Comments on: Of Raising Rates and the Stakes http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/ European Opinion Mon, 13 Feb 2012 07:39:06 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Taurus http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24841 Taurus Tue, 31 Mar 2009 21:59:45 +0000 http://fistfulofeuros.net/?p=5289#comment-24841 One more comment about this: “a cutback of X percent in gov spending during a recession means - at the minimum! - a further corresponding X pt decline in GDP.” Excuse me? GDP is generated by government spending? What exactly is the government producing? If this was true, there are two possibilities: 1. the way the GDP is calculated is fundamentally flawed (BTW, this is true, but it's beyond my point) 2. the economy depends solely on government spending = hard times are ahead of us. One more comment about this:
“a cutback of X percent in gov spending during a recession means – at the minimum! – a further corresponding X pt decline in GDP.”

Excuse me? GDP is generated by government spending? What exactly is the government producing?

If this was true, there are two possibilities:
1. the way the GDP is calculated is fundamentally flawed (BTW, this is true, but it’s beyond my point)
2. the economy depends solely on government spending = hard times are ahead of us.

]]> By: Taurus http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24840 Taurus Tue, 31 Mar 2009 21:51:08 +0000 http://fistfulofeuros.net/?p=5289#comment-24840 "a cutback of X percent in gov spending during a recession means - at the minimum! - a further corresponding X pt decline in GDP." Yes, it's true, if it's not done right. But if you stop buying votes by spending money on stupid things and you decrease taxes, effectively leaving that money for the people who use it and produce with it, we would all be better off, the economy might even grow. For example: if in my household I am spending more than I can afford, when the creditors are banging on my door, the answer is not how to find more credit. The answer is balancing the budget, creating a "trade surplus" (which in a household can mean going to work, not buying the newest iPod, selling the car that I cannot afford) and slowly paying back my liabilities. But If I do cutbacks by not paying for health insurance, for education, for the heating in my house, then yes, the outcome will not be nice. Consumption should be decreased for unnecessary stuff and infrastructure should be built. Don't get me wrong: if I stop paying for a cell phone, it can be good or bad: if I am only using it for entertainment and convenience, it is good not to spend the money on it, but if it is essential for my work (part of infrastructure), it would be bad to stop paying for it. Same goes for a car. The question is always: is it a good consumption, will it generate return, or not. Giving disability pensions to at least 600.000 people who are not entitled to it, does not generate any return. “a cutback of X percent in gov spending during a recession means – at the minimum! – a further corresponding X pt decline in GDP.”
Yes, it’s true, if it’s not done right. But if you stop buying votes by spending money on stupid things and you decrease taxes, effectively leaving that money for the people who use it and produce with it, we would all be better off, the economy might even grow.

For example: if in my household I am spending more than I can afford, when the creditors are banging on my door, the answer is not how to find more credit. The answer is balancing the budget, creating a “trade surplus” (which in a household can mean going to work, not buying the newest iPod, selling the car that I cannot afford) and slowly paying back my liabilities. But If I do cutbacks by not paying for health insurance, for education, for the heating in my house, then yes, the outcome will not be nice. Consumption should be decreased for unnecessary stuff and infrastructure should be built. Don’t get me wrong: if I stop paying for a cell phone, it can be good or bad: if I am only using it for entertainment and convenience, it is good not to spend the money on it, but if it is essential for my work (part of infrastructure), it would be bad to stop paying for it. Same goes for a car. The question is always: is it a good consumption, will it generate return, or not. Giving disability pensions to at least 600.000 people who are not entitled to it, does not generate any return.

]]> By: Taurus http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24839 Taurus Tue, 31 Mar 2009 21:38:14 +0000 http://fistfulofeuros.net/?p=5289#comment-24839 Since 20 years the Hungarian governments are not doing anything else but buying votes by giving all kinds of support to poor people. This is the problem. What they should do, is to take these things away and give incentives for people to start their own little companies, provide education for them, loosen regulations so that it would be easy to start companies, make laws that are simple and do not change every 6 months etc. Basically allow the market to develop. In addition to this, they should develop infrastructure (highways, MAV reform etc). This is the solution. Of course, while the governments only care about their own pockets and while people can be bought with all kinds of support, nothing will change. You say that if you take away the support from the poor, consumption will decrease. I don't know why do you think that consumption financed by state support financed from treasuries is the way to go. This is the wrong direction and it should be stopped. Since 20 years the Hungarian governments are not doing anything else but buying votes by giving all kinds of support to poor people. This is the problem.

What they should do, is to take these things away and give incentives for people to start their own little companies, provide education for them, loosen regulations so that it would be easy to start companies, make laws that are simple and do not change every 6 months etc. Basically allow the market to develop. In addition to this, they should develop infrastructure (highways, MAV reform etc). This is the solution.

Of course, while the governments only care about their own pockets and while people can be bought with all kinds of support, nothing will change.

You say that if you take away the support from the poor, consumption will decrease. I don’t know why do you think that consumption financed by state support financed from treasuries is the way to go. This is the wrong direction and it should be stopped.

]]> By: bbn http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24826 bbn Tue, 31 Mar 2009 13:09:23 +0000 http://fistfulofeuros.net/?p=5289#comment-24826 you don't seem to get it taurus. a cutback of X percent in gov spending during a recession means - at the minimum! - a further corresponding X pt decline in GDP. In HU's case this would mean pushing the economy intentionally into total collapse, say a depression of more than 10 pt GDP-decline. this would mean a chain of bankruptcies, insolvencies hitting the banikng system, exploding unemployment, social unrest and so on. it happened to Argentina in 2000-2001 thanks to the crackpot policies of the IMF. is that what you want? later on i'll get back to the other points... you don’t seem to get it taurus. a cutback of X percent in gov spending during a recession means – at the minimum! – a further corresponding X pt decline in GDP. In HU’s case this would mean pushing the economy intentionally into total collapse, say a depression of more than 10 pt GDP-decline. this would mean a chain of bankruptcies, insolvencies hitting the banikng system, exploding unemployment, social unrest and so on. it happened to Argentina in 2000-2001 thanks to the crackpot policies of the IMF. is that what you want?

later on i’ll get back to the other points…

]]> By: Peter http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24821 Peter Tue, 31 Mar 2009 09:52:40 +0000 http://fistfulofeuros.net/?p=5289#comment-24821 The major problem in HU is that people think like Taurus, there are jelous on the poor people getting social benefits. They assume they just simply don't wanna work. The east of HU is more similar to 18th century as to 21st, there is simply no chance to find a job, in Budapest, West-Hungary there is lack of labour force. The main problem is informal economy, the reports suggest that black enconomy is 20-25% of economy, mainly foreign owed companyies and some bigger hungarian ones are only paying taxes. The tax system is really unfair that way, only few pay a lot - that makes people flustrated and so it is easy to blame the poor for all the mass. But if you take this little money from poor people consumption will fall sharply, crime rate will grow - i guess it has more costs. There are plenty other oppurtunities how to cut on deficit which is not reducing consumption: the first would be to do sthg. with the railway comp. MÁV - it takes yeary 1-2 billion euros and offers poor services. That money is more than waht is spent on social benefits. The politics are also rotten, the socialist never wanted to hurt noone, the populist right wing is living in a dream world, does not understand global economy. If politics does not respect economics and reality, it is hard. The article is really interesting and good, but I wish the rates would be the biggest problem. You can correct the the monetary policy quiet fast but to form a society's thinking is much more harder if not impossible. The major problem in HU is that people think like Taurus, there are jelous on the poor people getting social benefits. They assume they just simply don’t wanna work. The east of HU is more similar to 18th century as to 21st, there is simply no chance to find a job, in Budapest, West-Hungary there is lack of labour force.

The main problem is informal economy, the reports suggest that black enconomy is 20-25% of economy, mainly foreign owed companyies and some bigger hungarian ones are only paying taxes.

The tax system is really unfair that way, only few pay a lot – that makes people flustrated and so it is easy to blame the poor for all the mass. But if you take this little money from poor people consumption will fall sharply, crime rate will grow – i guess it has more costs.

There are plenty other oppurtunities how to cut on deficit which is not reducing consumption: the first would be to do sthg. with the railway comp. MÁV – it takes yeary 1-2 billion euros and offers poor services. That money is more than waht is spent on social benefits.

The politics are also rotten, the socialist never wanted to hurt noone, the populist right wing is living in a dream world, does not understand global economy. If politics does not respect economics and reality, it is hard.

The article is really interesting and good, but I wish the rates would be the biggest problem. You can correct the the monetary policy quiet fast but to form a society’s thinking is much more harder if not impossible.

]]> By: Taurus http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24812 Taurus Mon, 30 Mar 2009 16:27:06 +0000 http://fistfulofeuros.net/?p=5289#comment-24812 No, I'm not joking, I think Hungary needs to cut spending. But I do agree with you that what the leaders mean by cutting spending, is in fact just another way to stuff their own pockets, so it will do no good. At the moment in Hungary many people who could work are living on disability pension (800 thousand disabled, as opposed to 70 thousand in Slovakia), on child support, on agricultural subventions etc. This should be stopped, so that people would start working and producing. Why is it that Hungary is not a major agricultural producer? Is the land worse than before the first world war, when we fed Europe? Is the weather so much worse? Even with productivity increased at least 10 times (grains harvested for grain planted)? I say ease the regulations for small businesses, producers etc. and let the competition work. No, I’m not joking, I think Hungary needs to cut spending. But I do agree with you that what the leaders mean by cutting spending, is in fact just another way to stuff their own pockets, so it will do no good.

At the moment in Hungary many people who could work are living on disability pension (800 thousand disabled, as opposed to 70 thousand in Slovakia), on child support, on agricultural subventions etc. This should be stopped, so that people would start working and producing. Why is it that Hungary is not a major agricultural producer? Is the land worse than before the first world war, when we fed Europe? Is the weather so much worse? Even with productivity increased at least 10 times (grains harvested for grain planted)?

I say ease the regulations for small businesses, producers etc. and let the competition work.

]]> By: bbn http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24811 bbn Mon, 30 Mar 2009 15:30:31 +0000 http://fistfulofeuros.net/?p=5289#comment-24811 Taurus: you are joking, I presume. Spending cuts in the midst of a severe recession (by definition) subtract demand from the economy, and will push it into a full-blown depression (as it did in Argentina 2000-2001), causing an enormous SURGE (not fall) in unemployment, and REDUCE the number of people at work. The neoclassical myth that the low employment rate is "caused" by "rigidities", state subsidies etc. is not supported by evidence. In reality, high unemployment, low employment and low growth is largely (though not solely) a result of depressed demand and the crackpot neomonetarist-restrictive policies followed by the ECB and - even more so - by the MNB. By the way: it is wage suppression (and pushing countries to rely on exports and cut down on internal demand) coupled with financial deregulation and the resulting asset bubbles that are responsible for the severity of the unfolding crisis, but the religious fanatics of the HU establishment of course would never come to admit this. (of course, they don't read anything, so haven't heard about any of this, but that's another story) what they want is straightforward: money to be siphoned away from HU's pensioners, rural poor, and unemployed - who are, as it is widely known, living in such extreme luxury, eh? - to bondholders and CEOs of investment funds. this massive upward redistribution of wealth is what they mean by "sacrifices" - sacrifices for pensioners living on 200 euros a month, big fat profits secured for bondholders. anyway, I would just add a small note of caution for the Hungarian political-economic establishment: don't push it too hard, 'cause you might get burned. people are already furious and they might not take it any more. Taurus: you are joking, I presume. Spending cuts in the midst of a severe recession (by definition) subtract demand from the economy, and will push it into a full-blown depression (as it did in Argentina 2000-2001), causing an enormous SURGE (not fall) in unemployment, and REDUCE the number of people at work.
The neoclassical myth that the low employment rate is “caused” by “rigidities”, state subsidies etc. is not supported by evidence.
In reality, high unemployment, low employment and low growth is largely (though not solely) a result of depressed demand and the crackpot neomonetarist-restrictive policies followed by the ECB and – even more so – by the MNB.
By the way: it is wage suppression (and pushing countries to rely on exports and cut down on internal demand) coupled with financial deregulation and the resulting asset bubbles that are responsible for the severity of the unfolding crisis, but the religious fanatics of the HU establishment of course would never come to admit this. (of course, they don’t read anything, so haven’t heard about any of this, but that’s another story)
what they want is straightforward: money to be siphoned away from HU’s pensioners, rural poor, and unemployed – who are, as it is widely known, living in such extreme luxury, eh? – to bondholders and CEOs of investment funds.
this massive upward redistribution of wealth is what they mean by “sacrifices” – sacrifices for pensioners living on 200 euros a month, big fat profits secured for bondholders.

anyway, I would just add a small note of caution for the Hungarian political-economic establishment: don’t push it too hard, ’cause you might get burned. people are already furious and they might not take it any more.

]]> By: Taurus http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24810 Taurus Mon, 30 Mar 2009 14:11:45 +0000 http://fistfulofeuros.net/?p=5289#comment-24810 There is no deflation in Hungary. Inflation yes (much more than the official numbers show). Massive spending cuts is exactly what is needed, too few people work (because of all kinds of state support) and pay too high taxes (~50%). You should throw out your macroeconomics textbooks, because those books (and the belief in self-regulating markets) are what caused the whole problem in the first place. There is time for change. The Hungarian National Bank is doing the right thing, but the governments of the last 20 years didn't. There is time for change. There is no deflation in Hungary. Inflation yes (much more than the official numbers show). Massive spending cuts is exactly what is needed, too few people work (because of all kinds of state support) and pay too high taxes (~50%). You should throw out your macroeconomics textbooks, because those books (and the belief in self-regulating markets) are what caused the whole problem in the first place. There is time for change. The Hungarian National Bank is doing the right thing, but the governments of the last 20 years didn’t. There is time for change.

]]> By: bbn http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24800 bbn Mon, 30 Mar 2009 02:09:18 +0000 http://fistfulofeuros.net/?p=5289#comment-24800 just to make matters worse *all* major political parties, think tanks, media outlets etc. that have any influence at all in HU advocate massive spending cuts, "tightening our belts" and so on to "fix the economy" in the midst of a deflationary recession... these measures would really plunge HU's economy into a full-blown depression. someone might want to send a macroeconomics textbook (not by Hayek, if possible) to policy makers in Hungary. just to make matters worse *all* major political parties, think tanks, media outlets etc. that have any influence at all in HU advocate massive spending cuts, “tightening our belts” and so on to “fix the economy” in the midst of a deflationary recession… these measures would really plunge HU’s economy into a full-blown depression. someone might want to send a macroeconomics textbook (not by Hayek, if possible) to policy makers in Hungary.

]]> By: claus vistesen http://fistfulofeuros.net/afoe/of-raising-rates-and-the-stakes/comment-page-1/#comment-24791 claus vistesen Sun, 29 Mar 2009 15:41:25 +0000 http://fistfulofeuros.net/?p=5289#comment-24791 Hi Gerter, Ah yes, how could I forget poor Iceland, and me being a Dane too :). Anyways, you are of course right although I am not sure the IMF is to "blame" here but the correlation does represent something of a dark spot on the whole international intervention punt. Claus Hi Gerter,

Ah yes, how could I forget poor Iceland, and me being a Dane too :) .

Anyways, you are of course right although I am not sure the IMF is to “blame” here but the correlation does represent something of a dark spot on the whole international intervention punt.

Claus

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