Eco+Nomics

Asset values have been rising somehow intensively, following amid liquidity injection (QE) by major Central Banks over the last few years. A controversial, yet rather effective, policy choice. And this controversy, currently, derives from the asset bubble argument. In other words, the increase in the value of assets is a bubble, and, inevitably, it will burst. Is this policy controversy well justified? Perhaps, not very well. I will not argue whether asset inflation is a bubble or not. That is not the point I am trying to make.  I will argue, however, that the rising asset values is exactly how the whole policy should work! It is a key mechanism of transmitting monetary policy to the real economy. Not only for banks, but for households, as well. If you own assets, their value rises your net value rises, too, and, hence, you can borrow more or/and at a lower cost. Most importantly, households and businesses can remain solvent while deleveraging stops, and their liabilities rise...

There is something I need to admit... I am sick of the so called "success story" and the naive- false and deceitful, if you are as malicious as I am- declarations of the opposition. Here are the facts: During 2008, Greece produced goods and services of 240 bn euros. During the period April 2012- March 2013 GDP in current prices was 190 bn euros ( EL.STAT .). By the end of March 2013 the debt of the Central Government was 309 bn euros ( Ministry of Finance ), i.e. 161% of Greek GDP.  Additional measures need to be taken in order to make sure that the Central Government debt will be less than 110% of GDP by 2022. The most auspicious scenario is that the current taxation will remain unchanged for at least until 2015 with the hope that recession will deescalate. Anyway, I do not really believe that there is any more space left for heavier taxation. On the other hand, we are still missing the big picture: while oscillation between anemic growth and periods of recessions ten...

I would like to point out a few thoughts of mine with respect to a speech by Mario Draghi on April 15, 2013; " The role of monetary policy in addressing the crisis in the euro area ". Firstly, it is the controversial Outright Monetary Transactions (OMT). OMT was announced by Draghi on September 6, 2012 . When I first heard the news I couldn't believe my ears and I watched the whole press conference. After that I was kind of emotionally overheated believing that Mario Draghi crossed the Rubicon and Euro area would never be the same again! A few months later my expectations dashed. What happened is that I fooled my own self by playing down the condition of ESM involvement... So far the unlimited bond buying mechanism has never been activated; bank deposits haircut is on its way instead. ECB is not allowed to finance sovereign debt; it is a matter of credibility. Indeed... But the question that needs an answer is how credible our banking system and our hard currency is n...

I honestly have to admit that I never was, and I hope I will never be, a supporter of the EMU dissolution, or of the exit of any member-state from the Euro. I have previously expressed myself as far as Cyexit is concerned and I am not intending to reconsider my views. When Krugman wrote that the only solution left for Cyprus given the current circumstances is quiting Euro  I started thinking about debt dynamics, currency in circulation, destabilization, spillovers, etc. A couple of hours later Krugman described Cyrpus being between Scylla and Charybdis  and as a matter of fact Cyprus is indeed between the two monsters of Greek Mythology.  The main argument is that by cutting a deal with troika austerity measures- the one and only panacea- will be implemented, Cypriot economy will dip into recession and thus debt will become explosive. Correct! Absolutely correct!  I believe that everyone who has at least some non-neoclassical logic left would agree. Below,...

It has not been a very long time (at all) since I begun my undergraduate studies in economics and from what I remember there were only a few (conventionally) risk free assets: cash, government bonds, deposits. At this moment we really need to focus on the Euro-zone. Government bonds, i.e. debt issued by government, although involving some risk this is low- currently a little higher; cash is the bills and coins in circulation and is totally riskless, unless in cases of over-inflation; and deposits which... used to be risk-free. That is because European Commission is thinking of de jure haircutting savings when the firm that accommodates them is at stake. If that is approved, Euro will never be much of a  hard currency  and hence there is no point at all calling upon low inflation exclusively.  In addition, we have to start thinking of our deposits as risky and, as a matter of fact, the probability that we lose a given fraction of our deposits equals the probability of b...

Over the past few days, the Cyexite scenario has been communicated several times, either via journalists or bloggers and some other times as a leverage for negotiations... I shall  examine some implications of this undesired though improbable- if you ask me- scenario First of all, Cypriot firms, both financial and non-financial, and households have issued debt denominated in Euro, such as loans, bonds, commercial credit, cheques etc. Then, in case Cypriot pound (CP) substitutes for euro a practical question arises: the just mentioned debt will be repaid in what currency? If some of you see an obvious answer, please take some time to reconsider your thoughts. First of all, the debt holder will have to agree to be paid back in an other that the agreed currency and then he will have to negotiate the exchange rate this will happen (for now let us ignore the exchange rate related problems). On the other hand, the debt issuers, will have to find adequate funds to pay back its borrower...

A while ago, I read an article of WSJ written by  Katie Martin  concerning the market tranquillity with respect to what happens in Cyprus; the probable bank deposits haircut and the non-attainment of any agreement among EMU member countries. Among the explanations of this calmness reported by apparently successful analysts I found one, that of Mr.  Beat Siegenthaler, a UBS analyst, who more or less states that the risk of diffusion of a crunch in Cyprus is perceived to be low. I really do not know if that is indeed a general sense- although several other rather interesting interpretations are listed- but that is not the case at all and claiming the opposite is naive especially in the aftermath of Lehman Brothers collapse. The risk of contagion following a crash in the Cypriot financial system is high and most certainly non negligible. I shall elaborate. After doing some trivial digging I found an article that matches my needs; Billio et al. (2012)[1], concerning the es...

Earlier today I received a text from a friend of mine reporting that none of the commercial banks in Greece accept cheques issued by Cypriot credit institutions and I got really concerned for "the day after tomorrow"- it is either a signal that they fear the worst or perhaps just the fact they they cannot "liquefy" these cheques at the moment. Although I am really confident that depositors may not inundate the Cypriot banks to withdraw their funds, such a risk is still lurking...  While we are focusing on restoring (via government debt and haircuts) the regulatory capitals we seem to  ostentatiously exhibit our negligence for the bank-run risk; even of the slightest probability that that scenario might actually occur.  If someone had € 100,000 of deposits and suddenly the government decided to levy a 10% tax on their value how this depositor would react? First of all, he does not know whether this tax is collected once and for all or not and, even worse, his neig...

The term "economics" goes way back to the ancient Greek civilization; one may find this term in most, if not all, etymology dictionaries. Economics derives from oikos , i.e. the house, the household; and nemein, i.e to manage, to allot (alternatively from oikos and nomos , i.e  the law). Conclusions are up to you... I created this blog to communicate my thoughts on this magnificent and rather fascinating science- to whoever is interested- as well as on all of its aspects and implications. Ecoplusnomics was born by the seed of  my economic instincts and concerns and the ova of the post-2008 era. That is not to say that I shall stop posting as soon as the international economic scene returns to prosperity. Why in English? To be honest, I would rather write in Greek. However, language is both the root of a civilisation- and hence an inseparable part of the native speakers' culture- and an instrument of communication among native and non-native speakers; a common...