Category Archives: Currencies

Why Europe Needs Two Euros, Not One

Yves here. We remarked recently how the readings we’ve been getting from people who have senior contacts in Europe are increasingly of the view that the economic crisis in Europe is morphing into a sufficiently severe political crisis that the unthinkable – a breakup of the eurozone – is looking like a serious possibility.

One indicator is the article featured below. VoxEU has policy reach in Europe, and this post represents an effort to come up with better economic arrangements within Europe while preserving at least some of the benefits of monetary union. And it is hardly the first to recognize that one of the big problems with the Eurozone is that it put together too many disparate economies without enough in the way of fiscal transfers to buffer the differences. If the Eurozone can’t move towards more economic integration, the next-best remedy might be a structure where more homogenous countries each had their own currency.

Randy Wray: Modern Monetary Theory – The Basics

How economists that are otherwise sympathetic to modern monetary theory nevertheless misconstrue some of its fundamental observations. For instance, those like Paul Krugman who are generally of the Keynesian persuasion like MMT’s “deficit owl” approach. Krugman acts as if he would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?

Russian Companies Plan to Denominate More Trade in Renminbi

Russian companies are mounting a challenge to the dollar by seeking to arrange trade transactions in other currencies. But how serious a threat is it?

The Federal Reserve Versus Hyman Minsky (and Deflation)

How the Fed has gotten itself caught in its own underwear by ignoring Hyman Minsky and in persisting in the clearly failed strategy of super lax monetary policy rather than calling for more government spending.

Michael Perelman: Vietnam – Invitation to a Morass

How the Vietnam War helped usher in neoliberalism, financialization of the economy, and the use of military spending as stealth stimulus.

Is the Strong Dollar the Real Cause of the Collapse of US Manufacturing and Secular Stagnation?

Yves here. I managed to miss this VoxEU post from last month, and it is still timely. It argues that economists have generally been using the wrong measure of relative dollar strength to assess how the level of the currency played into the loss of manufacturing jobs and insufficient internal demand, now better known as “secular stagnation”.

Reserve Currency: Is the Yuan Tearing Down the US Dollar?

40 central banks have invested in yuan. Should the US be worried?

Is a Second Euro Crisis Possible?

The notion of Eurozone fragility is no longer an active worry among investors and pundits. Is this increased optimism warranted?

Wolf Richter: Kremlin – If The US Tries To Hurt Russia’s Economy, Russia Will Target The Dollar

Yves here. While I have every reason to assume the Russians mean to act on the currency front, on the surface, the remarks Wolf discusses in his post appear to be based on a misapprehension. But there may more method here than meets the eye.

Whatever You Do, Don’t Pay Attention to the Rising Eurozone Stresses

One of the noteworthy elements of Davos, at least according to media accounts, was the cheery, self-congratulatory tone among the Davos Men, at least until the final day, when the emerging markets rout began. But one of the front they thought they’d gotten under control, Europe, may be about to enter a new phase of political stress.

New York’s Benjamin Lawsky Rattling Banks With Currency, Servicing Probes

It’s been so long that America has had a regulator that is serious about regulating that it’s hard to remember how they operate.

Philip Pilkington: Paul Krugman Pushes Factually Inaccurate Arguments About Argentina to Support Discredited Monetarist Ideas

Yves here. With Argentina one of the emerging markets economies whose currency has taken a huge tumble, its aggressive pro-labor, redistribution-oriented policies have come under attack (as an aside, one has to note that Turkey, which was touted as a model emerging economy a few years back, is also fighting a currency downspiral). And a predictable by-product is that some of Argentina’s policies have been misrepresented. For instance, it’s widely accused of “living beyond its means”. Yet as this post shows, the government ran surpluses in eight of the past ten years.

The Supreme Position of the U.S. Dollar in New Financial Innovations and Instruments

New financial innovations and instruments contributed to halting the declining trend of the dollar as a debt-financing currency and reversed the falling role of the dollar in the 2000s.

Yanis Varoufakis: Germany’s Choice: Authoritarianism or Hegemony? (*)

For those of us who grew up under totalitarian regimes, it is noteworthy that Europeans are resorting to a time-honoured tradition: telling jokes as a form of defiance.

Market Rout Continues, Proving Abject Failure of Fed’s Forecasts and Policies (Updated)

In case you missed it, it’s ugly out there. US markets swooned as an unexpectedly weak manufacturing report, the ISM, was so bad it couldn’t be attributed solely to bad weather and deepened investor funk.