Devaluation is austerity done right • Hacker News Board

Re: Devaluation is austerity done right

#21

Post by parasubvert » Thu, Jun 14, 2012, 2:09 PM UTC

bahadden wrote: post #5

bornhuetter wrote: post #4

Earlier quoted context omitted.

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

You're absolutely right, but the typical retort to the above is: "macroeconomics isn't a morality play".

We're seeing the consequences of morality-driven economics today in Europe. Are we really worried that people that save and live in their means are going to start snorting cocaine off strippers' bellies because of devaluation?

Re: Devaluation is austerity done right

#22

Post by crusso » Thu, Jun 14, 2012, 2:13 PM UTC

nickik wrote: post #10

What people dont understand specially the ones that are against all inflation is this: There is natural and artefical inflation and deflation. You get for example natural inflation when you have supplyshocks (If somebody blow up intel CPUs would be more expensiv) you get artefical inflation when you print money. The first is just the market reacting to 'something'. The same goes for deflation, you have natural (good)…

So really the original article for this thread and you are just saying, "Stop playing currency games to fight strong economic forces. Take your lumps and move on. You'll be better off in the long run."

Re: Devaluation is austerity done right

#23

Post by crusso » Thu, Jun 14, 2012, 2:18 PM UTC

givan wrote: post #3

Why should everyone pay for the speculators?

Aren't the "speculators" a bit of a boogeyman? Nobody complains when the speculators provide economic benefit (which studies say they do).

Besides the general market efficiencies that speculation has been shown to provide, sometimes the speculators drive prices down very sharply in anticipation of commodity devaluation. No one ever seems to complain about that.

Re: Devaluation is austerity done right

#24

Post by bornhuetter » Thu, Jun 14, 2012, 2:22 PM UTC

planetguy wrote: post #18

bornhuetter wrote: post #12

Earlier quoted context omitted.

Are you arguing that it's actually ineffective, or just that it's not gentlemanly toward foreign investors?

Well, it's not gentlemanly towards anyone, particularly savers in your own country. Suppose I'm a retired gentleman in Ruritania with one million Ruritanian rurs in the bank. The King of Ruritania has got himself into some deep debt problems with foreign creditors due to his addiction to racing and eating greyhounds. He can either say: a) "Guess what? I'm only going to pay back 10% of my debts! Suck it, creditors!",…

I think you're confusing price inflation with currency devaluation.

If everything in Ruritania is "worth" 10% of what it was, then nothing has changed. It's only foreign goods that have become more expensive, and your exports have become cheaper.

Re: Devaluation is austerity done right

#25

Post by Symmetry » Thu, Jun 14, 2012, 2:25 PM UTC

raverbashing wrote: post #9

bahadden wrote: post #5

Earlier quoted context omitted.

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

And that's exactly why I disagree devaluation is good It's the coward solution, and if you're not gonna pay 100% of the owed value, just do that instead of making old money worth more than new money.

Erm, they already did that. Well, they refused to pay the balance of all the foreign deposits when their banking system collapsed. The problem is that the country of Iceland no longer has this previously large sector in their economy, so the total economic pie was actually smaller, so they had to find some way to fairly apportion the pain from people's standard of living shrinking. And more importantly do it in a way that didn't cause a lot of unemployment that would shrink the economy even more.

Re: Devaluation is austerity done right

#26

Post by crusso » Thu, Jun 14, 2012, 2:26 PM UTC

wazoox wrote: post #15

bahadden wrote: post #5

Earlier quoted context omitted.

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

> it is basically a transfer of value from those with savings/creditors to those in debt So it's a transfer from the rich to the poor. It looks just right.

You say that as though it's a moral argument independent of other factors.

Do you really believe that to be the case? If so, why should you disregard other factors like why people got into debt in the first place or how much savers had to sacrifice in their own lives to achieve their savings?

Re: Devaluation is austerity done right

#27

Post by arjunnarayan » Thu, Jun 14, 2012, 2:28 PM UTC

nickik wrote: post #10

What people dont understand specially the ones that are against all inflation is this: There is natural and artefical inflation and deflation. You get for example natural inflation when you have supplyshocks (If somebody blow up intel CPUs would be more expensiv) you get artefical inflation when you print money. The first is just the market reacting to 'something'. The same goes for deflation, you have natural (good)…

Nitpick, when you say "When central banks target inflation (say 2%) and the economy is growing around 2% (thus 2% deflation) they acctully produce 4% inflation in real terms"

You mean "actually produce 4% inflation in nominal terms"

Re: Devaluation is austerity done right

#28

Post by bornhuetter » Thu, Jun 14, 2012, 2:28 PM UTC

crusso wrote: post #23

givan wrote: post #3

Why should everyone pay for the speculators?

Aren't the "speculators" a bit of a boogeyman? Nobody complains when the speculators provide economic benefit (which studies say they do). Besides the general market efficiencies that speculation has been shown to provide, sometimes the speculators drive prices down very sharply in anticipation of commodity devaluation. No one ever seems to complain about that.

You're being very unspecific about who these "speculators" are, and lumping a huge group of people and companies into one bucket.

Saying that the financial sector provides no benefits to society is ill-judged, but saying that everyone should be absolved of wrong-doing just because the sector as a whole provides some benefit is equally ill-judged.

Re: Devaluation is austerity done right

#29

Post by eli_gottlieb » Thu, Jun 14, 2012, 2:30 PM UTC

bahadden wrote: post #5

bornhuetter wrote: post #4

Earlier quoted context omitted.

Because like it or not, a lot of the money is simply gone. Sure we need better regulated financial markets and less corruption in politics and the media, but in the mean time something needs to be done to get economies back on track. Increasing taxes on "the rich" and companies are good to some extent, but they will only take you so far. The kind of austerity that involves taking away allowances and tax credits for t…

Devaluation is the easiest solution from a political point of view, but it is basically a transfer of value from those with savings/creditors to those in debt (including all of us with large credit card debts and mortgages). It punishes the careful savers and rewards the profligate, and sends a signal that living high on credit is good, while those that save and live within their means are idiots.

Well, when 40 years of falling/stagnant real wages have made "living high on credit" the only way to maintain decent, humane lifestyles and created a debt-deflation crisis, at some point you have to halt the pseudo-morality play. You can either accept mass default, a debt-jubilee, currency inflation, or put whole continents into debt-peonage for their mostly-unwilling participation in leverage-driven asset bubbles.

Re: Devaluation is austerity done right

#30

Post by Symmetry » Thu, Jun 14, 2012, 2:32 PM UTC

Iceland was one of the countries that was hurt the worst by the financial crisis, remember the joke "What's the capital of Iceland? About a buck fifty". But since then its done very well recovering. To quote a blog:

Iceland did almost everything right. They stiffed the bank creditors to avoid aggravating the moral hazard problem, just like the textbooks recommend. In the eurozone the bank creditors are being bailed out. They relied of fiscal policy to address S/I and debt issues, and let monetary policy address AD, just as the New Keynesians were recommending in the 1990s. In the eurozone they combined tight money with reckless deficits. And now Iceland is growing fast and the eurozone is stagnating. http://www.themoneyillusion.com/?p=14895