Guest post by Peter Tchir.
Go Ahead, Make My Day
Greece has negotiated like the Clint Eastwood that spoke to an empty chair for 10 minutes. It is time to bring out the Dirty Harry. Point a magnum at the Troika and tell the “go ahead, make my day’!
Greece has been asking for money in some form or another for almost 3 years now. It begs and pleads. It is forced to do things to its people. Then it is back to begging and pleading. It is time to stop. The negotiations have been stupid. Not once has Greece come up with a credible alternative to more Troika money.
The Troika actually benefits as much, or more from supporting Greece and everyone would be better off if Greece was given real breathing room for a change. Since the Troika either doesn’t see it, or refuses to believe it, it is time to make the Troika see the error of the ways.
Defaulting Takes Planning
Defaulting, properly, is as much a process as anything else. You need to plan. You need to line up post default financing. You need a credible story of why investors should come to you post default. Sovereign defaults are particularly tricky since there are few rules to begin with, and enforcing those rules is tricky.
Biderman on the Fiscal Cliff issue.
There are two parts to the fiscal cliff equation. Government spending on services and taxes. Unfortunately almost all the discussion about how to fix the long term problem has been about taxes.
Focusing on taxes to raise revenues to provide government services requires making a key assumption that governments can effectively provide services. But what if the real problem is that the US government by its nature is incapable of providing cost effective services? I say that government spending on services are not only cost ineffective but probably harmful to the overall economy.
Why is no one else saying that government spending is ineffective and harmful? I can even demonstrate that government control of health care has been 70% ineffective.
Dr Chris Idzikowski, a consultant at the London Sleep Center, discusses how a lack of sleep affects those working in the city. He also says he saw a big rise in patients after the debt crisis.
General strikes in Spain and Portugal will spearhead a “European Day of Action and Solidarity” called by unions in the region.
Unions in Greece and Italy also planned work stoppages and demonstrations against austerity policies, which labour leaders blame for prolonging and worsening the continent’s economic crisis.
For Spain, the eurozone’s fourth-largest economy where one in four workers is unemployed in a deep recession, it is the second general strike in eight months in protest against draconian budget cuts.
Spain’s main CCOO and UGT unions have urged people to rally under slogans such as “They are taking away our future!”, deploying pickets during the night at airports, bus and railway stations.
Activists alerted social networks of an evening rally outside the parliament in Madrid. (Full article here)
Guest post by Azizonomics.
UBS’ Larry Hatheway — who once issued some fairly sane advice when he recommended the purchase of tinned goods and small calibre firearms in the case of a Euro collapse — thinks 1000% inflation could be beneficial:
When 1000% inflation can be desirable
In fact, the costs associated with inflation (price change) are less than commonly supposed. There is the famous “sticker price cost” – the cost of constantly changing price labels – but in a world of electronic displays and web based ordering this is not a serious economic cost (in fact, it never was). To take an extreme position, one can make the economic argument that there are only limited costs in having inflation running at 1000% per year, with one caveat. 1000% inflation is perfectly acceptable, as long as the 1000% inflation rate is stable at 1000%, and it is anticipated. Of course, one can argue that high inflation tends to be associated with high inflation volatility and uncertainty (and that is true empirically), but economically it is the volatility and uncertainty that does most of the damage.
The maximum damage from inflation comes if it is unexpected or if it is unpredictable.Unexpected inflation causes damage, because the investor who holds bonds yielding 1% for a decade is going to feel cheated if inflation turns out to be 1000%. Of course, no one would voluntarily buy 1% yielding bonds if 1000% inflation was expected. Thaler’s Law comes into operation here; people dislike losing money more than they like making money. As a result episodes of unexpected inflation will lead to a significant adverse reaction on the part of consumers.
Unpredictable inflation is damaging because it causes uncertainty over an investment time horizon – and that uncertainty is a risk that will demand a compensating premium. What the inflation uncertainty risk does is raise the real cost of capital. If I think inflation will be 3% but I am not sure whether it will be 3%, 0%, or 6%, I am likely to demand compensation for the 3% inflation risk but then additional compensation for the possibility that the inflation risk is as high as 6%. The additional compensation is an addition to the real cost of capital.