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...

We reed at Reuters that  "Greek stocks plummet as bond yield surge threatens bailout exit" ! The over optimism of the Greek government turned out to be a huge bomb they have been playing with for a very long time. Perhaps, in an attempt to shape expectations, or to tame the animal spirits...  Anyway, as I wrote a few months earlier the borrowing cost was,  is and will remain   prohibitive  for a very long time. Until we raise adequate budget surpluses to finance our debt obligations, including annual interest payments, we cannot cut all ties with the IMF. Why particularly the IMF? Because, our Euro partners will find it hard to convince their tax payers to fund us even more, and the markets know that.  Added to the enormous borrowing cost, considerable political unrest is about to unveil. Naturally, after almost five years of continuous social turmoil - increasing unemployment, poverty, social exclusion, income losses - it would be naive to expect...

NOT AT ALL!!!  There is conspicuous concern about the aftermath of the current fiscal impasse in the US. Debt ceiling has to be increased by the Congress by the end of October 17th, and there is a budget that needs to be passed by the house and whose delay resulted the government shut-down, with Obamacare being the bone of contention. (I must I have got it right...) Large market players and the IMF are warning of the consequences of any delay in the payout of federal government's liabilities. What is the probability of such a delay? The probability is minuscule! First of all, the US economy is the largest one and its political leaders will not sacrifice its prevailing status for any dispute. No matter how stubborn any of the two sides might be, nor the Tea Party, nor any Conservative, nor any Democratic will risk the magnitude of their nation whatsoever. Secondly, if the undoing of this Gordian knot exceeds the four-day deadline each side will subseq...

It is a real shock if you live in a parallel universe of your own... (News initially read at Naftemporiki )

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...

Many times, the private debates in which I have participated have been fueled by the debt and the banking crisis and the imminent recession. What went so uglily wrong? What should have been done? Is it too late? Can things take a turn for worse?  Firstly, it is essential to unfold the exact chain of events the way I apprehend it based on my knowledge of economic theory. Everything began in 2007-2008 when the financial sector of the US devastating losses following the collapse of both the sub prime lending and its securitization and gradually the rest of the world was infected. After Lehman Brothers everyone realized that there was nothing to end painlessly. In their effort to prevent a broader contamination, governments borrowed large sums in other to strengthen the balance sheet of the banking and financial sector and safeguard their economies. Put differently, tax payers are asked to pay for a risk they never undertake and for which they never compensated. Nations with we...

The dream of a united Europe dates back in 1951 in the form of the "European Coal and Steel Community" (ECSC). 41 years later, on February 7, the 12 members of the EU signed the Maasticht Treaty probably a treaty with the most lethal omissions, lethal for the future of EU. During all the years following the Maastricht Treaty even more mistakes were made and are currently being made and more facts were neglected. Currently, we are playing down the spill-overs of austerity policies while we are concentrated in maintaining a "lower than, but close to, 2% inflation in the mid-term", like a ship being trapped in a port without the crew knowing that they have actually been trapped... Decisions were made as if the only economic variables that could hamper economic growth and social prosperity are debt and inflation. Given that false, sometimes rather naive, perception and regardless the 5 year long inert growth of Euro area we are still focusing on "sound governmen...

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...

Since the very beginning of the debt crisis in Europe and the subsequent government spending cuts implemented, everyone- at least from my shallow academic entourage- was arguing, if not shouting, for the vicious circle of austerity. Shortly, beginning from a high debt-to-GDP ratio, public spending cuts affect more intensively the GDP than they do to the deficit and hence more cuts are required (the decrease of the denominator is larger that the one of the numerator) but at the same time GDP has already decreased more steeply. If you wish to argue for the opposite do not even dare; I am living in the center of this vicious circle. Currently, troika is coming back to Greece and from what I read they intend to respond to government revenues shortfall by more cuts... In other words, they remove another wooden block  from the disposable income and they place it on top.  That is exactly what happens in Greece over the last 3 years!  Eventually, we will run out of wooden bloc...

This post is an attempt to use my rather inexperienced and naive instinct in economics in order to respond to the allegations of the necessity of austerity and tight monetary policy. More specifically, I post  my reply to the arguments presented in "The Live arguments of austerity right now: A bestiary" by Mr. DeLong . Please, forgive me if I am wrong. The first group stresses the importance of tight monetary policy. "The Jeremy Stein argument" : Stein ignores the other element of GDP; the consumption. With lower interest rates households can more easily substitute future for current income. Secondly, risk premium is added to the risk-free rate both when the risk-free is 0% and when it is higher, e.g. 10%, and hence risky assets yield by definition higher returns regardless the level of the risk-free rate. Therefore, bank managers will always prefer more risky assets due to the higher returns they offer anyway. Thirdly, there is always the Basel Accord tha...