Greece is like...
... according to John Redwood, another effectively bankrupt state... [Emphasis mine.]
Exactly so.
Except that California is more like a quack doctor bleeding a perfectly healthy person—that patient is weakened, but still able to work and produce, to innovate and generate wealth.
Whereas the Greek situation is rather more akin to flogging a dead horse...
If those countries are to have some hope of prosperity, they need to solve the two underlying problems. It is obvious to most external observers that the way to solve the problem of competitiveness quickly is to devalue. Normally, an IMF programme for a country in trouble not only asks it to cut its budget deficit and reduce its excess public spending, but suggests that it devalue its currency and move to a looser monetary policy domestically, so that there can be private sector-led growth, export-led growth—the kind of thing it needs to get out of its disastrous position. That is exactly what those countries are unable to do. That is why the IMF should not lend a country like Greece a single euro or a single dollar. Greece is to the euro area as California is to the dollar area: it is not an independent sovereign state, and it cannot do two of the three things that a country needs to do to get back into growth and prosperity, because it cannot devalue and it cannot create enough credit and money within its own system.
Exactly so.
Except that California is more like a quack doctor bleeding a perfectly healthy person—that patient is weakened, but still able to work and produce, to innovate and generate wealth.
Whereas the Greek situation is rather more akin to flogging a dead horse...
Labels: debt, EU, good people, USA
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4 Blogger Comments:
Go figure - I said pretty much the same thing last October and even included the USA as an example though I used Texas' $1bn agricultural subsidy rather than California.
The same principle could be applied to the counties of the UK; except with populations so small and less diverse it's comparing a paper cut to a knife wound.
It's hard to imagine (okay perhaps not) that they tried to use the USA's unified monetary system without taking notice of the problems it causes those states who fall compared to the others. Then again they seem to be applying the same solution - throw money at it.
Your blog mascot wouldn't be very impressed with the idea that currency debasement and easy credit are the route to prosperity.
Redwood speaks more sense than most politicians, but that's not saying much. He's still hopelessly monetarist in his thinking. He believes that all could be made right if only the right people were holding the levers of power. He believes that a bunch of wise men are capable of determining the right price for credit, and the right supply of money.
The fact is that monetary central planning is as disastrous as all other forms. Money should be taken entirely out of political control. Interest rates should be determined by the free market, according to the time preferences of borrowers and savers.
I'm surprised, DK, that a libertarian like you could endorse state-directed currency devaluation and credit creation.
Whereas the Greek situation is rather more akin to flogging a dead horse...
A Wooden one presumably.
Greece Diplomacy at gunpoint:
http://www.youtube.com/watch?v=JXWhTU7PqZo
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