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September 27, 2012


Mike Woodhouse

Indeed. Of course, when the utterances have zero credibility, exposing their deficiencies becomes something of a waste of effort.

Oh, and I think the last para's nonsense is probably more arrant then errant... ;-)


There is a serious danger that by promoting such blatant nonsense, Clegg and his party (my party...) becomes a laughing stock. If we haven't already...


I think the last para's nonsense is probably more arrant then errant

Errant nonsense is a better phrase, because none of us actually know what arrant means except as an intensifier to nonsense.



"Of course, this is plain wrong. In countries with their own central banks, governments cannot go bust because the central bank can simply print money to buy government debt: this is what QE is."

Forgive me if I am wrong but I thought it had been made unlawful for EU governments to issue bonds to their central banks?

Is not QE different from the case where central banks buy a fresh issues of bonds directly from the government? Is it not the case that under QE the central bank buys back previously issued government bonds that are held by the private sector?


Is it not in fact more accurate to ask "Who suffers most when governments can't sell their debt?"

"It's not the poor who don't have savings that get devalued, it's the bankers and the hedge fund managers"

Account Deleted

Clegg wasn't attempting to make a statement of fact, he was pushing an ideological line. He shares the neoliberal belief of the Tories that the poor are dependants of government while bankers and hedgies are not. When the parasite is big enough, it becomes indistinguishable from the host.

Postmodernism is alive and well because it is the ideological expression of neoliberalism in art: taste is reduced to the judgement of the market; anything is permissible so long as it is paid for.

Clegg is betting that the electorate will be impressed by the LibDem's mere presence on the government stage, despite fluffing their lines and tripping over the props. When you have to make a virtue of unprincipled opportunism, then facts are no more relevant than integrity.


Spreading lies about economics has become the mission of the corrupt ruling class everywhere.

In the case of the euro area it is possible that the masses would be better off if say Spain exited and devalued. A new devalued currency would spread the pain of adjustment widely by means of price rises and open up the possibility of growth. All would suffer but all would gain the unemployed especially over time. The current policy is just cuts and more cuts with deflation. That is the policy that hurts the poor.

Clegg should be asked to explain if we have no money how the state has kept the banks going and still is with huge subsidies. A bottomless pit seems to open up with new fiat money when the Banks require it. That has become corruption on a huge scale. By free market logic the lame ducks of finance should have been shot. If they are to be saved then they should have been required to share the gains as a premium for the support they have and are receiving. Instead we have reverse Robin Hood. Making Bankers richer and the rest poorer.

Clegg and co are wicked little men doing the opposite of what they pretend to believe in. It is more wilful blindness then mere stupidity.

Squirrel Nutkin

Are you not being a bit over-punctilious there? And hiding a lot of loose ends behind “that might or might not be a bad idea”?

I am not an admirer of, er, vulgar monetarism, but I did not think QE was a remedy of unlimited extensibility. Sure, governments can run the printing presses at warp speed and beyond, but don’t the historical precedents suggest that eventually the official values of the banknotes and their real purchasing power start heading in opposite directions? Following which it is unlikely to be much consolation to the disabled pensioner that her bread line has to waggle past the splat zones where ruined financiers are hitting the tarmac.

Obviously the standard of political oratory has lapsed far below that of the golden age we all remember so well, but surely Clegg’s speech was making the highly plausible and non-technical point that if the economy goes completely tits up it will be ordinary people who are in the shit, while the rich and super-rich might have some likelihood of avoiding it.


"surely Clegg’s speech was making the highly plausible and non-technical point that if the economy goes completely tits up it will be ordinary people who are in the shit,"

Err what is the economy now if not "completely tits up" and how are the 'poor' getting on at the moment? If the record increase in food kitchens, and save the children, and other charities linked usually with much poorer countries, warning of huge increases in deprivation in children isn't a case of 'ordinary people who are in the shit' then I'd hate to see what is.


As for the scourge of hyperinflation, I'm not sure there are too many signs of anything like that. There are many signs of zero or negative growth though. I thought invocations of hyperinflation was the preserve of knuckle headed german bundesbank types. Obviously I was mistaken!

Philip Walker

"In countries with their own central banks, governments cannot go bust ..."

So what are you understanding by 'go bust'? I would have taken Clegg to mean 'default', in which case sovereign default is certainly a possibility. You may recall that Tim Worstall delights in listing recent sovereign defaults every time someone makes this claim: we can start with Argentina within the last decade.

It would be more accurate to say that a government never has to go bust -- though one may prefer to for various reasons.


"You may recall that Tim Worstall delights in listing recent sovereign defaults every time someone makes this claim: we can start with Argentina within the last decade."

First of all Tim Worstall is a raging ideologue who is best ignored, and secondly, Argentina's problems are explained here by Bill Mitchell.

"Case study: Argentina 2001-2002 …

In April 1991, Argentina adopted a rigid peg of the peso to the dollar and guaranteed convertibility under this arrangement. That is, the central bank stood by to convert pesos into dollars at the hard peg.

The choice was nonsensical from the outset and totally unsuited to the nation’s trade and production structure. In the same way that most of the EMU countries do not share anything like the characteristics that would suggest an optimal currency area, Argentina never looked like a member of an optimal US-dollar area.

For a start the type of external shocks its economy faced were different to those that the US had to deal with. The US predominantly traded with countries whose own currencies fluctuated in line with the US dollar. Given its relative closedness and a large non-traded goods sector, the US economy could thus benefit from nominal exchange rate swings and use them to balance the relative price of tradables and non-tradables.

Argentina was a very open economy with a small non-tradables domestic sector. So it took the brunt of terms of trade swings that made domestic policy management very difficult.

Convertibility was also the idea of the major international organisations such as the IMF as a way of disciplining domestic policy. While Argentina had suffered from high inflation in the 1980s, the correct solution was not to impose a currency board.

The currency board arrangement effectively hamstrung monetary and fiscal policy. The central bank could only issue pesos if they were backed by US dollars (with a tiny, meaningless tolerance range allowed). So dollars had to be earned through net exports which would then allow the domestic policy to expand.

After they introduced the currency board, the conservatives followed it up with widescale privatisation, cuts to social security, and deregulation of the financial sector. All the usual suspects that accompany loss of currency sovereignty and handing over the riches of the nation to foreigners.

The Mexican (Tequila) crisis of 1995 first tested the veracity of the system. Bank deposits fell by 20 per cent in a matter of weeks and the government responded with even further financial market deregulation (sale of state banks etc)

These reforms loaded more foreign-currency denominated debt onto the Argentine economy and meant it had to keep expanding net exports to pay for it. However, things started to come unstuck in the late 1990s as export markets started to decline and the peso became seriously over-valued (as the US dollar strengthened) with subsequent loss of competitiveness in the export markets.

Lumbered with so much foreign-currency sovereign debt the decline in the real exchange rate (competitiveness) was lethal.

The domestic economy by the late 1990s was mired in recession and high unemployment.

And then the “Greek scenario” unfolded. Yields on sovereign debt rose as bond markets started to panic – a vicious cycle quickly became embedded.

In 2000, the government tried to implement a fiscal austerity plan (tax increases) to appease the bond markets – imposing this on an already decimated domestic economy. The idiots believed the rhetoric from the IMF and others that this would reinvigorate capital inflow and ease the external imbalance. But for observers, such as yours truly, it was only a matter of time before the convertibility system would collapse.

Why would anyone want to invest in a place mired in recession and unlikely to be able to pay back loans in US dollars anyway?

In December 2000, an IMF bailout package was negotiated but further austerity was imposed. No capital inflow increase was observed. Duh!

The government was also pushed into announcing that it would peg against both the US dollar and the Euro once the two achieved parity – that is, they would guarantee convertibility in both currencies. This was total madness.

Economic growth continued to decline and the foreign debts piled up. The government (April 2001) forced local banks to buy bonds (they changed prudential regulation rules to allow them to use the bonds to satisfy liquidity rules). This further exposed the local banks to the foreign-debt problem.

The bank run started in late 2001 – with the oil bank deposits being the first which led to the freeze on cash withdrawals in December 2001 and the collapse of the payments system.

The riots in December 2001 brought home to the Government the folly of their strategy. In early 2002, they defaulted on government debt and trashed the currency board. US dollar-denominated financial contracts were forceably converted in into peso-denominated contracts and terms renegotiated with respect to maturities etc.

This default has been largely successful. Initially, FDI dried up completely when the default was announced. However, the Argentine government could not service the debt as its foreign currency reserves were gone and realised, to their credit, that borrowing from the International Monetary Fund (IMF) would have required an austerity package that would have precipipated revolution. As it was riots broke out as citizens struggled to feed their children.

Despite stringent criticism from the World’s financial power brokers (including the International Monetary Fund), the Argentine government refused to back down and in 2005 completed a deal whereby around 75 per cent of the defaulted bonds were swapped for others of much lower value with longer maturities.

The crisis was engendered by faulty (neo-liberal policy) in the 1990s – the currency board and convertibility. This faulty policy decision ultimately led to a social and economic crisis that could not be resolved while it maintained the currency board.

However, as soon as Argentina abandoned the currency board, it met the first conditions for gaining policy independence: its exchange rate was no longer tied to the dollar’s performance; its fiscal policy was no longer held hostage to the quantity of dollars the government could accumulate; and its domestic interest rate came under control of its central bank.

At the time of the 2001 crisis, the government realised it had to adopt a domestically-oriented growth strategy. One of the first policy initiatives taken by newly elected President Kirchner was a massive job creation program that guaranteed employment for poor heads of households. Within four months, the Plan Jefes y Jefas de Hogar (Head of Households Plan) had created jobs for 2 million participants which was around 13 per cent of the labour force. This not only helped to quell social unrest by providing income to Argentina’s poorest families, but it also put the economy on the road to recovery.

Conservative estimates of the multiplier effect of the increased spending by Jefes workers are that it added a boost of more than 2.5 per cent of GDP. In addition, the program provided needed services and new public infrastructure that encouraged additional private sector spending. Without the flexibility provided by a sovereign, floating, currency, the government would not have been able to promise such a job guarantee.

Argentina demonstrated something that the World’s financial masters didn’t want anyone to know about. That a country with huge foreign debt obligations can default successfully and enjoy renewed fortune based on domestic employment growth strategies and more inclusive welfare policies without an IMF austerity program being needed.

The clear lesson is that sovereign governments are not necessarily at the hostage of global financial markets. They can steer a strong recovery path based on domestically-orientated policies – such as the introduction of a Job Guarantee – which directly benefit the population by insulating the most disadvantaged workers from the devastation that recession brings.

However, the other lesson that Rogoff and his ilk don’t emphasise – is that pegging a currency to another, guaranteeing convertibility and then allowing the financial sector to “dollarise” your economy (drown it in foreign currency-denominated debt) – is a sure way to force the country into financial ruin.

It has nothing to do with the volume of public debt issued in the local currency by a government which has sovereignty in that currency."



Governments can still go bust if they issue enough Inflation Protected bonds.


"Governments can still go bust if they issue enough Inflation Protected bonds."

The St. Louis Fed wrote in their report,

"As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS—Treasury Inflation-Protected Securities). Together with the unusually high, but manageable, level of the current debt, these facts imply that the current U.S. government can wait out any short-term economic developments until long-run growth is restored.7 Further, without an immediate need to drastically reduce the debt, the mechanism between high debt and slow growth loses most of its credibility."

Go to these sites if you want to discuss it further, they're the experts on the matter.




"Governments can still go bust if they issue enough Inflation Protected bonds."

Don't do that then. Better still don't issue any bonds at all.

I do get fed up with these "Cars with square wheels are really stupid and don't work, therefore cars are a bad idea" comments.


PoMo thought has its origins in the work of Paul de Man (a Nazi collaborator) and, further back, Nietzsche (a lunatic much admired by the Nazis and Joey Barton). No surprise it's reactionary, then.

You may not much care for either Zoe Williams or Polly T in the Guardian, but both are MSM commentators who attacked Clegg's speech on much the same points as here.

Tim Worstall

"First of all Tim Worstall is a raging ideologue who is best ignored, and secondly, Argentina's problems are explained here by Bill Mitchell."

Fair enough, now explain the other 799 government defaults as described in "This Time It's Different".

gastro george

Pre-fiat defaults (pre-1971) are not the same as post-fiat defaults.

Mike Cornelia

If only I could print my own money to relieve my debt issues. I have had trouble with debt for quite sometime. However, about 3 months ago I decided to seek a professional that offers debt management services. Since then, my financial situation has steadily improved. I can't wait til my head is above water again, but for anyone who has financial issues I would recommend seeing a professional immediately.


President Kirchner see above, has more balls then the whole British and European establishment despite being a girl. She shows how you deal with foreign neo liberal crooks. Offer them some money or no money on their ill gotten swag. The choice is theirs. That is what you can do if you rule for the nation rather then act as tools of crooks.

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