The Capital Controls in Cyprus and the Icelandic Experience

Yves here. I’m interested in getting informed reader responses to this post. While the conclusion may not be wrong, what bothers me is the lack of analysis supporting its conclusions. This just looks like applying neoliberal ideology to Iceland’s situation. Capital controls bad! See, we had a bad outcome! Must be due to those bad capital controls!.

Ahem. Iceland’s central bank failed and the country fell into a deep contraction. This isn’t a great climate for attracting investment. Even if you are confident that are buying something cheap, if it takes a long time for the economy to improve and your asset to appreciate, you would have been better off doing something else. And in this time period, there were lots of economies with better-looking prospects than Iceland. Put it another way, the author observes a correlation between the imposition of capital controls and a low level of foreign direct investment and treats it as causal. He never considers that both may be the effect of a monster financial crisis.

By Jon Danielsson, Director of the ESRC funded Systemic Risk Centre, London School of Economics. Cross posted from VoxEU

Cyprus has imposed temporary capital controls. This column sheds light on how temporary and how damaging they are likely to be, based on Iceland’s experience. The longer controls exist, the harder they are to abolish. Icelandic capital controls, which have been ‘temporary’ for half a decade, deeply damage the economy by discouraging investment. We can only hope the authorities that created the chaos in the first place realise that temporary really needs to mean temporary.

Europe’s Cyprus Blunder and its Consequences

The Cypriot government, European authorities and the IMF have concluded that capital controls are the best way to prevent a total collapse of the Cypriot financial system. Motivated by the obvious fear that anybody with money left over in Cyprus will seek to take their money out as soon as possible, temporary capital controls are to be put in place to prevent this. We are told that they will be limited in scope and temporary. Hopefully, for the Cypriots’ sake, that is correct.

Another European country was forced to implement `temporary’ capital controls in its crisis – Iceland, as discussed here on Vox (Danielsson and Arnason 2011).

The Icelandic government, its central bank and the IMF considered the controls necessary because so many foreigners, and the occasional wealthy Icelander, had lost faith in the economy and only wanted to take their money out. While such individuals were considered misguided, their exit would have had disastrous consequences. Hence it was thought necessary to `temporarily’ prevent capital outflows.

The authorities said at the time the controls would be temporary and limited in scope – lasting a few weeks or, at worst, a month or two. Half a decade later, the capital controls are still in place and getting more and more restrictive.

This was the second time Iceland had implemented `temporary’ capital controls. The first time it did so, in the 1930s, led to the controls being in place until 1993. This is in line with the historical evidence; once capital controls are imposed, they are really hard to abolish, and a temporary arrangement usually ends up being permanent.

The reason is that when a country implements capital controls, it signals the authorities have lost control over the economy, needing to employ desperate measures. That is does not exactly build confidence, so anybody with money will seek to abandon the sinking ship as quickly as they can, persisting in that desire until things look better. While the controls last, however, it may bcome unlikely that things will look better because the abolition of the controls can become a necessary condition for improving economic conditions. This is why the official pronunciations on the duration and the scope of the capital controls in Iceland were always too optimistic.

The Icelandic capital controls have proven to be highly damaging for its economy; investment has collapsed and is just about the lowest in Europe at 14.4% of GDP in 2013, compared to the EU average of 18%. The reason is that foreign direct investment almost completely dried up and any domestic residents with money left over prefer to keep their funds liquid, ready to be exported when an opportunity presents itself. Domestic investment is not compatible with that objective.

While the capital controls are meant to prevent outflows of money, those wanting to take money out will find a way, legally or otherwise. The end result is a cat-and-mouse game between the government and capital owners, one where the authorities are at a disadvantage. This leads to ever-tightening of the controls. Meanwhile, the conditions are ripe for corruption, anybody with access to the licensing for capital exports stands to benefit. Having the central bank in charge of licensing for the export of capital, as is the case in Iceland and Cyprus, can only undermine its integrity.

The capital controls violate EU laws regarding the principle of the four freedoms – free movement of goods, capital, services, and persons. The Cypriot capital controls will violate at least two of these principles, just as the Icelandic ones do. The free movement of capital is prevented by the controls.

Even more seriously, it violates the free movement of persons, and hence the human rights of people subject to capital controls. If one cannot sell one’s house and use the money to buy a house abroad, movement across borders is restricted. If one cannot take money out of the country, the ability to travel and live wherever one wants in the EU is restricted. Trying to restrict outflows to those for only ‘legitimate’ reasons will not work. One can always find someone with a legit reason to export money.

The fact that the European authorities stand so ready to abandon their fundamental principles in order to address a temporary, and relatively small, economic problem is a cause for concern.

Conclusion

Because it was an emergency situation, a temporary, drastic solution was needed – Icelandic capital controls. It has now been five years, and the Icelandic authorities are openly discussing keeping the capital controls for decades to come. The controls have been holding back Iceland’s economic recovery, causing Iceland to become relatively poorer every day.

The longer a country maintains capital controls, the harder they are to abolish. The economy adapts to them and they become a part of the permanent landscape.

In the Icelandic case, it is easier to enforce the capital controls because it only involves the exchange of one currency for another. In the Cypriot case, they entail an intrusive government intervention in all aspects of economic life, up to and including searching those seeking to leave the country, in case they might be hiding some euros on their person. This can only further encourage those who want to take the money out to do so.

It would have been much better for the IMF, the EU and the Cypriot government to accept the short-term outflow of money after the banks opened; this would have meant a much quicker return to normality. Instead, it will become harder and harder to lift the controls as economic uncertainty is likely to continue increasing.

We can only hope for the sake of the Cypriots that the capital controls are truly temporary, that the authorities that created the chaos in the first place realise that temporary really needs to mean temporary.

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41 comments

  1. Enter

    Wouldnt it be just much more easier to bankruptcy these shitty banks. Protect those under 100 000 thousand e savings and let those, which are more than 100 K go for creditors and those will not probably cover all looses, but who cares, let creditors take some hits, (mostly ECB at this point?) Sell loans for other banks. Only problem is that companies should have superior deposit insurance, but anyway…

    Now Cyprus banks have problems anyway. They dont have any money to transfer these deposits to other banks, because they lost those, when they had to take looses from Greece bonds and now they dont have any collaterals either, so government and tax payers have to back up these loans, that they can pay for other banks, when depositors takes their money elsewhere.

    Of course they now have to have capital controls. It would be suicide to let all moneys fly out of the country. They have to first destroy by bankruptcy most of it, if they ever wanna live a normal life again.

    We cant transfer these looses on tax payers for ever. There must be a way to restruct these debts ,so that big money takes looses. This open market world wide is just a joke.

    1. Money would fly out
    2. Cyprus would collectively take these debts on their shoulders.
    3. They would lower social security and cut everything and at the same rise taxes on regular people, not big buck holders of course, that would be evil.
    4. This isnt enough, so Cyprus people would need to sell their properties, natural resources, all government owning so cheaply, that it would be almost free.
    5. Citizens would be slaves in their own country, cause all their resources are controlled from elsewhere.
    6. Night-watchman state would be ready. http://en.wikipedia.org/wiki/Night-watchman_state

    Its just not fair, that French destroys Libya, that they get all that oil to benefit them, cause they dont have any at home, instead that they would make some business with them for that, like normal people. All countries have some natural resources and whole country should benefit from those, not just a few strangers from other side of the world. Thats something where free trade and globalization goes terrible wrong.

    We need to get inflation going by superior wages all over the world or cut debts. Other wise it will be WW once again. Most people who have something to give for their fellows will leave these struggling countries and leave only not so sharp pencils on charge, who will just worsen this catastrophe.

    My solution for Cyprus is to destroy the money from both sides of the balance sheet of the banks. Healthy people should not feed zombies. Let them die. Theres not much else than tourism in Cyprus, so I dont see, that they would even loose so much, if they left from euro, that would just make it cheaper and more attractive place via cheaper prices. It doesnt really seem like they really understand, that this bank heaven stuff doesnt work for them and probably never will.

    Watch what happened for finnish government, when they took banks bad loans on their balance sheet at 90s http://www.findikaattori.fi/en/44 Debt went from 10 % of gdp to 60 % of gdp

    Same with Ireland… http://www.economicshelp.org/blog/3118/economics/ireland-national-debt/

    We should concentrate our minds to bank bankruptcies and how we could let it happen so, that it wont effect too much real economy.

  2. burnside

    Consider the effectiveness of capital controls in stemming hot money entering smaller economies. They have their uses outside the framework of emergency intervention, and can be shaped to slow or discipline the global reach of large speculative waves.

    I believe the Bretton Woods conference Soros hosted in 2011 gave the subject an airing. And Haldane must have left an observation or two.

  3. lolcar

    Whatever the economic pros and cons, construing capital controls as a human rights violation is just some world-class chutzpah.

  4. Foppe

    The Icelandic capital controls have proven to be highly damaging for its economy; investment has collapsed and is just about the lowest in Europe at 14.4% of GDP in 2013, compared to the EU average of 18%.

    Why should it be surprising that investment levels are lower in a country where the population is heavily indebted (especially given the icelandic practice of inflation-linking loans)? Furthermore, why — given recent experiences — do the authors think that higher FDI is better?

    While the capital controls are meant to prevent outflows of money, those wanting to take money out will find a way, legally or otherwise. The end result is a cat-and-mouse game between the government and capital owners, one where the authorities are at a disadvantage. This leads to ever-tightening of the controls. Meanwhile, the conditions are ripe for corruption, anybody with access to the licensing for capital exports stands to benefit. Having the central bank in charge of licensing for the export of capital, as is the case in Iceland and Cyprus, can only undermine its integrity.

    I know what Bill Black would have to say about this argument..

    It would have been better for the Troika to accept the short-term outflow of money after the banks opened; this would have meant a much quicker return to normality.

    Does the author understand that a lot of banks are already insolvent, kept alive only because of an official see-no-evil policy?

    More troubling, though, I find the underlying assumptions about how FDI is always good (lots of FDI goes into brownfield investment, and even most nominally greenfield investment serves to further oligopolize industries), and how free flows of capital are a human right, when it’s mostly corporations and way-too-lightly-taxed individuals who profit from lax capital controls.

  5. LAS

    This Jon person seems disingenuous to me.

    It is my understanding (from reading Krugman’s blog) that Iceland is actually further along the road to recovery than Ireland and Latvia. Periodically Krugman has posted graphs of GDP and employment levels over time for all these countries and they provide his supporting evidence. He tends to post them whenever people make claims that Ireland or Latvia have chosen the right policy and Iceland the bad policy.

    My own feeling is that where populations are held hostage, so too capital should be controlled. Capital should not be more free than people. That is anti-democratic.

    The damage to Iceland’s economy was not done by the capital controls that followed a crisis; it was done by the crisis and the circumstances that contributed to the crisis.

    1. Carla

      “Capital should not be more free than people.”

      Thank you for a profound statement. I hope it will be taken up as a rallying cry!

  6. LAS

    “This was the second time Iceland had implemented `temporary’ capital controls. The first time it did so, in the 1930s, led to the controls being in place until 1993.”

    What cracks me up in this comment is the short period of time between 1993 and 2008 that it took to create a financial crisis when captial controls were removed. In the scope of history this is practically an immediate negative response.

    Oh, Yves, this piece is so obviously propaganda.

    1. H. Alexander Ivey

      Quite right. Pure BS. The writer is just showing off.

      Just a quick scan, my device is not good at cut and paste so I won’t give a blow by blow parsing, but pretty much every paragraph states a “fact” that is not proven or generally accepted or takes a position that is not clearly stated.

      Basically the argument rests on 1) the very rich have the right to take their money and put it anywhere they want. 2) the not so rich have no right to their money (else why not have people take their money out of a bank?), and 3) a local government does not have the right or the role to play in their economy.

      Summing up, the author does not understand the various forms of money and their role in an economy and is assuming an economic model that is missing or mis-understanding a key piece or two (like the role of government in an economy).

  7. James Cole

    Extensive use of the passive voice is usually a good tip-off that the piece is a rush job and/or poorly thought out.

  8. ddf

    You can’t compare Cyprus and Iceland easily: Cyprus deposits are domestic while Icelandic banks deposits were largely abroad. Also Cyprus is in the EMU while Iceland had an independent monetary policy. In the case of Iceland the purpose of the controls was to prevent a currency collapse. It seems a bit silly and dogmatic to say that private investment was hurt by the controls in Iceland: it probably was but there is no way that, without controls, private investment would have been large enough to offset capital flight, especially at the early stages of the crisis. Without controls the Icelandic kroner would have collapsed and the credit crunch would have been stronger, both of which would have dammaged the recovery. Of course you could always argue that controls were in place for too long, too extensive etc… but economic management is an art not a science. Overall there is, I think, a reasonnable case for the controls.
    In the case of Cyprus, it is part of a currency union, that is any capital flight gets funded automatically through an increase in Target2 balances ie gets funded by the ECB (=the national central banks). So the purpose of the controls is to prevent the Eurosystem from funding Cypriot capital flight. Is that good or bad? the broader question is whether Cyprus is better off staying in the euro area. I am not convinced there is an overwhelming case for that: Cyprus’ international banking industry is dead, there is a big hole in the balance sheet of the remaining banks, and plugging that hole will require an increase in savings ie austerity, no matter whether Cyprus stays or leaves the euro area. The advantage of leaving is that Cyprus would regain monetary policy independence. Monetary independence is not a panacea because initally the Cypriot lira would likely come under pressure so Cyprus would likely need a combination of tight monetary policy and capital controls to prevent currency collapse and credit crunch. Still over the longer run, if they could stay in the EU and negotiate the rescheduling of their current target2 balance, as a small country I think they would probably be better off with their own monetary policy than that of the ECB ie of the large countries. European monetary union was always more a political than economic project and the German economic diktat has I think killed the political rationale for the euro.

    1. William C

      Danielsson’s piece is just propaganda, not serious analysis. Here in the UK we had exchange controls from 1939 to 1979. The ‘Golden Age’ of the UK economy was 1946 to 1973 when we had full employment and unprecedented and unrepeated rapid growth, all of it while we had exchange controls in place. Many other countries also had controls in place.

      The intensity of the UK controls varied over time, depending on whether there was significant downward pressure on sterling. A serious analysis would look at the nature of the controls, do they apply to non-residents as well as residents, to small payments, portfolio, direct investments? Is there scope for outward remittances if particular criteria (e.g. a business case) are met? The consequences of controls will obviously vary depending on the nature and intensity of the controls.

      You can argue that they are a restriction on individual liberty but you can also argue that in some circumstances they are desirable to protect economies against the effects of ‘hot money’ washing in and out, destabilising the economy of the country concerned. It is almost certainly no coincidence that the period when it became fashionable for exchange controls to be removed (late 1970s, early 1980s) saw the beginning of an era of serial financial crises. Research has been done and published on this but I forget the references.

  9. Min

    “The Icelandic government, its central bank and the IMF considered the controls necessary because so many foreigners, and the occasional wealthy Icelander, had lost faith in the economy and only wanted to take their money out.”

    Could somebody explain that, please? What good would it do to take Kronur out of Iceland? ;)

    “While such individuals were considered misguided, their exit would have had disastrous consequences.”

    OK, OK. Those misguided individuals would buy other currencies with their kronur, driving down the price. Imports, in particular, oil, would become more expensive. But do capital controls hold up the price of the Kruna, anyway? What are these disastrous consequences that would not occur, anyway?

    Thanks. :)

  10. Michael Hudson

    Dear Yves,
    The Icelandic situation is unique. To put it in perspective, you must realize that what makes these capital controls necessary – and permanent – is that most liquid capital is in the hands of the vulture banks that bought up Iceland’s “good” banks at 10 cents on the dollar, so to speak. Instead of doing as “expected” and writing down the mortgage debts to the plunging value of property, they took advantage of an unconstitutional practice of indexing mortgage debts to the foreign exchange rate of the kroner (or what is the same in practice, to consumer prices, set by import prices). So the vulture banks (nobody is quite sure just who owns them, but the old owners and Russian kleptocrats are suspects) are the most liquid.
    They have not been able to move their takings out of Iceland. If they were to be allowed to do this, the kroner would plunge as drastically as it did after the September 2008 crisis.
    Next month’s parliamentary election will throw out the ultra-right, pro-bank and pro-kleptocracy wing – the Social Democrats and Greens (prepare for cognitive dissonance when reading about Icelandic politics by those who only look at nominal labels) – and new parties are voted in. At that point, the “real” news about Iceland will begin to trickle out.
    Michael

    1. sd

      That is incorrect. The right wing parties are leading in the polls in Iceland and are expected to win the election in April.

    2. allcoppedout

      Have to agree this and the post noting the UK had capital controls during the golden years. Iceland’s recovery has been trumpeted but this was not the subject of conversation on a recent visit – there was more on still being in hock to the ‘new banks’ through mortgages and dearth of job security and prospects.
      One can look at ‘hot money’ – I come from the era of much left mistrust of the Gnomes of Zurich – from many perspectives such as ‘absolute advantage’ to questions on why ordinary people have so little control on investment from money created from thin air in their name (or at least in guarantee as tax payers). I’d want to see data on how much hot money is tax avoidance, third world looted and criminal – and how this gets into a competitive advantage for firms as against domestic, people-funded production before swallowing the assumption that lack of capital controls is a ‘good’. I still see some things as a cop 30 years on and would dearly have liked to burn criminally gained-looted money in front of perpetrators. The article assumes neutrality of capital – not asking where it has come from – and there are further assumptions on the nature of “money” as the right way to control investment that heighten greed for return as the ‘best motivator’ – all done in the Unsaid.
      There is no mention of contradictions between allowing hot money flows whilst banning the free movement of goods, people and so on, and the role of the vultures in picking up debt at a discount and continuing to pursue repayment at face value as against debt jubilee.
      Some of the issues seem better portrayed in the old cowboy film ‘Dodge City’ where big (i.e. hot) money is used to buy out dispatch decent business for monopoly control. Where is the proof this global money is better for economy building than a bunch of Mom and Pops, cooperatives and so on? And if we look at this in quants only, how would we know the relative success of businesses with this money (much research says this isn’t true) wasn’t down to fronting criminal activities, laundering, tax avoidance and so on?

      The idea that existing wealth (money-capital and debt creating privilege) should get to chase opportunities everywhere is also replete with assumptions on what money is and why we should let it ‘create’ economic rents – or as seems he case pull out as soon as the grass is greener for returns somewhere else, usually with an interest in collapsing the now competing production it once funded to sell into that market.

      Britain (UK plc) as anyone listening to Blair-Cameron whilst wanting to shoot them knows, is open for business with relatively low wage-social welfare costs against EU average. We ain’t booming and indeed rumours are many of our businesses are ‘zombie’ (answer – suffer the pain of unemployment now to get better later). Bulgaria is worse at one quarter the costs, Sweden better at twice. One suspects the deep assumptions on free capital flow are twaddle, perhaps really based in notions of comparative advantage that can’t work other than in supporting – er – free capital flow and perhaps its desires for the fast buck more suited to drug-dealing than sensible investment.

      What is the real state of Iceland, where is the reliable data? What has been the fate of tax haven bankster states (we know some of this) and the likely fate of others (here we lack real data – is £25 billion the real capital shortage in UK banks – or are they still Ponzi hiding masses of losses and liabilities to asset bubble-pricking etc.) One can envisage a time (shortly) when free capital flows will be impossible much on the lines of inter-bank lending coming to a halt at Lehman. My guess is this article is mere ideology (perhaps propaganda, perhaps hack journalism) – but we lack the facts at fingertip to argue without what ifs on the real state of the banks doing capital flow and what money from where does this flowing for what purpose. I conclude this is positivism of the worst kind – creating engines of explanation claimed scientific with no examination or parology of legitmation of underlying assumptions (many of which are frankly as hidden as much real banking activity).

  11. TomDor

    Private individual income – minus – housing cost, food cost, fuel cost ie: cost of living = equals available remainder for other consumption. Other consumption is being further eroded by interest payments for debt service in a -toilet flush like manner.
    Control asset inflation for those items that are required for living – ie: stop gambling and speculating in asset classes that cause the cost of living to go up – particularly property and housing and food. Another words Cyprus, stop pricing your citizens out of your island.
    Stop outside countries from placing claims upon your natural resources from which you (Cypriots) can extract and create wealth for your citizens and country.
    Debt forgiveness – or debt rejection.
    Crazy? yes. Sovereign claim for Cyprus – sure but, it would force the IMF and euro to have the ball in their court – to put up or shut up instead of financially controlling Cyprus.
    Place taxation – extreme 90+ – on finacial capital and economic rent extraction activities and relieve it from labor and industrial capital – even offer low or no interest on loans from the/a Sovereign bank to the industrial capital base – loans to business and citizens with a lock down on internal asset inflation.
    Just some crazy dream I guess to undermine or lower financial/speculative/gambling/rent extractive finance and push for more comercial/industrial/real capital.

  12. Philippe

    @ Enter
    ” Its just not fair, that French destroys Libya, that they get all that oil to benefit them, cause they dont have any at home, instead that they would make some business with them for that, like normal people. All countries have some natural resources … ”
    I don’t mind “people from the other side of the world” lacking a very precise knowledge, are you not confusing with the US-UK coalition destroying Irak ?
    BTW your words are simply contradictory.

    Philippe

  13. pebird

    I thought that capital controls during a devaluation is an attempt to maintain a controlled exchange rate drop without too much speculation.

    I can see how it is needed in Iceland, sovereign currency and all.

    It has a different purpose for Cyprus, not sure what that is, it ain’t exchange rate stabilization.

    It has to be since Cyprus will no longer be a place for placing large deposits, as the tax-advantaged status goes away with depositor haircuts, the ECB doesn’t want a payment processing crisis?

    Would those Euros had simply gone to another EU bank or would there have been selling pressure on the Euro as deposits moved to Swiss banks?

  14. Moneta

    Expecting everything to get back to normal soon after a financial crisis? It smacks of short-termism if you ask me.

    IMO, considering the scope of the financial problems, at least one generation will get sacrificed not matter what solution is applied.

  15. The Dork of Cork.

    The author misses the point.

    A person can live in a nation state zoo or the market state zoo of modern Europe.
    At least under the old nation state system there was a element of redundancy as each bank which controlled each country could only push resources upwards towards a certain height.

    Europe through its capital export has created the China monster with these now absurdly long trade supply chains.

    Once Europe became a extreme entrepot economy it became a Amsterdam of vast size and scope.
    No Hinterland on this globe can service such a monster as you cannot scale up Amsterdam to such a size and expect the new world to service it with riches.

    On a more micro level I hope Iceland never becomes a Ireland like nightmare of call centre jobs as its farming industry implodes “so as to scale up” for completely pointless and futile global banking arbitrage reasons.

    Iceland could resist the bankers more then Ireland for 2 reasons.
    Its population was more cohesive & its domestic primary industries were a larger part of the economy relative to the fiefdom of Ireland
    So essentially even boom time Iceland was less globalized then the even more extreme Irish petri dish.

    The author wishes to scale up & thus increase efficiency at the cost of a catastrophic loss of redundancy.

  16. The Dork of Cork.

    PS – we need to get back to a situation where closed energy / politically defined hinterlands trade goods with each other.

    We don’t trade goods with each other any more.
    The global banks just run external energy through their national systems as a child plays with a toy.

    Eventually the child gets bored.
    The banking child throws one national toy in the fire and moves on to the next nation toy ……..all the time learning nothing but the strange kick you can get out of destruction.

    These Banks are not unlike the Pharaohs of old.
    The King of the hill proclaims he controls the Sun & the Nile (energy systems)
    But in the modern case of the banks they really do control our basic energy systems

    1. LAS

      This was an interesting post about energy in the UK. As I understand it from you, production of energy – most kinds – in the UK is down, imports are up and the quality of the energy being brought to market from outside the country is poor (in particular worse for the planet). But big money can make it happen against all other logic and there’s profit in it for them.

      Here in the USA, for the past 4-5 months I’ve been swamped by some dubious energy companies calling my home over and over, trying to get me to switch to some kind of market base priced energy program. They keep urging that I could save money, but I doubt it and wish they would go away. Like you, I wonder, who is behind this? Such persistance is not at all like a dis-interested public service. Not at all.

      1. The Dork of Cork.

        @Las
        The Uk internal energy situation is in a disastrous state because of the post Suez / post 1970 at least opening up of the economy to external capital flows.

        These flows of capital will always overpower internal systems………but now those external capital flows are failing.
        The banking system scaled up.

        The UK is surviving by burning its modern India down ( The Eu is in massive real goods trade surplus to the UK)

        The UK has decided to favour real goods imports over income from the rest of the world which is a very big deal (see their balance of payments data)

        What this means is that the UK is shutting down most of Europe so that the remaining declining external capital flows can flow to Germany & China at the expense of the internal economies elsewhere.

        This is extreme Manchester type economics in action.

        Local trade is not seen as good for some funny reason.

  17. The Dork of Cork.

    Lets look at the London local and not wider energy system shall we ?

    London dumped its local hinterland into the soup post Suez so as to scale up using new non imperial (but really imperial) systems.

    The excellent quarterly British energy trends publication out now.
    looking at the final quarter of 2012 and summing up the disastrous energy situation in the UK.

    The main points for 2012:
    1. Total energy production was 10½ per cent lower than in 2011.

    2 . Imports in 2012 were at a record high, with exports at their lowest level since 1989. As a result, net import dependency climbed to 43 per cent, its highest level since 1976

    3. Oil production was 14½ per cent lower than in 2011, the lowest annual production volume since our current reporting system began.

    4.Natural gas production was 14 per cent lower than in 2011, and at the lowest level of production since 1985

    5. Coal production was 10 per cent lower than in 2011, and at a record low level. Coal imports
    were 37½ per cent higher. Generators’ demand for coal was higher by 31 per cent. Coal
    stocks were 18 per cent lower, and at a record low for the year end.

    However the UK is consuming more (mainly lower quality energy – imported coal)

    6. Total primary energy consumption for energy uses rose by 5 per cent. However, when adjusted
    to take account of weather differences between the fourth quarter of 2011 and the fourth
    quarter of 2012, primary energy consumption fell by ½ per cent.
    • Final energy consumption was 6½ per cent higher than in the fourth quarter of 2011. Domestic
    consumption rose by 19½ per cent, with average temperatures being 2.3 degrees cooler than
    2011. On a seasonally and temperature adjusted basis final energy consumption rose by ½ per
    cent.

    Refer to the special feature near the bottom of the publication – “Coal in 2012″

    See chart 1 in particular.
    Coal only began to be imported in the UK after 1970…………..

    For the UK to consume more energy given the above dire domestic situation it must strip other jurisdictions of energy.

    It dumped its domestic coal & Nuclear so as to scale up……

    Who benefits ?

    Who fucking benefits from this ?

    https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/170736/energy_trends_march_2013.PDF

  18. The Dork of Cork.

    Lets look at the London local and not wider energy system shall we ?

    London dumped its local hinterland into the soup post Suez so as to scale up using new non imperial (but really imperial) systems.

    The excellent quarterly British energy trends publication out now.
    looking at the final quarter of 2012 and summing up the disastrous energy situation in the UK.

    The main points for 2012:
    1. Total energy production was 10½ per cent lower than in 2011.

    2 . Imports in 2012 were at a record high, with exports at their lowest level since 1989. As a result, net import dependency climbed to 43 per cent, its highest level since 1976

    3. Oil production was 14½ per cent lower than in 2011, the lowest annual production volume since our current reporting system began.

    4.Natural gas production was 14 per cent lower than in 2011, and at the lowest level of production since 1985

    5. Coal production was 10 per cent lower than in 2011, and at a record low level. Coal imports
    were 37½ per cent higher. Generators’ demand for coal was higher by 31 per cent. Coal
    stocks were 18 per cent lower, and at a record low for the year end.

    However the UK is consuming more (mainly lower quality energy – imported coal)

    6. Total primary energy consumption for energy uses rose by 5 per cent. However, when adjusted
    to take account of weather differences between the fourth quarter of 2011 and the fourth
    quarter of 2012, primary energy consumption fell by ½ per cent.
    • Final energy consumption was 6½ per cent higher than in the fourth quarter of 2011. Domestic
    consumption rose by 19½ per cent, with average temperatures being 2.3 degrees cooler than
    2011. On a seasonally and temperature adjusted basis final energy consumption rose by ½ per
    cent.

    Refer to the special feature near the bottom of the publication – “Coal in 2012″

    See chart 1 in particular.
    Coal only began to be imported in the UK after 1970…………..

    For the UK to consume more energy given the above dire domestic situation it must strip other jurisdictions of energy.

    It dumped its domestic coal & Nuclear so as to scale up……

    Who benefits ?

    Who fucking benefits from this ?

  19. Chris-Engel

    Ireland’s Investment as % of GDP is 10%, lower than Iceland’s.

    He doesn’t mention that though, and by his logic we can declare free capital flows to be more disastrous because of this bad figure out of Ireland.

    Perhaps Iceland’s could be as low as that if they didn’t have capital controls?

    1. Chris-Engel

      The eurostat link to the figures seems to be getting tripped up by spamfilter. But 2011 for Iceland 14%, for Ireland 10%. ANd they both had much higher figures for 2001, 2006. But the point is, both chose different paths, and the one with free capital flows is doing worse by the metric Danielsson wants to use (investment as % of GDP).

      But you can see the development of Investment as & of GDP and sure enough Ireland is a major counterpoint to Danielsson’s claim that Iceland’ Investment as % of GDP is low because of capital controls.

      As others point out in the comments he doesn’t seem to use any other data to support the notion that Iceland’s case is particularly bad BECAUSE OF the capital controls. Very weak claims and a very weak discussion by Danielsson.

  20. tiebie66

    Would a blanket transaction tax applied to all real and deemed (e.g. netting) transactions not ameliorate many of these ills such as capital flight, hot money flows, speculation, money laundering, HFT trading, etc?

    It would also affect honest money flows, but it is progressive in the following sense. All humans need to eat, thus all would pay when buying food, those that eat better will pay more. Those that are economically more active will pay more tax. Wealth sitting under the mattress has very little utility, it is only when the tokens are put to use that their utility is realized and a tax imposed.

    To my mind it would make a lot of fancy economic footwork unnecessary and close a lot of loopholes that the fancy footwork is designed to create.

  21. kevinearick

    The Pension Question: Dead-Beat Synchronization?

    …and the answer is YOUR OWN children. Labor’s pension is its children, which is exactly what nature expects. Don’t come steal from my bank, to enforce your middle class pension Ponzi, to protect and serve capital, and expect me not to have an adequate response.

    Those slick a-holes in expensive suits hiding in that brand new shiny office building, behind a cute little feminist secretary, making reservations for lunch with capital, are not labor. Labor is the old man that makes or breaks jobs. He gets on the job before anyone else and leaves after everyone else, appearing to be in many places simultaneously. If you see him leaving the job, you may as well pack up your tools. Your first hint is when the job momentarily shuts down. Don’t wait for the third point on the parabola.

    I don’t care what public, private, or non-profit corporation you enter, the result always boils down to your answer to the pension, payout, parachute, whatever question. Labor doesn’t require a mob for protection. Laborers have everything they need in their head. Only a school graduate thinks there are no original thoughts, oxymorons building their own prisoners dilemma.

    Those gaps between the middle class event horizons were built by labor. They can be collapsed, expanded, deleted or increased at will, to set the appropriate example. Someone, somewhere, has to do something, to transform capital, which will defend itself to the death, of the middle class. If you have to employ reverse psychology to get anything done, you are dealing with the empire, make-work.
    So, I no sooner sit down and out come the cigarettes, food, and…the grandmas, telling me that the homeless “hot team” is shaking them down, to sign their pensions over in return for housing they supposedly have an equal right to…

    What these idiots are incapable of understanding is that many of these ladies worked in the yards during WWII. Once they are gone, the passive aggressive mob, thinking it is protected by the US Navy, is going to find that it has completely and utterly f-ed itself. Grandma can still weld better than most of these Yahoos.

    You know, a june bug has three tempers…if you don’t like this speed…wait until you get a good look at the next output gap to be bridged. With one exception, grandmas are the nastiest critters on the planet.

    Just completed WIA orientation with a young feminist, who suggests that I go back to the beginning of the first line, of lines to wait in line, under her supervision, to be guided into a job, in an increasing line of cheaper state pension, ponzi gatekeepers to federal money. Air control to Major Tom…They are so dead ignorant, you can only laugh or cry. Suit yourself, but having my own daughters taken by legacy family banking law, to ensure this outcome, I suggest you put yourself in a position to laugh.

    So, I crisscross the nation for two years, to find the brightest young woman bred under this regime, give her a free ride across the gap I have been developing for decades, and she jumps back into the nucleus five times over the course of three years, training young men globally to make the jump in the opposite direction.

    “[W]hen the outer loop is closed, the inner loop oscillation ceases, and the entire servo system becomes stable and delivers the desired performance… Expert knowledge of servo transient behavior in the linear region will not help the servo designer…[will not] insure servo stability when saturation takes place.” Given an eye in a system, which part is the donut and which is the hole? Which is Cyprus, Germany, & the US?

    The Cloud will saturate/implode and emit lightning, as designed by labor. You’ll have that.

  22. wunsacon

    >> Yves here. I’m interested in getting informed reader responses to this post.

    Well, okay. But, whenever you’d like to hear from un-informed readers, I’ll be here waiting.

    1. H. Alexander Ivey

      Damn! File that under wished-I-had-said-it.

      Let’s just say, ala David Brinkley, everyone is entitled to my opinion.

  23. The Dork of Cork.

    The Irish petri dish speaks for itself.

    The landscape & people has been completely destroyed.

    Its a alien landscape of teleported junk that now cannot be serviced……..

    peak of boom : 200,000 KBD of oil
    : 130,000 KBD of oil and falling……..with one million more suburban people (post 1990) to run this now limited energy through.

    On top of this it cannot adjust its internal systems given its use of the euro.
    Things & people just stop working as they run out of money tokens
    Things do not adjust…………….

    1. Valissa

      LMAO… very well done! It never ceases to amaze me how many different situations this Hitler clip can be applied to.

  24. allcoppedout

    Literature in this field is legion. Three recent examples, one focusing on Iceland are:
    Benigno et al (2013) http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=37662164
    Thorsteinn Thorgeirsson and Paul van den Noord (2013) http://www.cb.is/library/Skr%C3%A1arsafn—EN/Working-Papers/WP%2062.pdf
    Joseph E. Gagnon (2013) http://xxx.iie.com/publications/wp/wp13-2.pdf

    Measuring good or bad effects of such controls is tough, though there is some consensus there is a welfare effect. Thorgeirsson and Noord are fairly comprehensive on Iceland.

  25. Rufus T. Firefly, Jr.

    I’m a little confused about what is the author’s point. Hasn’t he heard that Iceland is not part of the European Union?

    Buy heck, why bother with such minor details, right?…LOL

    Rufus

  26. Boldhawk

    Your question can’t be answered accurately, since the overly broad meaning of “capital controls.” It is also important who is impossing them, and on whom, and for what purpose.

    The articles take it for granted that capital is good when investors can “help” a country by investing there, which is a general misconception.

    Iceland has been in the middle of a revolution which is still taking place. They are revamping their system from the bottom up. From their viewpoint, they’re not interested in any further inflow of capital, since they control their currency and resources.

    Thedownside, is, of course, that the international banking system will make life difficult for them. But that can’t last too long.

  27. Nathanael

    Krugman is in favor of capital controls. More specifically, a certain level of capital controls (you don’t want to prevent ALL capital movement, but you also don’t want hot money sloshing around).

    Given that his area of expertise is actually international trade… I’m pretty sure he knows what he’s talking about. I haven’t entirely been able to follow his explanations of why capital controls are good, but they’re on his blog for anyone who cares enough.

  28. uk growth

    Excellent point, Chris Engel’s skepticism notwithstanding. When even environmental advocates like Bond lay charge for outsourced carbon emissions on “Western consumers”, it’s clear that green advocates have failed to fully make the connections among climate, outsourcing, and the Waltons of the world.

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