Asymmetrical Information

The French are just worried they might have to increase the work week to 30 hours. Haha. Of course monetary policy goes hand in hand with political decisions, though. The Fed Chairman often comments on political issues like taxation, pensions, regulation, trade agreements, etc. To think that sensible monetary policy is going to make a difference with socialists in power in some member states is sillier than an Adam Sandler movie.

Doesn't monetarism teach that you need to have a stable, solid currency (gold based if possible )?
Doesn't it dissaprove of manipulating the money supply to acheive growth (acheiving inflation instead) ?

So what can be so bad about a stable, un-manipulatable currency ?

Their economic woes are not caused by the Euro. Let them solve their problems. Let them not try to mask their deficiencies by manipulating the money supply.

Italy, for example, fared far worse under the lireta, I don't think anybody wants it back.
But the Euro will fall apart anyway, sooner or later.

"If the euro falls apart, it could have major repercussions for the EU, as it would be a full scale retreat from "ever-closer union"."

And the problem with this would be? All benefits as far as I can see.

What's "stagflation"? I never heard it before.

Italy suffered from the Euro, because many prices increased (almost doubled) in a matter of months, but income did not. Also the high value of the Euro against the Dollar does not help. But the Lira was a quite ridiculous currency...

Anyway, the main problems of Italian economy are others: scarce R&D, reliance on the governmental help anytime things tend to go wrong etc.

Stagflation is when you have a stagnant economy and inflation at the same time.

Lots of economic theory, in particular Keynesian, says you can't have them both at once. Inflation is supposed to be caused by an increased demand driving the prices up but the increased demand is a sign of economic growth as producers are buying more inputs and consumers are buying more product. To have no growth but to still have inflation truly sucks as it means people have effectivley less purchasing power year after year.

We had it in the 70s in the U.S. and ended up with all sorts of price controls and nonsense put in by Nixon I think. Before my time as far as remembering the ins and outs of it.

CAL

Charles -

You have the cause & effect reversed. Nixon printed *tons* of money in the early 70's to try to prevent a recession, and got (unsurprisingly enough) a big hit of inflation. He added wage & price controls to moderate the inflation, and got even more inflation.

However, when people mention 'stagflation', they're usually talking about the Carter-era stagflation, that lasted well into Reagan's first term, and wasn't cured until Reagan & Volcker (?) really put the screws to the economy, with a really deep recession & sky-high interest rates.

I think I recall Uncle Miltie stating that he would live longer than the Euro.

I had thought that "stagflation" hit the UK either earlier or harder than it did us. Wasn't it dubbed "the English Disease"?

Stagflation actually began in the Ford administration. Remember his Whip Inflation Now buttons?

Predicting that this is not a big deal for the EU, you forget, dear colleague ( ;) ) France has been the EU, forever. It will be a "big deal", though not a "bad deal", that France has marginalised itself with this vote. Now everyone sees what they have always known: France pursues naked national interest through the EU just like everyone does. The repercussions of France's No are big, and probably favourable for those of us who favor a looser, more pro-Atlantic Europe.

The Nixon/Ford/Carter stagflation was all one long cycle. Housing mortgage rates hit 18%. My impression was that it was triggered by huge wartime spending on Vietnam which drained the economy. There was little money to be had, so it was expensive. If your economic model doesn't support stagflation, your model should be revised, as it is most assuredly a stable state.

I thought that the Nixon/Ford/Carter economic hit was caused by going off the gold standard, with the OPEC oil crisis making things much worse. For those of you who didn't live through those times, gasoline was rationed and fuel costs increased by at least 50%.

No discussion of the glorious 70's is complete without mention of that marvel of a central banker, Arthur Burns.

The cause and effect went like this -

1 a cheapened dollar from Vietnam/Great Society, etc.
2 unable to maintain gold convertibility
3 opec raised prices

people are always opining about the political stuff going on w/ israel was the reason for oil shocks, and it may have something to do w/ it, but mostly it was about opec losing a great deal of wealth when bretton woods collapsed, so they raised prices

It seems to me pegged currencies create imbalances that can't be dissipated as the less productive economies become more productive and take advantage of their currency advantage. That was a problem with Bretton woods I and the current Asian central banks' dollar pegging. It's now a problem for the Eurozone countries, because the Euro is a permanent peg of the former currencies against each other.

Ha! Dr. D. Vider strikes again!

It's not like this divide of economic effect doesn't happen anywhere else. It's not like Appalachia issues it's own currency. Everytime California's economy gets overheated Appalachia gets royally screwed from a currency perspective.

I'm not an "inflation is always primarily a monetary phenomenon" kind of guy. Probably a variety of sources is going to better explain inflation, IMHO.

Might as well throw my hat in the ring:

What set off the stagflation of the 70s were the oil shocks. What kept it going was COLAs - that is, in the postwar era, oligopolist companies negociated labor peace by tying raises to the general rate of inflation. Eventually govenment got into the act too, instituting COLAs on SS in the early 70's. It was a classic positive feedback loop, and all it needed was a push to get it started, which the Arabs supplied.

Once it had started, price inflation became self-sustaining, whether there was any growth in the economy or not. It was stopped in the 80's after the combination of Volcker's essentially shutting down the economy by pretending to be a monetarist so he could raise interest rates to 20%+, increased foreign competition, and Reagan's non-enforcement of labor laws changed the dynamic. After the recession, the big companies found that they had less and less pricing power, so instead of just handing the unions everything they wanted and passing it on to the customers, they pushed back - and Reagan let them.

Quote:
"Italy, meanwhile, is managing to disprove the adage that "inflation is always and everywhere a monetary phenomenon" by having stagflation, a recession, and an inflation hawk at the monetary helm".

An increase in the money supply is a necessary, but not sufficient condition for inflation. Inflation regarded as the mechanism that "solve" the distribution conflict in a democratic society is another explantion used in Norway. Different groups fight for their share of GDP and the result is inflation.

Independence of many central banks has increased in the last years, and it seems that central banks fight inflation better than the ministry of finance, so independant central banks, may be an advantage in that respect.

Kbleivik
http://multifinanceit.com/

i am an idiot and i am lead by richard simmons

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