Something economists thought was impossible is happening in Europe

Discussion in 'Economy & Infrastructure' started by Peter, Mar 3, 2015.

  1. Peter

    Peter Senior Member Senior Member

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    Something economists thought was impossible is happening in Europe

    Something economists thought was impossible is happening in Europe - Vox

    @atheisthindu @Razor @Mad Indian @Sakal Gharelu Ustad @Bangalorean sir
     
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  3. Peter

    Peter Senior Member Senior Member

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    I have no knowledge in economics so this may sound dumb.
    However the above article says that countries like Germany are not spending money and thus not acquiring debt. However this also means that Germany and some European countries cannot issue positive interest bonds.

    Does that mean that countries with a high debt are actually keeping that debt so as to provide positive interest bonds?(eg Japan,US)

    Is national debt a good or bad thing to keep?
    Can someone explain this thing to me.
     
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  4. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Simple answer.

    EU is weird because nations have same currency which makes their monetary policy same but they are still independent countries with different agendas.

    So if you want to know how things work, look at simple countries or one country to get an idea. I will post an article if I think it explains things well. Sorry, I am a bit busy and can't give detailed explanations.
     
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  5. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    @Peter Check this video out :)
     
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  6. pmaitra

    pmaitra Moderator Moderator

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    I beg to disagree.

    The reason is not that EU is weird. The reason is concepts such as Fractional Reserve Banking is weird. Why weird? Simple. The whole concept is, to put it simply, based on an exponential function, which blows out of proportion.


    Good video. Many people don't understand the concept of fees and tariffs. I invite @jouni to share his views on this video, since we have discussed a lot about borrowing money and credit ratings.
     
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  7. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Again!! You don't have to bring in fractional reserve banking in every discussion.

    Bond rates were worst for Switzerland because it was pegged to Euro. Now people knew sooner or later it would become impossible for Swiss central bank to maintain the peg with Euro. And once it happens, Swiss Franks would rise. So essentially, there was negative bond rate but positive exchange rate expectation. And indeed that happened. Swiss Frank rose phenomenally once they took it off peg. Now I do not know where does fractional reserve banking come in this explanation.
     
  8. Bangalorean

    Bangalorean Stars and Ambassadors Stars and Ambassadors

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    Excellent video. More than Peter, it is @jouni who needs to check this out.

    So @jouni, what is your view on integrating entire Europe into one giant nation like USA? Do you see it as a positive or a negative?
     
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  9. jouni

    jouni Senior Member Senior Member

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    I am definitely for the United States of Europe. IMHO this crisis revealed where the real cultural border of Europe is. It is not on the Phosphorous strait, it is on the west bank of it. Greece is not culturally Europe, they do not have the mentality to prosper in a union like EU. I think Greece should resign Europe, Ukraine should be taken in ( in the long term ). The only way Europe can compete against China and US, is to have common fiscal policy. Also learning English should be compulsory in all the member state schools. Tighter Union, with reasonable speed is the future.
     
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  10. Bangalorean

    Bangalorean Stars and Ambassadors Stars and Ambassadors

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    I agree with your view, if I was a European I would also have wanted unified Europe.

    What is your view about where should the capital be, how should elections happen (smaller nations will have less representation), how will defence policy be managed?

    My personal view: there should be 4-5 capitals - one "normal capital" (say, Dublin), one "summer capital" (say, in Madrid), one financial capital (say, in Frankfurt), one cultural capital (say, in Paris), one religious capital (Rome of course). And one defence/security capital (choose some good one).

    This way, try to satisfy all constituents and make it work. India is actually very similar to EU in terms of linguistic and cultural differences. Every Indian state has a different culture, different cuisine, different needs, different prosperity level, different economic mix, etc. Very similar to EU (in fact a much greater scale than EU).

    If EU unifies, it will be a great challenger to the USA, it will become the second pole of the world. But if it continues to be divided, European nations will fade away into obscurity, eclipsed by China, India and USA in the coming years.
     
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  11. Khagesh

    Khagesh Regular Member

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    Finnish economy does not seem to be going anywhere. From whatever I have trawled on the net they are right there with Italy and Spain and on their way to Greece.
    Finland Economic Report | Outlook, Statistics and Forecasts


    Going by what is being reported Finns will have to pay more for the debt they issue and Germany will enjoy all the hard work of Finns.

    Had their been a common bond things would have been better for Finns and other south and east europeans but why would Germany share its hard work with these countries that they can basically have simply by screwing up their internal politics, some evangelism and lotsa promises of a bright future all the while simply out competing these laggards in the real market.

    This should not apply to merely the Finns, rather probably to 2/3rd of Eurozone populations.

    This is actually not too different from the Indian populations where Delhi enjoys the most amount of investments sourced from all of India but Delhi then turns right back to ask for muft bijli. Mind you farm electricity for free was rejected by most of the BJP states.
     
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  12. jouni

    jouni Senior Member Senior Member

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    Finnish population is about 1% of total EU population, you are right that our economy is not going anywhere at the moment. I am not worried, our credit rate is top, unemployment is not too high, weak Euro helps our export. I would really like to open our country, take more immigrants, now we are too homogenous, they would also generate growth.
     
  13. jouni

    jouni Senior Member Senior Member

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    I would keep the HQ in Brussels like it is, all the infra is there, there is no point building additional levels. Paris will be Paris in the future also. Maybe defense will be built around Finnish armed forces, top EU military intelligence chief is a Finn, also top civil intelligence chief is a Finn. EU will purchase Mistral class ships from France and they will be stationed in Helsinki.

    Finland is the only hero-nation in Europe. Finnish army was the only army that could both stop Red Army strategic offense and chase Wehrmacht out of Finland. Because of our long history of non-alliance and neutrality, we would be the perfect country to build defense around. Our Flag is also blue-white, goes well with blue-yellow EU flag. Our soldiers are mostly blond with blue eyes, it does not hurt either.
     
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  14. Khagesh

    Khagesh Regular Member

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    What you are saying is good for the Finnish economy. But this will have only a very long term impact w.r.t. Finnish status within the Eurozone as a Europartner. When people decide to collaborate on - knowledge, defences, economy and emotionally, then losses should not be counted unlike what Germany is doing. And if a partner wants to do bean-counting then he should have the gumption to leave the partnership. What you Europeans are trying is the kind of way marriages happen in the west, purely a deal.

    However I cannot fault Germany for this state of affairs. Germany is a nation without Europe too and they have worked towards their success and taken a lot of hits to become/remain a country.
     
  15. jouni

    jouni Senior Member Senior Member

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    Well spoken, thought I did not understood a thing.
     
  16. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    As far as i understand, debt per se is not good or bad. Its what the debt is for which makes it good or bad. For eg, you want to take a 20000Rs. loan(debt) for drinking it away- its a bad debt. You take a 20000Rs. loan(again debt) for opening a business which is more profitable than the interest accrued on the loan you take, then its a good debt.


    For a national debt analogy- taking a loan or debt to finance a infrastructure project which will increase the revenue for the govt directly or indirectly, is a good debt.
    Taking a loan or a debt to finance a useless welfare policy like MNREGA- bad debt
     
  17. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    WTH? How is Germany at fault for PIIGS spending on useless welfare programs for their citizens?
     
  18. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    @Sakal Gharelu Ustad I cant think of a single reason why people would buy a negative interest rated bond. Seriously? Can you pls give me an example for why they might ? I tried thinking that it could be tied up to the inflation/deflation being higher than the impact of the negative interest rate but even then it would make much more sense to just hold on to the cash rather than on the bonds?
     
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  19. monrand

    monrand Regular Member

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    This may be a question of patriotism, but of course, it is possible only regarding very small percentage of people.
     
  20. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Its nominal negative bond but real future return can be positive.

    1) Swiss franc pegged to euro (switzerland not part of monetary union)
    2) ECB decides monetary easing
    3) This would make money fly to Switzerland bidding up swiss franc price, if it were not pegged
    4) Since Swiss Franc is pegged, the Swiss central bank can intervene for a while but not for too long
    5) When it removes the peg, the swiss franc would appreciate
    6) Now you can buy a Swiss national bond with negative interest rate at date 't' and 1 franc = 0.8 euro and sell later at data 't+5' when Swiss franc is 1 franc=1euro

    In the end you make profit due to gains on the exchange rate. Now since there was some positive profit on the Swiss bonds in foreseeable future, no one wanted to sell them. So to buy them some people were ready to pay higher price than nominal price of the bond implying -ve return. Hope it answers you!
     
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  21. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    I am having a hard time understanding your example, pls clarify a bit. For example, in point 6, am I buying the swiss bond with francs or with Euro? and what will be the negative interest rate on such a bond?
     

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