There is, of course, a solution

\”It is obvious what needs to be done,\” said Tim Congdon at International Monetary Research. \”The ECB must engineer a \’boomlet\’ by purchasing €1 trillion of bonds – boosting the M3 money supply by 10pc – to end all the agony. This means that Germany must put up with 4pc to 5pc inflation for while, but is that such a disaster? If they want to save the euro, they have to give some hope to the peripheral countries.\”

Pity it\’s illegal but there we go.

What does interest is that it\’s the right wingers, the monetarists, who are the ones putting forward the only workable solution.

Inflate or default…..

6 comments on “There is, of course, a solution

  1. Monetarists unfortunately are in many ways as bad as Keynesians. They have the same belief in aggregate manipulation, for instance.

    Anyway, there isn’t a solution. The banking system has actually failed; not, is going to fail if we don’t do something, but it has already failed.

    The major problem we have is that over the past centuries we’ve gradually given the banks ownership of the money itself, rather than them simply being people who trade with money, so if the system fails, all the money disappears, the “nothing in the ATMs scenario”. All that will be left is a thin smattering of “cash”.

    So really the governments ought to be looking at how to set up new, bank-independent currencies, because the bank-owned currencies are disappearing. The costs to the general public of maintaining these unsustainable bank currencies are beyond bearing.

    Of course, this is a particular advantage of commodity currencies. If the banks disappear, all of them, the currency- the commodity- still exists. But anyway, inflation won’t save fiat. It’s already dead.

  2. Not sure I agree.
    There’s no shortage of demand for Bunds.
    The ECB would be buying in the countries with the largest spreads to these, so increasing M3 in these countries, stoking inflation in these countries relative to Germany, and hence further increasing Germany’s competitive advantage, no?

  3. You can’t increase a country’s competitiveness by adjusting the money supply. All you can do is change the degree to which it is functioning below optimal (an imaginary pure free trade scenario) by inducing waste in the productive economy (e.g. forcing a reallocation of resources from some sectors to others, with associated costs and thus wastage of production).

  4. Boosting the money supply would solve the immediate liquidity problem but wouldn’t deal with the underlying issues, which are the massive trade imbalances within the Eurozone and the low growth and lack of competititiveness of the peripheral countries with respect to Germany. ECB unsterilized bond purchases would buy some time to allow structural reforms to be undertaken in ALL eurozone countries (including Germany). But there doesn’t seem to be any political will for this, and anyway ECB intervention of that kind would take time because it needs treaty change. Even if by some miracle Eurozone politicians agreed to do this, there is no time left. It isn’t going to happen, and therefore default is inevitable.

  5. It’s time for the doctrine of the Lesser Evil.

    All outcomes are bad – go for the least bad. That may well involve the end of the Euro. So be it. No doubt some successor will be called the Euro, if only as a face-saving gambit. And then hang all the stupid, reckless twats who introduced the bloody thing.

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