Bitz and Piecez …

When I grow up I want to be a real economist like Dean Baker. Here he rolls off the ECB and the finance mafia:

The decision to make Ireland’s workers, along with workers in Spain, Portugal, Latvia and elsewhere, pay for the recklessness of their country’s bankers is entirely a political one. There is no economic imperative that says that workers must pay; this is a political decision being imposed by the ECB and IMF.

This should be a huge warning flag for progressives and, in fact, anyone who believes in democracy. If the ECB puts conditions on a rescue package, it will be very difficult for an elected government in Ireland to reverse these conditions. In other words, the issues that Ireland’s voters will be able to decide are likely to be trivial in importance relative to the conditions that will be imposed by the ECB.

There is no serious argument for an unaccountable central bank. While no one expects or wants parliaments to micromanage monetary policy, the ECB and other central banks should be clearly accountable to elected bodies. It would be interesting to see how they can justify their plans for subjecting Ireland and other countries to double-digit unemployment for years to come.

The other point that should be kept in mind is that even a relatively small country like Ireland has options. Specifically, they could drop out of the euro and default on their debt. This is hardly a first best option, but if the alternative is an indefinite stint of double-digit unemployment, then leaving the euro and default look much more attractive.


One must wonder what Irish ministers are thinking about this euro- centric debacle when not propped in front of a microphone. The choice is simple; to default and let the banks fail and escape the euro or surrender the country to the world’s finance rapists. Closing the insolvent banks would shift the costs to those who deserve to take them: those who made the bad banking bets in the first place. At the same time, ejecting from the euro and the IMF would mean little further access to ‘international’ lending.

Skipping the euro is not a bad chance to take. When membership to the
EU is destructive as it is now to Ireland, what does it matter?

There you go Ireland, three votes to zero (Mish is another). Drop the euro and default tomorrow. By the end of the week you’ll feel a lot better.

Here’s Mike ‘Mish’ Shedlock:

Ireland at Crossroads

Ireland is at a major crossroads. The fact that Irish Prime Minister Brian Cowen is willing to step down helps.

I agree that Ireland certainly needs reforms. Lowering the minimum wage will help create jobs. So will reducing benefits. Both need to happen regardless of what labour parties might think.

However the biggest job creation effort will come from Ireland telling the ECB and IMF to stuff it. There is no reason Irish citizens should have to pay back the foolish guarantees made by Brian Cowen.

Cowen will be gone soon enough, and the next PM can and should have different thoughts about the meaning of “guarantee”.

German Chancellor Angela Merkel last month called for bondholders to foot more of the bill of European bailouts. I agree. It’s time to hold her to her word.

Ireland’s defaulting would render Chancellor Merkel’s opinion irrelevant. EU banks would take a haircut and like it. The Germans would draw the line at bailing out any banks punished by an Irish default even German banks.. The Irish should behave no differently than the Germans.

Mish made a puzzling remark:

My only point of major disagreement is with Baker’s suggestion that Ireland could drop out of the Euro. While Ireland certainly “could”, such a move could also cause hyperinflation, a loss of faith in the currency.

I suppose this could be said about any currency regime or any country. The sequence where Ireland refuses the euro then resurrects the punt or Irish pound would amount to a sharp devaluation. Believe it or not, this is what Ireland needs to do, devalue! Currency hardness is paid for in tears; the high current unemployment rate is a product of the super- hard euro. Since Ireland cannot devalue the euro, it’s trapped. It has to devalue its workers, instead.

If there were reserves of punts ready to flood into circulation hyperinflation wouldn’t be out of the question. Where would these reserve punts come from? It would take either a sharp deflation with easy monetary policy (by an Irish central bank that so far does not exist) or a credit/business expansion.

Instead of this drawn out process a swap between euros (which would still have value) and punts would take place at a stable exchange rate as the new punt is put into service. No new value would be created, that is the reserve value of the new punts would be identical to the reserve value of the old euros. No inflation there.

Over a period of time with excess punts flowing into reserves — Irish QE — it would mean despite the punt Ireland was experiencing deflation. Adding reserves will not effect deflation, see ‘Ben Bernanke’ (who has not learned this lesson).

If the Irish government were to succeed in cutting energy consumption, leaving citizens with insufficient goods to buy, IF there were large reserves in the banking system AND an increase in employment the funds in reserve MIGHT flood into circulation. This would be inflationary. Note that the large reserves, increase in employment and energy conservation are not likely to happen any time soon …

Foreign exchange would be an issue for the non- euro Irish. The punt would have to represent Irish output rather than its creditworthiness which post- default would be presumably zip. If Ireland can hang onto Intel, Microsoft, Google and Pfizer then it will have the output, more so if it can find a way to jettison the gas sucking, space wasting automobiles. It can then avoid the serial devaluations that have plagued countries such as Italy and Greece prior to Eurozone entry.

10 thoughts on “Bitz and Piecez …

  1. Steve From Virginia

    Hmmm … one way to look @ the debt is to see it as completely non- collectible. Adding more does not add to the total cost. This is cynical but reasonable. If you are going to go bankrupt, you may as well party first.


    As for N. Korea: the AWOL country is China not the USA. I suspect N. Korea views China as the pitiful helpless giant, which turned from the true path of Lenin- Marxism and is now being swept downstream by the tide of history.

    The US question is whether there will be an air raid on N. Korea's enrichment facility? Watch and see …

  2. Jb

    Excellent, thank you. Yes, the debt will never be repaid because the US gov never intended to.

    Next we have your comments on Mish's blog:

    "…deflation will end only when the world's economies de-industrialize and the world goes off oil. The US must become a net crude oil exporter which means an 80% reduction of crude oil use."

    I gave it a 'like' because you're the only one making this connection.

    I read this as: the US middle class has a very painful adjustment just around the corner. I'm trying to grapple with what this might look like:

    – We will watch our home values plummet.
    – Our main concern will be food; let's hope the
    SNAP program survives.
    – Traditional work will be scarce and low pay.
    – Personal auto transportation will all but
    – Metro urban areas will be abandoned by those
    who can afford to leave.
    – Rationing of primary things will return

    A preemptive strike makes alot of sense given the huge civilian population of Seoul. It's the same logic we used for ending WWII.

    Thank you.

  3. LynnHarding

    @jb Without personal automobiles it is likely that many people will move from the suburbs into the cities. However, there is still a lot of room for carpooling and car sharing.
    What would it look like in the US if we were to use 80% less oil?
    I like the tweets. Are they new? I hadn't noticed them before.

  4. Jb

    @ LynnHarding:

    Although I agree with Kunstler that the suburbs are in real trouble, I think there will be civil unrest in the large metro regions such as Atlanta and LA. For context, I live in a college town of 41,000 with bus and rail access, navigatable river, surrounded by farms and orchards, bike lanes, farmers market, etc. I think it will be 'safer' here than other places where the police will be overwhelmed: think Katrina.

  5. LynnHarding

    If we have to rely on the police no one will be 'safe.'
    Atlanta and LA have little or no public transportation and limited water resources. Other big cities such as Detroit and Cleveland may have better prospects.

  6. Steve From Virginia

    Lessee … first, I had a couple o' beers last night w/ a friend of mine who works on Capital Hill. He sez, "Stop bashing the Republicans!!" I need to be taken seriously. That means no more Republican bashing.

    How about Koreans? Irish? Okay? I gotta bash somebody!

    I live for bash!

    Anyway … I dunno how to even approach the 'where to go- post- peak oil' issue. All places in America are the same to me, faceless suburbias. Being someplace is not that much different from being in some other someplace.

    Friends and family matter most. If you have friends and family somewhere then that is a good place to be.

    Another key is having something to offer others to help them succeed. If you can do this you will always do well, ('well' being relative, of course).

    The last thing is our onrushing sequence of events will have lots of head fakes. You have to be patient, which modernity has pounded out of most people. Some parts of the world will end tomorrow but not most. Things will change, not blow up and if they do there is no 'plan' because what will blow up will be unpredictable.

    I appreciate the dialog, this is a very large topic. I tend to veer away from the JM Greer/Kunstler approach toward something else that doesn't have a champion right now. I think a lot of current post- peak thinking is too adamant. Michael Lewis has some good ideas but he's tied to certain hard- money dogmas (He's an economist). I come from the Wendell Berry – Edward O. Wilson – Steven Jay Gould which I could call 'biological philosophy' which is different direction from the tech rigidities & determinism of engineers (which dominates much post- peak thinking).

    Gould and Minsky are very close! Also, check out Wes Jackson …

    I will get more of this out later don't bother me I'm watching WWIII on teevee.


  7. Steve From Virginia

    Oh and … I started the Tweeter business a few weeks ago. I am trying to expand the incredible readership here and make this a better blog.

    The ideal would be to combine coolly analytical Steve Keen- esque macro examinations with uber- ranting Matt Taibbi- style polemics. (Kidding …)

    It may seem illogical that expanding readership matters as to 'quality' but naught happens in a vacuum. Dear readers demand a higher quality reading experience which is incentive for me to think harder and write better. I am getting some good stories on Tweeter. I can also add short comments that I cannot really do with this blog. Writing a 'short' article can take 7 or 8 hours. It's hard for me, I make a lot of grammatical/spelling errors.

    What I would like to do in the future? A 'Links' section like Naked Capitalism's. Maybe a daily 'Bites and Pisces' section. A decent article per day. That's the hard part.

    I'm working on a 'real oil price' concept that compares oil prices to other metrics. I'm learning how to use the Excel database tools.

    I'm also working on a few Econ 101 peak oil/economics primers. IMHO most of what is considered to be basic economics is incorrect.

    I'm thinking a blue- print for the future might be in order.

    I'd also like to have occasional outside contributors. Maybe early next year. I need an editor if I am going to that sort of thing.

  8. LynnHarding

    Blue print for the future would be good….

    Wendell Berry is the best. Gene Logdson's new book "Holy Sh..t" is really fun and a good read.

    Maybe now that Alexander Hamilton's way has failed we can start over with Thomas Jefferson. The herd may get thinned along the way, which is why it scares me to think about blueprints.

  9. Jb


    I like the Tweets and the condensed responses you give on TAE and ZH. An EconUndertow primer page would be a great place to start. The time you put into all of this is greatly appreciated.

    One of the things I like about JM Greer is that his vision of where we are headed is simple: back to a lifestyle based on growing and preserving food, raising animals, and fixing things. The photovoltaics, electric cars and such are nice, but there won't be an infrastructure left to maintain them. I think this aligns nicely with our very own Mr. Jefferson's vision of a agrarian society.

    However, Greer and Kunstler have conveniently skipped over the turbulence ahead to get us to their individual visions of the future. I am specifically concerned about the next five years or so because I can't see how we get there without a big step down in our standard of living. Thus, your thoughts on reducing our domestic oil consumption by 80% was very intriguing.

    Thank you.

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