Willy on the euro

Hutton really is such a statist that he cannot even make the correct distinction between ownership by hte State and ownership by citizens of that State.

Britain owns a fifth of Greek bonds.

Britain does? The State?

I can imagine that in our foreign exchange reserves held by the State there are a few Greek bonds. We do indeed hold some euro assets there. But a fifth of all Greek issues? Nonsense.

I can also imagine that some number of banks domiciled in the UK hold some Greek bonds, even that some individuals do.

But to say that that latter is \”Britain\” is breathtakingly wrong: unless you\’re such a statist that you cannot in fact make the distinction between the State and the citizenry.

Those dreaming of the free-market utopia of floating exchange rates should be careful for what they wish.

Lemme see: the problem is to do with the single currency. One currency means, by definition, one interest rate. In a not optimal currency area, this leads to variously booms and busts being exaggerated in different parts of the single currency area. Things like 20% unemployment in Spain.

And Willy\’s view is that floating exchange rates are a bad idea?

This really is snigger worthy:

Any monetary regime in Europe has to deal with the reality of living alongside the world\’s most successful and, until China pipped it in 2009, largest exporter – ­Germany. Either there is the hard deutschmark, a world reserve currency second only to the dollar, against which the rest of Europe consistently devalues, or the euro. Up against the deutschmark, Greece would certainly be devaluing now – but so would Ireland, Portugal, Spain, Italy, Belgium, Austria, Holland and probably France. When the financial crisis struck most of them would have been in a similar, if less acute position to Iceland. There would have been a flight from their money markets to Frankfurt and New York. Who thinks Greece, Belgium, Ireland and Austria would not have had an unstoppable bank run? Or could have survived it? There would have been no co-ordination within a world reserve currency zone to bail out stricken banking systems. There would have been no enjoying 1% euro interest rates. No capacity to increase government borrowing to weather the crisis. Europe would have had a bank-run induced slump – and the contagion would have hit Britain hard. It would, simply, have been a variant of 1931.

In 1931 there was a single currency (ish). The gold standard. And those countries which fared worst were those which tried to stay on it. Those that dumped it (like, for example, the UK, Sept 1931, 25% depreciation following rapidly) found that the Great Depression didn\’t last very long and output was back up to its former level pretty shortly.

The euro has been a brilliant shock absorber.

Ahahahahaha…the euro has meant that the devaluation has to appear in the real economy. This is such a strange thing for a Keynesian like Will to believe you see. He already thinks that prices are sticky. That wages especially are very difficult to reduce in nominal terms. So grinding out a deflation in wages is horribly difficult and painful while doing something similar through a currency depreciation is a great deal easier. But here he\’s arguing against his own bedrock beliefs about the economy. Some cognitive dissonance or what?

And there is a last reform. The financial markets invented toxic credit default swaps (CDS) – allegedly insurance against bond default which the markets could buy and sell – in the deregulatory mania of the last decade. But England banned trading insurance policies in which nobody took responsibility for paying insurance as the worst form of financial depravity in the 18th century. Now the practice is back as \”innovation\”, except we know after Lehmans that the contracts are as worthless as they were under George I. However, hedge funds love them because they are such a juicy tool with which to speculate. It has been the CDS market that has prompted such a rapid confidence collapse in Greece. As they currently work, they should be banned.

What is he blathering about here? Is he saying that Lehman\’s didn\’t pay out on the CDS contracts it had written? Sure they did, they were paying out collateral every time prices slipped. Is he saying that other people didn\’t pay out on CDSs on Lehamn bonds? They sure as hell did. What ios he really trying to say here given that what he is saying is so obviously and clearly wrong?

And of course we\’ve the marvellous sight of a statist insisting that the markets which show the bankruptcy of a statist vision should be shut down. Can\’t have people revealing that the Emperor ain\’t got no skivvies on now can we?

How does this bloke keep his column?

6 thoughts on “Willy on the euro”

  1. Just a niggle but the reason Britain’s “output was back up to its former level” was because will never had the boom before the bust of the Great Depression. The 20s were a decade of national strikes and stagnation partly because the government fixed the price of gold too high – ignoring the roaring printing presses of the Great War.

  2. He’s talking utter rubbish about CDSs as insurance, but what he refers to (I think – who knows?) is “insurable interest”. This is the rule
    that you can’t take out an insurance contract on something in which you don’t have a direct interest – you can only insure your own losses.
    The reason is that, for instance, if you were to take out an insurance policy on my car, you would find yourself in the unpleasant position (for me and the insurer) of actually wanting my car to catch fire late on night, when nobody’s watching…

  3. When someone says ‘Britain has three football teams in the Champions League semi-finals’ no-one thinks they are referring to those teams being government-owned. It’s you who seems to be conflating Britain with the State, not the other way around. He’s talking about bonds held by private actors, as his next sentence makes clear.

    It’s true that some of his other economic views would make you think that he would be a debase the currency devaluationist (but he’s not), just as most of your views would make one think you wouldn’t be (but you are).

  4. There’s a hell of a difference between representing your country at sport (the meaning of ‘British’ in the football context) and Hutton’s view of individual holdings, and you know it.

    Lame, very lame…

  5. JuliaM, I think you misunderstand the difference between the national team which competes in the European Championship, and private football clubs who compete in the Champions League.

    Another example would be “Britain has a GDP of $2 trillion”. That’s not the State’s income or production, it is the aggregate of every individual (some of whom work for the state and some from assets state-owned).

    It’s obvious Hutton is talking about private sector holdings as the next sentence is about the (normally) private-sector banking system.

  6. Matt, I believe the term you are searching for but missing completely is “Britons”, as in “Britons own ….etc”. To say “Britain owns…” definitely means the state. You are quite simply mistaken, and possibly the editor of the article was as well.

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