kent nickell
Well-known member
Deflation will likely be a painful but necessary process for many countries... It can involve in a sense both defaults (by limiting pension and health benefits) and currency devaluation (in the guise of inflation). It's strange to use deflation and inflation to describe the same process but that brings up the concept of 'stagflation' which is the seemingly contradictory occurrence of both inflation and high unemployment.
Some inflation can be good to try and avoid a deflationary spiral and to lower the debt burden. But there is much deleveraging going on which will inevitably seem to lead to lower wages to fight unemployment and lower benefits to fight soverign debt problems. Lower home prices, in line with what income levels can reasonably afford will help but it will be a painful process to get there...
http://www.reuters.com/article/idUSTRE63B1BB20100412
Deflation the only option for Greece: IMF chief
VIENNA
Mon Apr 12, 2010 4:11am EDT
VIENNA (Reuters) - Deflation is the only way Greece can effectively tackle its debt problems, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn was quoted on Monday as saying.
"The only effective remedy that remains is deflation," Strauss-Kahn told Austrian magazine profil in an interview. "And this is exactly what the European Commission has correctly recommended."
Euro zone finance ministers approved a 30-billion-euro ($40 billion) emergency aid mechanism for debt-plagued Greece on Sunday, but stressed Athens had not requested the plan be activated yet.
Concern about Greece's ability to manage its 300 billion euro ($400 billion) debt pile had grown last week, as investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens's debt by two notches.
In the interview, Strauss-Kahn also addressed how the wider euro zone could retain social security programs while handling expanded state debt, suggesting pension benefits must be trimmed and higher inflation targets may be an option.
"The way out of debt in most countries is led by a reform of the pension or health care system," he said, adding that raising the retirement age could be one way of cutting expenditure.
Asked if he was in agreement with a February paper written by IMF chief economist Olivier Blanchard, which suggested higher inflation targets for the world's major central banks, Strauss-Kahn said the IMF was aiming to bring up new ideas.
"We must also discuss, in the coming years, how high inflation should be. This question is extremely important."
(Writing by Dave Graham and Brian Rohan via Berlin Newsroom, editing by Mike Peacock)
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The below is an interesting article that can't be copied... But it argues that the Eurozone and the IMF are going to have large problems trying to save Greece.. They are taking a country in huge debt (much worse than Argentina at Argentinas worst) and trying to save it without either a default or a currency devaluation which has never before been successful... And they are ponying up a lot of money to attempt it... 30 billion euros from the Eurozone and 15 billion euros from the IMF... And Greece still may default or be forced to leave the Eurozone and the euro and go back to its own devalued currency.. (there is a limit to how much the frugal German taxpayers are going to want to contribute to Greece) And Greek banks are not only doing business in Greece and Greece is not the only Eurozone member that has problems...
http://www.breakingviews.com/2010/04/12/greece-imf.aspx?sg=nytimes
Some inflation can be good to try and avoid a deflationary spiral and to lower the debt burden. But there is much deleveraging going on which will inevitably seem to lead to lower wages to fight unemployment and lower benefits to fight soverign debt problems. Lower home prices, in line with what income levels can reasonably afford will help but it will be a painful process to get there...
http://www.reuters.com/article/idUSTRE63B1BB20100412
Deflation the only option for Greece: IMF chief
VIENNA
Mon Apr 12, 2010 4:11am EDT
VIENNA (Reuters) - Deflation is the only way Greece can effectively tackle its debt problems, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn was quoted on Monday as saying.
"The only effective remedy that remains is deflation," Strauss-Kahn told Austrian magazine profil in an interview. "And this is exactly what the European Commission has correctly recommended."
Euro zone finance ministers approved a 30-billion-euro ($40 billion) emergency aid mechanism for debt-plagued Greece on Sunday, but stressed Athens had not requested the plan be activated yet.
Concern about Greece's ability to manage its 300 billion euro ($400 billion) debt pile had grown last week, as investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens's debt by two notches.
In the interview, Strauss-Kahn also addressed how the wider euro zone could retain social security programs while handling expanded state debt, suggesting pension benefits must be trimmed and higher inflation targets may be an option.
"The way out of debt in most countries is led by a reform of the pension or health care system," he said, adding that raising the retirement age could be one way of cutting expenditure.
Asked if he was in agreement with a February paper written by IMF chief economist Olivier Blanchard, which suggested higher inflation targets for the world's major central banks, Strauss-Kahn said the IMF was aiming to bring up new ideas.
"We must also discuss, in the coming years, how high inflation should be. This question is extremely important."
(Writing by Dave Graham and Brian Rohan via Berlin Newsroom, editing by Mike Peacock)
-------
The below is an interesting article that can't be copied... But it argues that the Eurozone and the IMF are going to have large problems trying to save Greece.. They are taking a country in huge debt (much worse than Argentina at Argentinas worst) and trying to save it without either a default or a currency devaluation which has never before been successful... And they are ponying up a lot of money to attempt it... 30 billion euros from the Eurozone and 15 billion euros from the IMF... And Greece still may default or be forced to leave the Eurozone and the euro and go back to its own devalued currency.. (there is a limit to how much the frugal German taxpayers are going to want to contribute to Greece) And Greek banks are not only doing business in Greece and Greece is not the only Eurozone member that has problems...
http://www.breakingviews.com/2010/04/12/greece-imf.aspx?sg=nytimes