So I’ve been asked what I’d do to get Ireland past this latest funding crisis.
Answer: I’d announce that in the case of default new Irish govt debt is freely transferable and can be used for the payment of taxes to the Irish govt.
This should facilitate funding for the near term.
I’d announce that heretofore, Ireland will become monetarily sovereign and use its own sovereign currency, just as the U.K., Denmark and Norway do.
Surrendering its monetary sovereignty was the worst financial decision Ireland could have made.
Rodger Malcolm Mitchell
drop back and punt
Naw, punting is a positive action. Being monetarily non-sovereign is: Drop back, fall to the ground, curl up, close your eyes and pray for a miracle.
Rodger Malcolm Mitchell
That’s about right. Every country should have its own currency–or we should have one currency issued by a true world bank. I seriously doubt that any major country in the world today would opt for such an arrrangement, because it relinquishes monetary sovereignty in the process.
But that’s what the countries in the EURO today have done–given up their sovereignity over their own economic destiny.
a world single currency would only be beneficial if the issuing entity was able to conduct sufficient net (deficit) spending to sustain world aggregate demand at desired levels (full employment, etc.). Or facilitate the individual member nations to do same.
But this isn’t even fleeting thought in the minds of current policy makers
world currency—–now there’s a dream thats centuries down the road.
i don’t want to be apart of world anything…UN workin for u?
warren’s support of deficit spending assumes someone as apolitical(yeah, i know he ran-but he’s no politician) intelligent cognizant statesmanesque honest and beneviolent as he is….. would control it/administer it.
thats going to happen?…..really?……if you think that u know nothing of human nature.
thanks to warren and cullen roche for probably the biggest epiphany of my last 5 years anyway.
all i said is it won’t work without the fiscal authority running a deficit, one way or another.
that’s just a point of logic that might be handy to know in case you were thinking about doing it.
Seems to me like the “one world currency” is a desire of nations to have medium of exchange for international trade that avoid exchange rate risk, e.g., with the US “depreciating” its currency for national purposes while the USD is the reserve currency, i.e., the medium of exchange for international trade. This is the idea behind a fixed rate for trade. For example, pre-1971, the dollar was convertible at a fixed rate only by nations to settle trade accounts. The push by some is to return to that kind of arrangement.
I am a currency trader so I fully support the idea of more currencies.
Warren,
Ireland is fully funded up to July next year and is not going to the market until then, it also has €20B in the pension fund and I’ve no doubt that they will use it all. The problem is that other eurozone countries have to go to the markets before us, and they have to pay significantly higher yields such as France and Italy.
Ireland is trying to wait it out until the current account goes into surplus. Other eurozone countries want us to increase our corporation tax rate for any aid especially the Germans and Austrians. To be spiteful I’d get rid of it.
What will cause the current account to go into surplus? Whose current account will become more negative to allow for this surplus.
You have one, and only one, long term solution: Become monetarily sovereign. Why you gave that up, Lord only knows. Perhaps the worst financial decision of the century.
O.K., maybe two solutions, the other being that the EU begin on a regular basis, to give (not lend) euros to member nations.
Rodger Malcolm Mitchell
Roger,
Ireland has a balance of trade surplus with nearly all eurozone countries, and most of the world. We have a small current account deficit with the UK, but with the strength in the euro against sterling that could easily be turned around.
I don’t know why we gave up our currency, everytime we were asked in a referendum the people rejected it. Europe never takes NO for an answer. The last referendum the heads of businesses, all government parties, the heads of all the churches, nearly all the unions campaigned for a yes vote. There wasn’t one person in authority that campigned for a NO vote and the people rejected it and said NO. Before, the euro Ireland had its currency I think pegged to the Deutsche Mark. Our population increased by 19% since we opened our labour markets to the new accession states in 2004, the same time the current account started to go negative. No, other eurozone country opened their markets at that time. In saying thar, I don’t think the government or opposition parties would do anything different even if we had our own currency.
Our main trading partners Britain, Belgium and the US account for over 52% of our exports. Ireland is one country that should never have been in the euro.
That should of read with the strength in sterling against the euro that could easily be turned around.
I recall something about the massive subsidies offered to join the euro maybe the major factor?
I don’t know, the people generally don’t listen to people in authority lecturing them on what’s good for them. They’ll usually do the opposite, of what their told to do. The heads of:
Churches, Small and Medium Businesses, the Big Farmers Lobby, Construction Federation, All main political parties, Multinational Companies, Unions and Europe campaigned for a YES in the Lisbon and Nice Treaties and the people sad no.
I’ve no doubt some people have benefited from the subsdidies but you’ll only find that out when their dead but they’ll be found in the above groups.
Ireland totally benefited from being part of the Euro for a decade. The subsidies were huge, and Ireland was very far behind.
The current problems faced today are not due to currency issues- they are due to making lots of bad loans on real estate.
Solving these problems would be easier with a sovereign currency, yes. But do not blame the Euro for causing the problems. Blame the Euro for making them much more difficult to solve.
The banks are insolvent due to making bad loans. The government is insolvent because it took on the liabilities of these private banks.
Mr. E,
In the 1980s, in the ERM we had real interest rates of 7%, from 1993-1998 we had real interest rates averaging 4%. Since, joining the EMU, Ireland has had real interest rates averaging negative 1%. House prices were turning over around the turn of the century and then got boosted by the low interest rates which had a knock on effect in workers looking for higher wages. The prices of everything went up in Ireland. I don’t know whether this was because businesses were trying to be clever and looking to raise prices. According to joel whose from Germany, prices increased as well so it probably had the same effect in most other Eurozone countries.
We experienced average GDP growth OF 9.8% during the six years 1995-2000, with 10.7% achieved in 1999 and 11,7% in 1997. From 2001 to 2007, GDP expanded by an average of 5.5% and due to the Maastricht criteria private balance sheets started to deteriorate. And since the introduction of the euro we went from owning over 80% of our national debt domestically to less than 7% today. Pension funds were forbidden from owning Irish government debt and had to buy German government debt instead. Unemployment reached its low in 2001 at 3.9% and plateaud since around the 4.5% level.(NAIRU)It’s a tale of 2 different economies.
Yes, the banks are insolvent and the government will be soon enough. But as Wynne Godley said that without a common European budget, there was a danger that “the budgetary restraint to which governments are individually committed will impart a disinflationary bias that locks Europe as a whole into a depression that it is powerless to lift”. Another one he got right.
right
and they don’t like you all competing for corporations with tax rates. sets in motion a big race to the bottom.
True,
But, if they all understood the monetary system they could cut out this race to the bottom and set fiscal policy according to the needs of the economy. It was the Labour Party that introduced the 12.5% rate in the early 1990s, and no good is going to accrue to the economy by raising it at this time.
Sorry, the above is not correct, the 12.5% was only introduced at the start of 2003 from 15%.
In 1997, Ireland had a corporation tax of more than 30% for domestic companies while the rate for foreign investment was just 10%. The EU said this system was unfair and insisted a single tax rate for companies be levied. However, Irish diplomats exploited the move by drawing up a plan to gradually reduce the rate paid by all companies based here to 12.5% by January 2003.
BFG,
Pegging your currency to the Deutsche Mark is no improvement. That merely means you’re still not monetarily sovereign. Instead of being on a gold standard or on a euro standard, you’re on a Deutsche Mark standard, which is monetarily non-sovereign.
If you’re interested in a quick summary of monetary sovereignty, you might look at: http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/
Rodger Malcolm Mitchell
Yes,
I know but I think the authorities at the time thought it wouldn’t make a difference if the punt was pegged to the DM or the euro. A big mistake that is becoming all too clear.
Ever since, I found out how all this works I don’t listen to the news on the tv/radio or buy the newspapers anymore. It’s all nonsense and I’m even tired trying to explain it to people at this stage . And I only know about it just over a year and a half. And you Warren, Bill, Randy and Scott are at this years. God, its very taxing.
I know but I think the authorities at the time thought it wouldn’t make a difference if the punt was pegged to the DM or the euro. A big mistake that is becoming all too clear.
Either way, you’re married to a German banker. Ireland’s a great country and will bounce back better than most. Heck, Dublin should market its securities to the rather large Irish-American community like its a war bond drive. Hmm, I guess “Take a Flyer on Eire” is a bad slogan for govt securities. :o)
Oh, send some junior accountants over to do the marketing.
http://www.telegraph.co.uk/news/newstopics/howaboutthat/8124973/PricewaterhouseCoopers-staff-rate-female-colleagues-in-viral-email.html
🙂
Their probably over there already. You’re not too far wide of the mark in the thinking around here lately. Soden: Let’s quit EU and join US Central Bank adviser raises questions over the power of Brussels to direct Irish fiscal policy.
Ha ha, its up to you to set your countrymen straight– they don’t want to be a US State, they want to be a US Territory (like Warren’s home the US Virgina Islands or Puerto Rico). You have citizenship and a dollar economy of course, but you don’t vote in presidential or Senate elections and you’re free to vote to go back independent at any time, oh yeah and residents won’t pay have to pay most federal taxes.
Territories elect their governor and legislature, and they seem to have wider latitude than state governments. Puerto Rico conducts most of its business in Spanish, IIRC, so the Gaelic speakers can keep on keeping on. :o)
I’m trying to understand how this works.
Assuming we’re talking about a government that isn’t sovereign in its currency, deficits must be financed by borrowing money, and issuing bonds to do it.
For a given level of taxes and deficit, the redemption of debt as a tax payment reduces the debt outstanding. But it doesn’t provide the cash (non-sovereign monetary regime) that taxes would have provided.
So doesn’t using debt to pay taxes require the issuance of replacement debt – to raise the cash that wasn’t provided by taxes?
In other words, doesn’t using debt to pay taxes EFFECTIVELY reduce taxes and increase the current budget deficit (i.e. bond financing)?
In terms of potential pricing benefit, the net bond supply remains unchanged. Every bond taken off the market as a tax payment must be replaced by new issue.
So this seems to be a way to reduce taxes, while increasing deficit financing (effectively) in a price neutral manner.
Is that the benefit?
E.g.
Assume expenditure is 300, cash taxes paid are 200, and new bonds issued are 100.
Now suppose 50 in taxes are paid by delivering bonds instead.
Then I’m saying expenditure is 300, cash taxes are 150, and new bonds issued are 150.
think of yourself as a potential buyer if Irish bonds. Knowing that in the case of default instead of possibly losing everything you, or anyone else, could then use those bonds to pay taxes at face value.
That would make purchasing those bonds a more attractive proposition, to the point Ireland could do that and fund itself, at least for the near term.
I’m not claiming anything more than that.
In case of default that would make the bonds a de facto sovereign fiat currency.
Until the British start counterfeiting it.
I kid I kid :o)
Another problem was that the British successfully waged economic warfare by counterfeiting Continentals on a large scale. Benjamin Franklin later wrote:
The artists they employed performed so well that immense quantities of these counterfeits which issued from the British government in New York, were circulated among the inhabitants of all the states, before the fraud was detected. This operated significantly in depreciating the whole mass….
http://en.wikipedia.org/wiki/Early_American_currency#Continental_currency
Beowulf: “Until the British start counterfeiting it.”
Good joke! 😉
Franklin told the Continental Congress that they should use taxation to back the Continental, but they did not believe him.
Good point, Hector. Warren’s proposal and similar ones like California IOUs should be seen as win-win. They might be declared illegal by some European or Federal court precisely because of this point. But that short term loss would be a long term victory, publicizing and enshrining the concept of being a tax credit as the meaning of money in law.
The Germans got back at them, though:
http://en.wikipedia.org/wiki/Operation_Bernhard
I know this is difficult to believe, but counterfeiting benefits the economy in the same way federal spending benefits the economy.
If I could print up about $1 trillion worth of perfect counterfeit dollars, without getting arrested, I’d do it, and I’d mail about $3,000 worth to every man, woman and child in America, thereby ending the slump.
Anyone own a printing press? 🙂
Rodger Malcolm Mitchell
You know, if General Petreaus were leading the Red Coats, that’s exactly what we would have done with the counterfeit dollars. When he got to Iraq, he figured out it was cheaper to bribe tribal leaders than to fight them. If he can pull off the same trick again in Afghanistan, he’s going to end up in General Washington’s old job (no, not surveyor).
Yes, Rodger, in the current situation, counterfeiting is a way of doing well while doing good. 😉
BTW, what about local currencies? Apparently, unlike state currencies, municipal currencies are legal in the U. S. Does anyone know much about them? How well do they work?
This guy is doing his part. And if Warren is still illiquid, I’m sure he can get a meal & some goods from any of us if he prints up and signs some MMT ♥ s.