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Capital flight

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Avarus
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Capital flight

#39944

Postby Avarus » March 20th, 2017, 8:07 pm

Capital flight from Club Med into mainly Germany have been going on for some time, but the scale of this has increased of late. Private holders of government debt are selling it, buyers' money coming from the ECB. The money is then finding its way to Northern Europe. Problem is that the Club Med group of countries is expanding all the time as debt is piled onto debt:

http://www.bibliotecapleyades.net/socio ... _eu262.htm

If the EZ fractures (it's slowly disintegrating at the moment) then Brexit will be a footnote in European history

NeilW
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Re: Capital flight

#40250

Postby NeilW » March 21st, 2017, 6:25 pm

As usual with these scare pieces it is legally and intellectually flawed.

There is a well understood piece of international law called Lex Monetae which states that any sovereign region can determine the denomination of its debts.

So if the Italian central bank cancels its peg to the ECB and the Italian central bank liabilities start to float against the ECB then anything the Italian central bank owes automatically becomes Italian Euros -which could be renamed as Lira if required. The same with Greece, etc.

All banking systems are just conversion pegs between the differing liabilities. If the institutions cancel the ability to swap at par then you end up with two denominations that can then only be exchanged not converted. At which point the values float against each other.

Eventually that is what will happen - for the same reason that the Bretton Woods peg against the US dollar failed.

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Re: Capital flight

#41638

Postby Sorcery » March 27th, 2017, 12:50 pm

As usual with these scare pieces it is legally and intellectually flawed.

There is a well understood piece of international law called Lex Monetae which states that any sovereign region can determine the denomination of its debts.


Are you sure about that Neilw? Are you saying Spain could leave the Euro and revert to pesetas and owe Germany or the ECB pesetas ?
Any non surplus country in the Euro is going to probably see a fall in value of their currency as soon as they leave unless their currency is pegged.
Let's say Spain leaves the Euro and creates it' own currency the peseta initially set to 100 pesetas per Euro. I cannot see anyone else in Europe saying that Spanish government debt (at 1.1 trillion Euros officially, 1.56 trillion unofficially) accepting being paid in pesetas at anything but the current Euro/Peseta exchange rate at the time. While I had never heard of Lex Monetae before I cannot believe that a Euro foreign debt can be paid in anything but Euros, it's what makes leaving the Euro so difficult except for Germany.

Kantwebefriends
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Re: Capital flight

#41671

Postby Kantwebefriends » March 27th, 2017, 3:37 pm

Sorcery wrote: I cannot see anyone else in Europe saying that Spanish government debt (at 1.1 trillion Euros officially, 1.56 trillion unofficially) accepting being paid in pesetas at anything but the current Euro/Peseta exchange rate at the time.


And what do you think they could do about it? Invade? States have welched on their obligations throughout history.

There are only three countries with a record of decent length of not welching on their government bonds: UK, Sweden, and Switzerland. How long do you think that the UK and Sweden can stay on the list?

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Re: Capital flight

#41712

Postby Sorcery » March 27th, 2017, 7:55 pm

Kantwebefriends wrote:
Sorcery wrote: I cannot see anyone else in Europe saying that Spanish government debt (at 1.1 trillion Euros officially, 1.56 trillion unofficially) accepting being paid in pesetas at anything but the current Euro/Peseta exchange rate at the time.


And what do you think they could do about it? Invade? States have welched on their obligations throughout history.

There are only three countries with a record of decent length of not welching on their government bonds: UK, Sweden, and Switzerland. How long do you think that the UK and Sweden can stay on the list?


Well I would guess that unless an EU solution is found and agreed with the creditor nations they will not be allowed to be members of the EU. It would also mean that they would have to take their begging bowl to the IMF and accept IMF medicine. Some kind of default seems inevitable for Spain, Portugal, Italy and Greece (in no particular order). The only solution would seem to be if Germany was prepared to revert to the Deutschmark and leave the Euro.
Switzerland and Sweden will do OK, they are relatively healthy. The UK will do OK once we are out of the EU madhouse :-)

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Re: Capital flight

#42061

Postby gryffron » March 29th, 2017, 10:54 am

UK and Switzerland cannot go broke. Because we always have the option to print money and devalue our way out of debt. It's not a pleasant solution, but it is a fix for excessive debt in fairly short order (a few years of pain). Eurozone countries have no such option, and are stuck with eternal debt.

Gryff

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Re: Capital flight

#42104

Postby redsturgeon » March 29th, 2017, 1:01 pm

gryffron wrote:UK and Switzerland cannot go broke. Because we always have the option to print money and devalue our way out of debt. It's not a pleasant solution, but it is a fix for excessive debt in fairly short order (a few years of pain). Eurozone countries have no such option, and are stuck with eternal debt.

Gryff



Worked well for Zimbabwe, Argentina etc...

John

redsturgeon
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Re: Capital flight

#42136

Postby redsturgeon » March 29th, 2017, 3:07 pm

Snorvey wrote:Worked well for Zimbabwe, Argentina etc...

Hmmm. They're not really comparable to the UK or Switzerland though are they.?


Yes but they "may" be more similar to Greece and Spain.

John

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Re: Capital flight

#42532

Postby Nimrod103 » March 31st, 2017, 8:37 am

redsturgeon wrote:
gryffron wrote:UK and Switzerland cannot go broke. Because we always have the option to print money and devalue our way out of debt. It's not a pleasant solution, but it is a fix for excessive debt in fairly short order (a few years of pain). Eurozone countries have no such option, and are stuck with eternal debt.

Gryff



Worked well for Zimbabwe, Argentina etc...

John


Not really true in the case of Argentina, I think. Their crises are frequent and varied, but basically come about because they borrowed in US Dollars. i.e. much closer to the problems of Greece and Spain, and with the same ultimate result - economic stagnation until they managed a devaluation. Greece and Spain will only get better when they can reflate their economies by abandoning the Euro.
In the case of Zimbabwe of course, the economy and justice system have been destroyed by Mugabe and his voters. Interesting how even Douglas Adams understood the risks of flooding a country with paper currency back in 1978 (see Hitchhikers Guide to the Galaxy, the leaf as currency).

TopOnePercent
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Re: Capital flight

#43934

Postby TopOnePercent » April 5th, 2017, 11:08 pm

NeilW wrote:As usual with these scare pieces it is legally and intellectually flawed.

There is a well understood piece of international law called Lex Monetae which states that any sovereign region can determine the denomination of its debts.


That the principle exists and that on paper it works as you describe I don't dispute. However, its a bit like the idea that you can take your ex-employer to court and file suit for, say constructive dismissal, then expect to attract another employer there after. On paper yes, in practice, not so much.

Any state defaulting inevitably pays a higher price next time they come for credit. And they always come for credit. Argentina recently discovered to its great cost that international finance does not work in practice the way they imagined when reading the text books. The idea that a state can borrow in a strong currency like the Euro, swap their currency into new-Lira at a rate of 1:1, stand back as their new currency plummets, and expect their debts to be considered paid is, frankly, not living in the real world.

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Re: Capital flight

#48321

Postby NeilW » April 24th, 2017, 6:24 pm

"Any state defaulting inevitably pays a higher price next time they come for credit."

A state has no need of credit. It owns the central bank. If you own a bank, you would be an idiot to borrow from anywhere else since the Interest you pay comes back to you as a dividend.

The idea that there is some higher power that hands out denominations that states own and create at will is a classic example of the sleight of hand inherent in mainstream macro economics.

The era of a state tying its own hands is coming to an end. Here in the UK for example we have a Ways and Means Account which gives the UK government an effective 0% overdraft at the Bank of England. A bank the UK government owns outright.

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Re: Capital flight

#48344

Postby dspp » April 24th, 2017, 7:57 pm

A state most certainly does have need of credit. As Argentina has at many times in its history.

The real issue in Argentina is political, and is to do with the Argentine constitution and federal structure. The states within Argentina have the power to borrow money as they see fit - they are in that sense truly sovereign. Unfortunately the international markets then inflict that debt on the centre as the states cannot easily be held to account, but the centre can be. That's why so many local alt-currencies have (and probably still do) circulated in Argentina.

Lovely country, lovely people, always the coming place. I really really like some of it, almost as much as Dorset.

regards, dspp

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Re: Capital flight

#48350

Postby ReformedCharacter » April 24th, 2017, 8:28 pm

NeilW wrote:"Any state defaulting inevitably pays a higher price next time they come for credit."

A state has no need of credit. It owns the central bank. If you own a bank, you would be an idiot to borrow from anywhere else since the Interest you pay comes back to you as a dividend.

The idea that there is some higher power that hands out denominations that states own and create at will is a classic example of the sleight of hand inherent in mainstream macro economics.

The era of a state tying its own hands is coming to an end. Here in the UK for example we have a Ways and Means Account which gives the UK government an effective 0% overdraft at the Bank of England. A bank the UK government owns outright.


Interesting comment, I read the links you posted on a previous message some time ago. But if the government can so easily borrow from itself why do we have schools, the NHS, prisons and the care system apparently so short of money?

RC

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Re: Capital flight

#48423

Postby gryffron » April 25th, 2017, 10:08 am

ReformedCharacter wrote:if the government can so easily borrow from itself why do we have schools, the NHS, prisons and the care system apparently so short of money?

Because even discounted debt (such as UKplc is currently issuing) has to be repaid eventually. And NHS, prisons, and the care system produce NOTHING with which to ultimately repay that debt (schools probably do). And even useless motorways and airports (as in Spain) produce nothing.

"Investing" is totally different to "spending". Thankfully we have at least one political party in the UK that understands that. Not sure the same is true in other countries.

Gryff

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Re: Capital flight

#49441

Postby NeilW » April 28th, 2017, 12:12 pm

gryffron wrote:
ReformedCharacter wrote:if the government can so easily borrow from itself why do we have schools, the NHS, prisons and the care system apparently so short of money?

Because even discounted debt (such as UKplc is currently issuing) has to be repaid eventually.
Gryff


Actually it doesn't, as this little model I put together shows.

You have to remember that the denomination of 'debt' is just another 'debt' - cash. That's why it says "I promise to pay the bearer" on every £20 note. What you have in your hand is government debt - which in your hands is an asset.

Similarly government debt, Gilts, are held by pension companies as assets. The pension companies are 'in credit' with the government.

But it is interesting how many people can't see the other side of the balance sheet, or the other side of the transaction.

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Re: Capital flight

#49443

Postby NeilW » April 28th, 2017, 12:17 pm

ReformedCharacter wrote:
Interesting comment, I read the links you posted on a previous message some time ago. But if the government can so easily borrow from itself why do we have schools, the NHS, prisons and the care system apparently so short of money?

RC


Because if you pretend you are short of money, you don't have to move onto the next step of the political debate - which is looking at the real resources in the country, and how they are currently allocated. The limit of government action is when it runs out of things to buy at a price it is prepared to pay.

For example if we are so short of teachers and doctors, why are the rich allowed to reserve those scarce resources for themselves ahead of others via private healthcare and private education?

Note that once you get past the money illusion you are not saving the government anything with privatised services. Instead you are actively taking scarce resources because you have money ahead of those that don't. Do we want to live in a nation where the rich are educated and attended to by doctors and the poor are left illiterate and unhealthy?

Note how those political issues only pop up when you get past the 'shortage of money' lie.

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Re: Capital flight

#49444

Postby NeilW » April 28th, 2017, 12:21 pm

ReformedCharacter wrote:
NeilW wrote:"Any state defaulting inevitably pays a higher price next time they come for credit."

Interesting comment, I read the links you posted on a previous message some time ago. But if the government can so easily borrow from itself why do we have schools, the NHS, prisons and the care system apparently so short of money?

RC


And as a further point, try and find the discussions about being 'short of money' when war is undertaken, Syria needs bombing or Trident needs renewing.

When the country needs to deploy its real resources to defend itself suddenly the issue of money disappears. This was the puzzle that Beveridge looked at in the Second World War - and which Tony Benn spoke about many times. Why is it easy to provide jobs to individuals killing others, but apparently impossible to do the same in peace time?

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Re: Capital flight

#49485

Postby gryffron » April 28th, 2017, 4:06 pm

NeilW wrote:
gryffron wrote:Because even discounted debt (such as UKplc is currently issuing) has to be repaid eventually.
Gryff

Actually it doesn't, as this little model I put together shows.

Yes, it works just fine, so long as you assume the UK economy is a closed system. But as soon as any money leaves the UK, to pay for imports or foreign held debt, then it suddenly doesn't balance any longer. In the real world, we import a lot.

Gryff

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Re: Capital flight

#49502

Postby Alaric » April 28th, 2017, 5:01 pm

NeilW wrote:When the country needs to deploy its real resources to defend itself suddenly the issue of money disappears.


Not totally. The UK would have been unable to continue in 1917 and 1940 had American credit not been available. The USA pulled out the financial support plug to stop the 1956 Suez intervention.

Much earlier the Stuart kings were always running out of money to fight wars in the 1600s, whilst the opposition to Napoleon elsewhere in Europe was only kept going by UK financial support.

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Re: Capital flight

#49990

Postby NeilW » April 29th, 2017, 8:42 pm

gryffron wrote:
NeilW wrote:
gryffron wrote:Because even discounted debt (such as UKplc is currently issuing) has to be repaid eventually.
Gryff

Actually it doesn't, as this little model I put together shows.

Yes, it works just fine, so long as you assume the UK economy is a closed system. But as soon as any money leaves the UK, to pay for imports or foreign held debt, then it suddenly doesn't balance any longer. In the real world, we import a lot.

Gryff



The zombie arguments just won't die will they.

sterling is a closed system. They don't use it anywhere else. That's why you have to exchange money when you go abroad.

Jeez.


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