Topic: when you run out of other people's money... - page 2. (Read 4774 times)

I don't see what "noticeable" has got to do with it.  It's inflation.  If it's measurable then it's happened.  Also: it's not the act of printing that causes inflation, it's the act of spending your printed money.  It doesn't all kick in at once, its effect is only felt as that new money is disbursed through the economy.  The government, who printed it, get pretty much 100% value for it though (which of course is why they do it).

The QE going on in the US and UK hasn't kicked in to cause inflation because it hasn't been spent yet.  That money was actually used to buy back bonds, so that more borrowing could take place.  It's effectively sitting on deposit at the respective central banks on behalf of the banks.  It's out there though, and once the banks start loaning it out again we'll feel it.


Agreed. This is true.  The money printing being used to roll over debt is effectively moving that money printing backwards in time to when it was borrowed.


Or more sensibly: now is the time for Greece to produce something that Germany and France wants and is willing to pay for.  Otherwise it's just a transfer payment in disguise, and it would be more efficient just to send the money instead of pity-purchasing stuff they don't want.

A money supply increase of 3% will not create any noticeable inflation, especially those money are created to paying the debt. US FED has printed 400% money since financial crisis and the inflation is still very light. People need to save, those saving action absorbed all the newly produced money

Actually, the debt that Greece have today, has been spent long time ago. So the loss of the wealth has already happened, you can only punish Greece AFTERWARD, the reason they ran into this problem is simple: Their government loaned and anticipated they will earn more in the future, but they actually earned less in the future so that they are not able to payback the loan

Then, it will natually come to such a debate: How much extra loan you should get, in case you anticipate the future income will rise? The anticipation and its accuracy is the key. If you anticipate that your income will increase by 100% next year, then even your loan is 100% of this year's income, it is trivial.  And, each one's income increase next year will depend on how much loan the others can get and spend: No loans, no income increase

So, we could say like this: It is Greek's loan and spending raised Germany and France's income, now it is time for Germany and France to spend big and buy Greece products and raise their income in return

What's your point?  As long as someone other than the money printer is holding money, it's still "other people's money" isn't it?

I didn't say anything about asset holders, I said money holders.  That's a non-zero number of people.

One might argue that since creating money from thin air reduces the worth of every current holder's money; that it absolutely is other people's money that they are giving to Greece.

What's really ironic is that it's not even other people's money. Its really just money the central banks decided to create out of thin air and lend to the Greek government.

The debate is to whether keep on creating more money to lend to this country who just spends it recklessly.

Yes and for this reason I cannot wait until they default and the entire world economy crashes - once it does all the corrupt bankers, their politicians and other filth will be carved out of the system.

What will be left is the real economy: The struggling innovator, the hard manual worker, investors investing in real technology and development, the engineers, the farmers and the scientists.

I hope the Germans wake up, see that Merkel is selling them out to Goldman Sachs and kicks her out for some anti-EU politician.

I hope for the same in my country, but Germany is the critical one.

You got exactly what I thought of, Could have said cornerstone of a larger puzzle. If you take it away it starts to break up. Plus the whole stuff is pretty interconnected.
To germany it is more than just econonmy, an unerstricted yes to Europe is a core statement in Mrs. Merkels policy.
Inhouse she lost 2 Presidents in the past few years plus she opposed the new one (to come) heavily in the past.
Thus she badly needs some outstanding outdoor success. France (its banks) were heavily involved plus are a bit shaky, while she likes Sarkozy to be relected. ... just scratching the surface. But I think one can easily grasp where the road ist heading to.

Agreed plus it was much easier and even more profitable to blame rating agencys than do own homework.

You missed an important point on that. Then we are facing another war between Turkey and Greece.
So both are buying more german tanks, thus it is easy for germany to hold their debts ...
You see in case 2 there are no problems at all. 

devil's avocate:

if you have your cash in a german bank i'm afraid you have to lose it.
This would cause devastation. but you can't have double standards otherwise people are going to continue putting money in places they don't understand. I called both my banks a couple of months ago to ask how well capitalised they are and they couldn't tell me.

My question is, if this domino effect is followed where does the cash exit the euro zone? Cash isn't disappearing; it's moved. There's a creditor somewhere and to identify this might help unify the eeu.

Greece is a cornerstone to the €. If greece fails, banks will fail (again). That´s why the banks are currently bailed out by tax payers.

Actually I have never bought the idea that more money will cause inflation, especially in developed countries (A millionare get 1 more million, would he push all the price of living material up? very unlikely)

Same for Greece: Greece GDP is only a couple of procent of whole EU economy, even issue them a loan as big as their GDP, the money supply for EU will barely increase by a couple of procent. Comparing with what FED has done after financial crisis (print 400%+ more money), this can almost be ignored

And for debt mathematics: If this year your debt is 1 million, and your production is 1 million, then debt rate is 100% of GDP, seems quite risky. But what if next year your income increased to 4 million, then from next years perspective, your loan is only 25% of the GDP, totally acceptable. So the key point here is to increase the income for next year. How to increase the income is the quesion, and income have very close relation to the loan that others can get and spend, so it's a chicken and egg problem again

I'm still confused by the fact that in a day that money can be freely created out of thin air, such debt will still make so much pain...

Imagine 2 cases:

Case 1:
ECB just printed several trillions of euro and lend it to greece for 50 years, then greece will have plenty of cashes to spend: They hire all the leading construction companies to rebuild their country and buy what ever high tech/luxury things made in France/Germany to decorate their home

Case 2:
Greece suddenly find out an area rich of petroleum near their sea shore, it worth several trillions of euro, and ECB have to print several trillions of euro to trade these petroleum(otherwise the deflation will destroy europe). Then, Greece hire all the leading construction companies to rebuild their country and buy what ever high tech/luxury things made in France/Germany to decorate their home

Comparing these 2 cases, in the first one, Greece produced nothing, in the second one, Greece also produced nothing, but they find something others want. Most of people will accept case 2 but not case 1

Why? I guess down to the basic, it is about fairness or justice:

If Greece can get free money and spend, why France and Germany can not? If anyone can just print money and do not need to work, then there will be no one making the real products, people will soon find out the money have nothing to purchase, then the monetary system will collapse

But strangely, if Greece happened find lot's of petroleum, then no one will argue about it when they get same trillions of euro from ECB, although they still do not work, but now they have something that others want

See? As long as you can provide something that others want, you will be fine. It seems this is the common sense when people are looking at economy related phenomenon, it also means: If you can not impress others with your products/services, you will have trouble

So I think, the real problem of Greece now is that they can not provide something that impress others

Why do people need to impress others with their products/services? I remember there is a chinese saying: In society, everyone is a beggar, the big beggar make big money and the small beggar make small money

Is there any other better way?

Which government has ever weaned itself off debt? On the other hand, plenty have defaulted and later recovered.

I don't agree. Sovereign debt is like a an addictive drug. A country needs to gradually wean of its debt or else it is like a shock to its system and can actually kill it. Imagine the EU as a bunch of drunkards who need to quit drinking and get back to work, Greece being the worst of them. If you suddenly cutoff the alcohol to Mr. Greece, he will go into shock and the rest of the drunks are going to panic and everything collapses.

A short, sharp, shock is the least painful way out of Greece's mess. Anything else is just delaying the solution and storing up even bigger problems for the future.

The debt of the Greek government is so bad that if they default, it would completely colapse, all services suddenly cutoff probably leading to dangerous anarchy if not outright revolution. So yes, now it would be a bad thing. The EU should not have allowed Greece to be so heavily indebted but they could not force them, because it is a political issue. The greek government "decided" on that.
Also true. Even the U.S. is at risk of this "contagion".

That is a very good analogy, and you are right about each country having a different personality/culture/climate/value. Southern countries for example tend to have a more relaxing culture because they don't experience the harshness of winter so much, so they don't save for difficult times. I know this perfectly because I am a dual national - Mexican-American and know both cultures very well.

True, but you can easily have a currency union without political union. For example, many countries use the US dollar or peg to the US dollar.

Greece could stay in the Eurozone, but the Greek government could default on its debt repayments. Of course, no-one would lend any more money to the Greek government. The government would immediately have to start spending within its means, and is that a bad thing?

But this crisis isn't about that. This crisis is about finding ways to keep Europe chugging along without exposing the folly of exponentially-increasing government debt.