Saturday, January 8, 2011

Incoherent Discharge

I don't understand monetary policy or any of that super smart stuff that makes money work the way it does, but I can't help but wonder if maybe it was massive FAIL for Europe to adopt a common currency (the Euro), a few years back.

I understand some of the reasoning behind the idea, like ease of commerce... and all that. But now I'm starting to wonder if commonality did more to disguise some of Europe's major economic problems pertaining, primarily, to the welfare statism adopted post war.

It looks to me like a situation where the sloppier nations were allowed to get away sloppiness a lot longer than otherwise would have been the case, with the more responsible nations, like Germany now having to pick up the mess.

My ignorant opinion is that the Euro should be shit canned, and replaced with national currencies, like it used to be. Poorly run economies would be punished more readily with declining currency values.

Weigh in, if you want to. I'm just tossing thoughts into the wind...


Bike Bubba said...

I remember being told about the plans for the euro back in 1989, when I spent the summer in Germany. More or less, I thought that the Germans were nuts to even consider allowing the Italians (whose Lire traded at about 1200 to the dollar at that point) anywhere close to their currency.

Had the hope that they would be wrong, but it looks like the Greeks, Portugese, Irish, Italians, and Spaniards are aiming to prove me right. Yuck.

Vanesa Littlecrow W. said...

I think you are correct on this one Gino. I also notice that Bike Bubba mentioned Ireland. The only reason they are in this mess is because by being part of the Euro scam, they had no choice but to bail out banks under orders of the monetary powers that be. As a result, they got screwed. I can't see how this is going to end well for Germany either.

Brian said...

My (really really really superficial) understanding is that this is an experiment in having an international monetary policy while maintaining national fiscal policies.

Arguably, this isn't fundamentally different from the US, which puts monetary policy on the Fed which is theoretically independent of the federal government (which sets fiscal policy). And of course, states can (and do!) levy taxes of their own, though not with quite the broad sweep that the federal government does.

I do think that economic and political integration of Europe has been and will continue to be a good thing on the balance. But I honestly have no idea if a single currency is actually necessary for that.

This shit is complicated.

Gino said...

lets just do the gold standard thing again, backed up with a barter systm.

three bags of = two bags of wheat...
thats some shit i can understand there.

Bike Bubba said...

Probably the biggest thing in favor of a gold standard is that it's slightly deflationary, so capital transactions tend to be done more with stock than bonds. Hence, when something collapses, it doesn't take as much with it--though (Mary Poppins bank rush scene) it can still take an awful lot. Fractional reserve banking has its benefits, and its hazards.

Night Writer said...

I can't claim to understand it either, but I remember being in the UK in 2006 and traveling to Ireland. England didn't use the Euro, but Ireland did and I was disappointed in the rate of exchange when converting to Euros when we arrived. You'd normally expect to get a more favorable rate from a country with the problems Ireland had even then. In fact, perhaps if Ireland had its own currency it might have been a competitive advantage for them in attracting tourists and business. The leveling affect of being on the Euro articially inflated the value of the money in Ireland while devaluing it in Germany.

Thank God that couldn't happen here. Oh wait, California still goes by the U.S. dollar, doesn't it?

kr said...

Our gov did it back in the day, with all the local currencies ... but I guess Brian's right, our gov also simply up and took away the big-level fiscal authority from the states.

I find it odd but interesting that I agree whole heartedly with Bike Bubba, Gino, and Brian ... particularly at the same time.

I was kinda young when they euro-ized. I think I assumed the nations would be put under sufficiently stringent rules. Gotta hand it to the British ... nose in the air was the right stance to take on this one.