tag:blogger.com,1999:blog-4411161795798360588.post3535235163443730329..comments2024-03-26T09:38:39.888+00:00Comments on Borthlas: The losers will still loseJohn Dixonhttp://www.blogger.com/profile/07447224248021209852noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4411161795798360588.post-36805930779406182952016-11-25T16:02:34.430+00:002016-11-25T16:02:34.430+00:00"Where the limits lie is elastic and particul...<i>"Where the limits lie is elastic and particularly unclear"</i> I agree with that, which is why I didn't say that there are no limits - although I wouldn't even add your qualification about turbulent and uncertain global conditions! Where the limits are is one of the essentially unknowables of economics. And I'd agree with those who would argue that we don't want to find out where the limit is by hitting it. But the idea that there is an absolute limit in terms of both scale and timescale in the way that Cameron and Osborne argued was ideological, and I'd be a lot less critical of people if they admitted that they were making a judgement call and explaining why they were making it at a particular level than I am of those who simply assert that we've already reached the limit because it suits their political standpoint.<br /><br /><i>"The UK and the US enjoy complete control over the fiat currencies in which they choose to borrow and can ultimately inflate away their debt repayment obligations"</i> I agree with that as well (and it also applies to the ECB, although it's more complicated for them to achieve the objective). It's what I meant when I said that growth and inflation rates are key factors in determining whether and to what extent a budget deficit can run almost indefinitely. There needs to be some care taken of course - high inflation in one currency zone which isn't replicated in others can only continue so long before interest rates might start to undo the effect. But as long as people are queueing up to lend money to HM Government at low interest rates (which is where we are at the moment), a budget deficit is unlikely to be a problem.<br /><br />Should Italy have been allowed into the Euro? I think that's a difficult one to answer. In terms of strict adherence to the Maastricht criteria, the Euro would have ended up applying to a significantly smaller subset of EU members; whether that would have led to a better or worse outcome is hard to say. Paradoxically, for all the UK negativity towards the Euro, it would probably have been a lot more successful had the UK joined in. Firstly, it would have removed one competing reserve currency from the mix, and secondly it would have enmeshed the City within the project instead of standing outside it and betting against it. But 'what-might-have-beens' help no-one, I guess.John Dixonhttps://www.blogger.com/profile/07447224248021209852noreply@blogger.comtag:blogger.com,1999:blog-4411161795798360588.post-21538703824381701382016-11-25T13:52:05.423+00:002016-11-25T13:52:05.423+00:00Where the limits lie is elastic and particularly u...Where the limits lie is elastic and particularly unclear in turbulent, uncertain global conditions where bond markets bear the first impact of events and are liable to stretch and snap back quite drastically with global events and market sentiment. Supply of buyers is affected by the availability of alternative investment options, but the ultimate key is money market confidence that borrowers can and will meet the repayment obligations they have incurred.<br /><br />The UK and the US enjoy complete control over the fiat currencies in which they choose to borrow and can ultimately inflate away their debt repayment obligations as happened postwar by creating more money. Italy should never have been allowed to join the Euro because of it's unsustainable debt which never met the Maastricht criteria. Like Greece it is now in a debt spiral where it is becoming unable to sell enough new bonds at any yield to meet its obligations. As the saying goes if you owe the bank a grand you are at their mercy - if you owe them a billion they're at yours. This is the relationship between Italy and Germany in a nutshell ...Democritushttps://www.blogger.com/profile/06749137742833103823noreply@blogger.comtag:blogger.com,1999:blog-4411161795798360588.post-55376986280542217972016-11-25T07:50:47.682+00:002016-11-25T07:50:47.682+00:00A singularly unhelpful and unenlightening non-sequ...A singularly unhelpful and unenlightening non-sequitur. Many countries run regular long term deficits; not all get into the same situation as Italy. See <a href="http://www.usgovernmentspending.com/debt_deficit_history" rel="nofollow">this chart</a> for one example: the US has run a deficit almost every year for over a century. Although you included the words "within limits" in your quote from the post you seem either not to have understood them or else deliberately ignored them.John Dixonhttps://www.blogger.com/profile/07447224248021209852noreply@blogger.comtag:blogger.com,1999:blog-4411161795798360588.post-204278163661169672016-11-24T21:48:13.073+00:002016-11-24T21:48:13.073+00:00'Within limits, it really is possible to run a...'Within limits, it really is possible to run a deficit more or less indefinitely ...'.<br /><br />So you want us to follow the Italian example, do you?<br /><br />No thanks.<br /><br />Anonymousnoreply@blogger.com