look at Greek privatizations.

7- Italy got a big pressure to exit the eurozone, and that pushes bond interest rates to the sky. Check Greece once again.

So Japan has a better economical and political condition than Italy has.

At the time of writing there was a big difference, Mario had not come out with his whatevever It takes. At least Krugman understood It, you are still in denial.

I'm still in denial? I backed my response with 7 points while you are tattling. Grow a pair.

[Great Minarchistan]

First off, Monte dei Paschi is a commercial bank while the BOJ is a central bank, so the two things aren't even comparable.

Your point being? MdP is one of the biggest bank [corrected] on Italy and it is almost collapsing. A collapse of Paschi would heavily affect the government, and therefore the capability of pay debt interest.

Secondly, Monte dei Paschi is Italy's fifth biggest bank, not its biggest - actually Monte dei Paschi is roughly 5x smaller than the biggest Italian bank in terms of assets.

True, I failed on that one.

This is just nonsense. Italy's governing party isn't "leaning towards socialism", to say that is to show your total ignorance of what socialism is. Both countries are developed, high-income industrialised mixed-market economies, both very far from socialism and free-market capitalism.

https://en.wikipedia.org/wiki/Democratic_Party_(Italy)

I don't care about your definitions of socialism, but Partito Democratico has a leaning towards statization (and arguably towards socialism). Would you feel safe applying money in a nation that can steal it? Nope, I suppose.

What do you mean by "a big pressure to exit the Eurozone"?

http://edition.cnn.com/2016/12/05/europ ... hats-next/

If investors thought Italy was going to leave the Eurozone, bond yields would spike to at least 20%, as they did for Greece.

Depends. Greece has an already fragile environment that would lead to immediate hyperinflation after the exit. Italy on the other hand is more reliable than Greece. Therefore yields wouldn't spike brutally, yet the pressure for increases would be high.

Anyway, the European Union has devised a strong and reliant defense against possible threats of leaving the Eurozone (the European Stability Mechanism, ESM), so this really isn't a problem anymore.

What if Italy leaves Eurozone and breaks Stability Pact?

[Theodorex]

It has nothing to do with that.

Any arguments to back your "no"?

For interest rate purposes it has no difference who holds your debt. It would have no difference if Germans or Italians held Italian debt, it is the the euro that made all the difference at the time. Japan can have inflation but never foreign unelected bureaucrats telling its government what kind of economic policy to run.

I suggest you: David Graeber Debt the First 5000 Years


In the realm of recent history, and economics, Graeber has major credibility issues.

And so does the guy who is critisising him there. This is an ad hominem. you are not responding to the actual argument that I presented, instead you say the presenter has no credibility, is commuunist, fat etc. The basic argument I presented is agreed on by most anthropologists if not by all of them. And Menger is no an anthropologists. When he said in the beginning there was barter and then money was invented, this is armchair theorizing. Anthropologists have been looking for this for 200 years and it hasn't been found to be true anywhere. I am not responding to ad hominems no more.

[Theodorex]

7- Italy got a big pressure to exit the eurozone, and that pushes bond interest rates to the sky. Check Greece once again.

What do you mean by "a big pressure to exit the Eurozone"? If investors thought Italy was going to leave the Eurozone, bond yields would spike to at least 20%, as they did for Greece. Anyway, the European Union has devised a strong and reliant defense against possible threats of leaving the Eurozone (the European Stability Mechanism, ESM), so this really isn't a problem anymore.

There is no problem in a sense that if you put up with austerity demanded then you would be financed. Political pressure is growing in Italy against euro. Interest on bonds spike when markets feel that ECB might pull the plug on Italy and that can happen for political reasons.

It is not the deficit spending, bailing out banks etc that I am so sceptical about the euro. All these things could find some kind of a solution. They cannot solve the imbalances problem in between member states. They have tried with austerity and it has been a nightmare, there is no end in sight. I know the leftist blame Germany, I blame the euro.

[Great Minarchistan]

For interest rate purposes it has no difference who holds your debt.

Sorry to burst your bubble, but that's not how real life economics work.

And so does the guy who is critisising him there. This is an ad hominem.

It isn't. If an author is known to be a liar, his article will probably contain several lies on it. Credibility matters when you are posting an article, book or something along these lines.

you are not responding to the actual argument that I presented, instead you say the presenter has no credibility, is commuunist, fat etc.

What the fuck? He never called the author communist or fat. Instead of resort to misquotes and false fallacies, spend some time getting a decent argument or just admit your fail.

The basic argument I presented is agreed on by most anthropologists if not by all of them.

Sources for your claim?

And Menger is no an anthropologists. When he said in the beginning there was barter and then money was invented, this is armchair theorizing.

Implying that was what actually happened?

Anthropologists have been looking for this for 200 years and it hasn't been found to be true anywhere. I am not responding to ad hominems no more.

Yet I'll keep answering to your constant fallacies, misquotes and false claims.

[Hydesland]

And so does the guy who is critisising him there.

Maybe, but if I had to choose which of the two to believe, I would definitely choose DeLong.

This is an ad hominem. you are not responding to the actual argument that I presented, instead you say the presenter has no credibility, is commuunist, fat etc.

Attacking the credibility of the source is legitimate.

When he said in the beginning there was barter and then money was invented

I never said this. Claiming there was never barter, and claiming that taxes weren't used to fund wars, are completely different claims.

[Theodorex]

ok, it is gettin a little out of hand here and partly probably my own fault

let's try to stay on topic here, monetarily sovereign government can never rum out of the currency it issues. That is a fact. Some of the opponents claims may even seem true at first glance but the more they talk the more they expose themselves. Whether the government is "socialist" or "capitalist" or "facsist" really doesn't matter. Interest on government debt is more or less political choice not decided by some markets. The debt thing seems to be the thing that most don't understand.

Let's try this, show me one floating exchange rate country that has defaulted? There is none, not even a single one in history, It has never happened. Yes, fixed exchange rate currency governments have defaulted but governments that issue their own currency have not. Yet somehow I am suppose to believe that these governments are at the mercy of markets? Rating agencies issue their debt ratings for float exchange rate governments but these are meaningless and markets understand it much better than Krugmans of this world. Nothing happened when US debt was downgraded, interest rates didn't shoot up etc. I had some pretty nevous friends at the time who I was trying to calm down. I said tyhis is nothing to worry about, there is nothing wrong with US government debt besides that there is too little of it issued Sure enough when markets opened on monday, nothing happened.
Alan Greenspan said this: https://youtu.be/h3cY6_z0ceg

this caused outrage, Alan Greenspan said it in a wrong way IMO but considering what responses I have been getting here, he said It in a right way for everyone to understand. You start explaining how there is endogenous money supply, debt monetisation doesn't take place in such a system, no money printing necessary for everything with the debt to be fine etc, the chances are you are going to lose most listeners, they don't get It. The responses were: do you think this is a solution etc. I can understand that because when It comes to money, people have these moral dogmas. Like there is a commentator here who is always talking about hyperinflation. No matter what, hyperinflation is a thing. That is his moral high ground to shut everyone up I think in his mind. So the conversation gets heated because your opponent is a bad guy who wishes bad things for everyone bacause he hasn't considered a hyperinflation or takes the issue lightly. These are Austrians, economic right, leftist have this moral high ground chasing racists. Say that Hitler used this fiat system very successfully and some leftist feels disturbed: what do you mean by success, is that putting people in gas chambers etc.

[Luziyca]

The EU should borrow a leaf from Canada and implement equalization payments to equalize the fiscal capacity of poorer member states with larger member states.

[Theodorex]

The EU should borrow a leaf from Canada and implement equalization payments to equalize the fiscal capacity of poorer member states with larger member states.

But they cannot make It. I am not against fiscal transers per se and I am not saying that it is not a win win situation for states in Canada or states in US, It clearly is. Every state wins and even the ones that are net payers. In Europe there are nation states, these states have national identities, you cannot wish them to go away. And now It is even harder since the eurocrats have fucked it up. Technically I agree with you thgough. It can be done theoretically even on the world level. Would you support it or would it sound too utopic for you if we had a proposal to create a world government?

I think that is the fundamental question here. Again, theoretically It sounds good for technocrats and I am one of them here I guess.

[Hydesland]

Let's try this, show me one floating exchange rate country that has defaulted?

Do you consider very high inflation, or hyperinflation, another kind of default?

Yet somehow I am suppose to believe that these governments are at the mercy of markets?

Yes, they are still at the mercy of markets - even if they can't default, they can still experience an exchange rate crisis or high inflation.

much better than Krugmans of this world.

I don't think you've read much Krugman at all. Ever since 2008 he's always laughed off what credit ratings agencies say, always mocked the idea of 'bond vigilantes' (a term he coined, as far as I know).

[Luziyca]

The EU should borrow a leaf from Canada and implement equalization payments to equalize the fiscal capacity of poorer member states with larger member states.

But they cannot make It. I am not against fiscal transers per se and I am not saying that it is not a win win situation for states in Canada or states in US, It clearly is. Every state wins and even the ones that are net payers. In Europe there are nation states, these states have national identities, you cannot wish them to go away. And now It is even harder since the eurocrats have fucked it up. Technically I agree with you thgough. It can be done theoretically even on the world level. Would you support it or would it sound too utopic for you if we had a proposal to create a world government?

I think that is the fundamental question here. Again, theoretically It sounds good for technocrats and I am one of them here I guess.

Seems a bit utopian to expect it to last for more than a couple decades at most before it collapses.

[Great Minarchistan]

let's try to stay on topic here, monetarily sovereign government can never rum out of the currency it issues. That is a fact.

True.

Some of the opponents claims may even seem true at first glance but the more they talk the more they expose themselves.

Yeah, you've been doing that since the start of this discussion.

Whether the government is "socialist" or "capitalist" or "facsist" really doesn't matter. Interest on government debt is more or less political choice not decided by some markets. The debt thing seems to be the thing that most don't understand.

Well, you seem to misunderstand debt. Political and economical environment contribute heavily to the capacity of debt repayment and therefore to the interest rate paid over it. Interest rate = Risk and Risk = Instability. More instability from politics and economics provoke a higher risk and therefore increased interest rate over debt. This is literally a basic lesson on debt.

Let's try this, show me one floating exchange rate country that has defaulted?

Greece (3 times, soon having the fourth).

There is none, not even a single one in history, It has never happened.

> Greece
> Ukraine
> Ivory Coast
> Ecuador
> Cameroon
> United States

And those are only a small amount of countries. More at https://en.wikipedia.org/wiki/List_of_s ... ebt_crises

PS: I don't know much about the XOF, XAF and Hryvnia, so the legitimacy of Ukraine, Ivory Coast and Cameroon in this list is debatable.
PS2: All those defaults happened.

but governments that issue their own currency have not.

False sentence.

Yet somehow I am suppose to believe that these governments are at the mercy of markets?

They are. You should know of that quite known story that once you default or semi-default (debt monetization) a debt, investors will hardly trust you as they did before the default. Basically, act like a shitbag and no money for your government.

Rating agencies issue their debt ratings for float exchange rate governments but these are meaningless

I wonder why interest rates tend to spike and currencies to devalue after a downgrade then.

and markets understand it much better than Krugmans of this world.

Paul Krugman, the same folk who called for a housing bubble in 2002? That vagrant knows nothing of economy (because he likes spending, haha bad joke).

Nothing happened when US debt was downgraded, interest rates didn't shoot up etc.

Eh actually interest rates spiked from 2.5% to 3.5% on the treasury bonds and dollar weakened near 2011 downgrade.

I had some pretty nevous friends at the time who I was trying to calm down. I said tyhis is nothing to worry about, there is nothing wrong with US government debt besides that there is too little of it issued

> TOO LITTLE OF IT ISSUED

At the very least, be coherent with your idea and ask $100,000 in five banks. And if you think it's not enough, borrow more.

Alan Greenspan said this: https://youtu.be/h3cY6_z0ceg

Greenspan? Wasn't him that folk who provoked a massive housing bubble? Oh yeah, it's him.

this caused outrage, Alan Greenspan said it in a wrong way IMO

Nope, he said it in an extremely correct way. United States can always pay its debt through monetization. This however produces hyperinflation and knowing inflation is a tax, someone ends up paying the bill, and the someone is the population. And if you don't give the bill for the population, you pass it for the investors, and those won't lend you money anymore. Plain and simple.

but considering what responses I have been getting here, he said It in a right way for everyone to understand. You start explaining how there is endogenous money supply, debt monetisation doesn't take place in such a system, no money printing necessary for everything with the debt to be fine etc, the chances are you are going to lose most listeners, they don't get It.

Most exit the room laughing at you since your ideas are completely suicidal and can't work in long run.

So the conversation gets heated because your opponent is a bad guy who wishes bad things for everyone bacause he hasn't considered a hyperinflation or takes the issue lightly.

Your ideas completely disregard the future generations, since they are focused on the "in long run we're all dead" and those ideas disgust me. Deeply.

These are Austrians, economic right, leftist have this moral high ground chasing racists. Say that Hitler used this fiat system very successfully and some leftist feels disturbed: what do you mean by success, is that putting people in gas chambers etc.

What the fuck are you talking about? Are you smoking something or just ran out of arguments to criticize Austrian school and brings up Hitler & racism into the discussion?

[Arkolon]

First off, Monte dei Paschi is a commercial bank while the BOJ is a central bank, so the two things aren't even comparable.

Your point being? MdP is one of the biggest bank [corrected] on Italy and it is almost collapsing. A collapse of Paschi would heavily affect the government, and therefore the capability of pay debt interest.

The Italian government has already approved bailout terms for Monte dei Paschi, and the Italian government's financial position is secured thanks to the ECB's Asset Purchase Programme, forcing yields down, and the EU's ESM which basically guarantees that the Italian government would never face exorbitant interest rates on its debt. You're right that Monte dei Paschi collapsing would heavily affect the Italian government and its economy, but it wouldn't make the Italian government insolvent or less able to service their debt. The European institutions have already implemented enough safeguards on this front.

This is just nonsense. Italy's governing party isn't "leaning towards socialism", to say that is to show your total ignorance of what socialism is. Both countries are developed, high-income industrialised mixed-market economies, both very far from socialism and free-market capitalism.

https://en.wikipedia.org/wiki/Democratic_Party_(Italy)

I don't care about your definitions of socialism, but Partito Democratico has a leaning towards statization (and arguably towards socialism). Would you feel safe applying money in a nation that can steal it? Nope, I suppose.

Socialism necessitates the collective ownership of the means of production. The fact that you can open a factory in Italy as a private individual already means it is not a socialist country.

What do you mean by "a big pressure to exit the Eurozone"?

http://edition.cnn.com/2016/12/05/europ ... hats-next/

Old news: as we've seen, Italy's staying a member of the Eurozone for the indefinite future, and the referendum hardly changed the order of the country's political sphere.

If investors thought Italy was going to leave the Eurozone, bond yields would spike to at least 20%, as they did for Greece.

Depends. Greece has an already fragile environment that would lead to immediate hyperinflation after the exit. Italy on the other hand is more reliable than Greece. Therefore yields wouldn't spike brutally, yet the pressure for increases would be high.

How can you make this claim - that Italy is more reliable than Greece - but also include the argument that Italy's government is on the brink of insolvency because its fifth-largest bank might collapse? Greece didn't even have that situation going for it, it just had a high debt burden.

Anyway, the European Union has devised a strong and reliant defense against possible threats of leaving the Eurozone (the European Stability Mechanism, ESM), so this really isn't a problem anymore.

What if Italy leaves Eurozone and breaks Stability Pact?

The point of bailouts is to avoid countries leaving the Eurozone. If Italy leaves the Eurozone on its own, that would be disastrous for its economy indeed, and yields would indeed spike to the heavens.

[Great Minarchistan]

The Italian government has already approved bailout terms for Monte dei Paschi

Financed by who? Oh, by more debt. Those guys know how to create sustainable banking systems.

and the Italian government's financial position is secured thanks to the ECB's Asset Purchase Programme

More debt talk. Someone will pay the bill soon.

forcing yields down, and the EU's ESM which basically guarantees that the Italian government would never face exorbitant interest rates on its debt.

So ECB is babysitting countries with artificially low interest rates. Sounds like a bad idea...

You're right that Monte dei Paschi collapsing would heavily affect the Italian government and its economy, but it wouldn't make the Italian government insolvent or less able to service their debt. The European institutions have already implemented enough safeguards on this front.

And those European "safe" guards will just take a load of debt to secure Italy and another failing systems. This does not work.

Socialism necessitates the collective ownership of the means of production. The fact that you can open a factory in Italy as a private individual already means it is not a socialist country.

The way Italian government may force statizations is a thing that shudders investors though.

Old news: as we've seen, Italy's staying a member of the Eurozone for the indefinite future, and the referendum hardly changed the order of the country's political sphere.

k den, I didn't find the results of the referendum, my fault there.

How can you make this claim - that Italy is more reliable than Greece - but also include the argument that Italy's government is on the brink of insolvency because its fifth-largest bank might collapse? Greece didn't even have that situation going for it, it just had a high debt burden.

Italy and Greece got crippling situations, yet Italian government got more fat to burn during a crisis than Greek government has - read a smaller debt burden, a higher growth and less deficit - so the impact for Italy would be arguably smaller.

The point of bailouts is to avoid countries leaving the Eurozone. If Italy leaves the Eurozone on its own, that would be disastrous for its economy indeed, and yields would indeed spike to the heavens.

And who ends up covering the bailout? More debt issuance. European Union and ECB created a blame game where in the end there will be nobody else to pay the account.

[Theodorex]

These two statements condratict each other:

Theodorex wrote:
let's try to stay on topic here, monetarily sovereign government can never rum out of the currency it issues. That is a fact.


True.

Theodorex wrote:
Whether the government is "socialist" or "capitalist" or "facsist" really doesn't matter. Interest on government debt is more or less political choice not decided by some markets. The debt thing seems to be the thing that most don't understand.


Well, you seem to misunderstand debt. Political and economical environment contribute heavily to the capacity of debt repayment and therefore to the interest rate paid over it. Interest rate = Risk and Risk = Instability. More instability from politics and economics provoke a higher risk and therefore increased interest rate over debt. This is literally a basic lesson on debt.

Theodorex wrote:
Let's try this, show me one floating exchange rate country that has defaulted?


Greece (3 times, soon having the fourth).

I repeat myself, it has never happened with a government that borrows in its own currency that is floating exchange rate. Never happened. Sometimes those countries borrow in foreign currency, or have their own currency that is fixed exchange rate.


These socialism claims are crearly false. It depends on what you call socialism but yes, socialism is when there are no private means of production, everything is nationalised. As far as social democracy goes, that has been run very successfully in Sweden for example. Social Democrats stayed in power there for close to 40 years because they run successful economy. Sweden exited the Great Depression first because of public spending. Interest rates on public debt have nothing to do with how big the government is relative to GDP. It has nothing to do with that.

But there is some more "serious guys" and I am not trying to attack him personally here. This is how neoclassical economists think:

http://www.bradford-delong.com/2010/12/economics-1-uc-berkeley-fall-2010-september-27-government-deficits-and-debts-lecture.html

So how is it that when government purchases rise--and when we are not in a depression economics situation--investment spending or net exports or both fall?

Government purchases rise. The government is thus running a larger budget deficit. The government must issue more bonds in order to raise the financing to pay for its extra spending. And as the government issues more bonds, bond prices fall: it is supply and demand.

When bond prices go down, interest rates go up. That is accounting. That is what a high interest rate means: that you can purchase a bond cheaply and thus get a lot of interest payments in return for your initial outlay.

It is not supply and demand like he says It here. This guy is not considered hawk but all these New Keynesians are really monetarists. They say something similar to this: "Yes, deficits are a problem in long run and we have to fix this problem but they are not a problem now." Krugman says this and most of them do, some of them are more hawkish. They want to manage demand with monetary policy, only when the rates are zero they start advocating for deficit spending, that is very shortly their idea.

[Great Minarchistan]

These two statements condratict each other:

They don't. A government can always print more money, and I said this several times over here. However, a bigger risk does hurt the capacity of debt repayment. After all, if you print money to repay debts, the debt holders lose money (hey hey hey let's give you that 1 million dollars bond but now a dollar is worth 90% less, so you end up with 100k HA) or the population does - I discussed it previously so I'm not going further on this point. Therefore, knowing of this risk an investor raises interest rate demand over the bond so he can compensate the money lost and even profit of that loan. You need to understand that investors aren't retards who are "uh okay" when a government gives less money than they lent. They will chase the government and pressure for more yields to profit from the bond.

I repeat myself, it has never happened with a government that borrows in its own currency that is floating exchange rate. Never happened. Sometimes those countries borrow in foreign currency, or have their own currency that is fixed exchange rate.

Are you denying the truth or just tattling at this point? I showed you six examples (where three are legitimate and confirmed), yet you keep saying it has never happened. Some good sense and the ability to say it was your fault is good sometimes huh?

These socialism claims

> Socialist

are crearly false. It depends on what you call socialism but yes, socialism is when there are no private means of production, everything is nationalised.

Are you implying Austrians are socialists or what? Dude, you need to read Hayek and Mises.

As far as social democracy goes, that has been run very successfully in Sweden for example.

https://en.europenews.dk/Sweden-to-beco ... 35350.html

http://www.tradingeconomics.com/sweden/ ... ent-budget

https://sputniknews.com/europe/20160206 ... ants-jobs/

Sweden social-democracy as well as any social-democracy in the world (with the notable exception of petrostates like Norway) is good until money runs out. Using your example, they could just afford social-democracy with free market and small State - those who were predominant until the 60s or 70s - and now they burned almost all the "fat" accumulated and need to reform (shrink) their welfare state. And it is not only about Sweden. Look places like France and Brazil and you see what happens when a social-democracy runs out of money.

Social Democrats stayed in power there for close to 40 years because they run successful economy. Sweden exited the Great Depression first because of public spending.

Sources on that, please? Also, what about the Depression of 1992 where Swedish Parliament solved it freezing public spending and re-opening economy? Sources:

https://mises.org/library/how-governmen ... depression
https://www.lewrockwell.com/2014/02/per ... in-sweden/

Interest rates on public debt have nothing to do with how big the government is relative to GDP. It has nothing to do with that.

I never mentioned that...

But there is some more "serious guys" and I am not trying to attack him personally here. This is how neoclassical economists think:

http://www.bradford-delong.com/2010/12/economics-1-uc-berkeley-fall-2010-september-27-government-deficits-and-debts-lecture.html

Whoever this guy is, he is a retard. He was performing pretty well until he said that when government buys more bonds, their price falls. No, no, no, no. AFAIK it's actually the inverse: More bond purchasing affect your credit rating and therefore the bond price rises. It's not like borrowing more will make your loans cheaper. What's funnier is when he says later that cheaper bonds lead to higher interest rates. Huh? Higher interest rates turn bonds more expensive...

It is not supply and demand like he says It here.

It is tho. He just taught it wrong.

This guy is not considered hawk but all these New Keynesians are really monetarists. They say something similar to this: "Yes, deficits are a problem in long run and we have to fix this problem but they are not a problem now."

... Therefore, they consent to deficits. If you say deficit is a problem in long run but we shall not fix it now, you are contradicting yourself.

Krugman says this and most of them do, some of them are more hawkish.

And that's why Krugman as well as many other keynesian economists contradict themselves quickly.

They want to manage demand with monetary policy, only when the rates are zero they start advocating for deficit spending, that is very shortly their idea.

Also why these economists are suicidal. Keynesian economics only "work" while there is ammo (read high interest rates and small deficit or surplus). When they run out of ammo, keynesian economics can't do shit. That's why ECB, Fed and BoJ are desperate to revive their economy with keynesianism yet it is working poorly: They got no ammo. Ever wondered why an AK can't shoot with no bullets?