We hear endlessly about the hyperinflation of 1923, when people carted around wheelbarrows full of cash, but we never hear about the much more relevant deflation of the early 1930s, as the government of Chancellor Brüning — having learned the wrong lessons — tried to defend Germany’s peg to gold with tight money and harsh austerity.
And what about what happened before the hyperinflation, when the victorious Allies tried to force Germany to pay huge reparations? That’s also a tale with a lot of modern relevance, because it has a direct bearing on the crisis now brewing over Greece.
.. Austerity has devastated its economy as thoroughly as military defeat devastated Germany — real Greek G.D.P. per capita fell 26 percent from 2007 to 2013, compared with a German decline of 29 percent from 1913 to 1919.
.. Greece is making payments to its creditors, running a primary surplus — an excess of revenue over spending other than interest — of around 1.5 percent of G.D.P. And the new Greek government is willing to keep running that surplus. What it is not willing to do is meet creditor demands that it triple the surplus, and keep running huge surpluses for many years to come.
.. attempting to cough up the extra 3 percent of G.D.P. the creditors are demanding would cost Greece not 3 percent, but something like 8 percent of G.D.P.
Money Makes Crazy
You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. You could say that to the free-market true believer, to know the price of everything is also to know the value of everything.
.. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. … Paper is a check drawn by legal looters.”
Q. and A. With Charles Plosser of the Fed: Raise Rates Sooner Rather Than Later
Date-based guidance sometimes seems like a way for the Fed to achieve a consensus without actually achieving agreement.
That’s actually part of a challenge for the goal of consensus policy-making. To build a consensus you make vague statements that everybody can interpret any way they want to. Is that good communication? No, because everyone on the committee gets to interpret it their own way and then people get confused as to what it really means.
.. Basically prioritize precision over consensus.
Yeah.
.. We’ve entered a period where we’re kind of in uncharted territory. We don’t fully understand what happened or what made it happen. Economists are still debating the Great Depression. We’re going to be debating this for a long time, too.
.. But by 2010 we weren’t in a financial crisis anymore. My own view is that the rationale switched completely. It was no longer about providing liquidity; it was about providing stimulus at the zero lower bound.
Barry Eichengreen on the Euro
The euro area has shiny coins, elegant bank notes and a tolerably good central bank, but lacks the other elements of a working monetary union, from common bank regulation and resolution to fiscal and political integration. The idea was that the missing elements would be added gradually, over a period of decades. Inconveniently, Europe was then sideswiped – to stick with the car-crash metaphor – by the global financial crisis. As a result, a process that was designed to be completed over a period of decades was forcibly telescoped into a few years.
.. for the Germans a European project was the only way to fill “the void opened up in German public life by the evisceration of German nationalism”.
.. But the last decade would also have been very difficult for Europe without the euro. There would have been chaos in foreign exchange markets after 9/11, after the Madrid train bombings, and after Lehman Brothers. Things may have gone badly for the euro in the last four years, but they might have gone even worse for Europe in its absence.