Presentation of Geneva Report: Thursday, October 2 at Noon

I will present the report in a Policy Institute seminar in TCD during 12-1 tomorrow Thursday in the IIIS seminar room (top floor, Arts Block). All welcome – no registration required.

47 replies on “Presentation of Geneva Report: Thursday, October 2 at Noon”


what do you expect ?

It has become clear, that some substantial parts of the Euro try very hard to break the treaties and to push their bad debt onto the rest.

And the expected fight can have massive, game changing outcomes.

Even more important I see however:

“Edmonds also told us that – during the late 90s and early 2000s – perhaps 30-40% of the people working for NGOs operated by George Soros were actually working for the U.S. State Department.”

“It has become clear, that some substantial parts of the Euro try very hard to break the treaties and to push their bad debt onto the rest.”

It is also clear that the Euro is way overvalued, Francis, and feeding deflation


last night was the end of a quarter. Always a good time to update data, and pour over them : – )

various estimates of “fair value” of the Dollar to the Euro are between 1.15 to 1.25, I have it in my books at 1.22. Historic rates were between 1.55 and 0.83

Given that, the “overvaluation” of the Euro has come down from (1.365- 1.22) to (1.26 -1.22) or by 2/3 just in the last quarter.

There were no structural reforms / austerity in Italy and France so far

Stiglitz “Extrapolating Europe’s modest growth from 1980 onwards, my calculations show that output in the eurozone today is more than 15% below ”

are just delusions.

The IMF 2014 WEO puts the Euroland Output Gap (NGAP_NPGDP
) at 2.3%

the OECD (Annex Table 10) at 3.8%, as the logical consequence of missing structural reforms

While we can endless dispute the 1% difference in methodics of IMF vs OECD,

Stiglitz, Krugman, and Co talking 10% differences are just living in some isolated academic phantasy world, for whom

Norbert Walter had “I can’t stand this rubbish anymore”


a week ago you linked to the Economist doing the book promotion for the Marcel Fratzscher pamphlet.

Looking at the comments to that (´)

is instructive.

Guys like “Ulenspiegel” , especially his IZA link, Dr. Michael Grabinski

and the interesting question from Stuart_Smiff for tax revenues (GGR_NGDP
in IMF speak : – )

When I compa

fat finger syndrome with my early posting

Some more feedback on Fratzscher book:
one page after the other, wild claims that “Germany sees itself as victim” or similar, wihtout ever bringing any evidence, who, when, where,

what kind of percentage of people in what survey, or …..

Typically at least 2 wild claims per page.

A little more to data:

When I compare the net lending (GGXCNL_NGDP) of various nations, e.g. in 2009, especially Germany 3% vs. UK 11%, US 15% GDP,

it becomes clear, that the stabilisation of the US & UK was only achieved with running gigantic deficits, they could, because they started from a low position
(GGXWDG_NGDP) of about 63 / 43% and a near neutral NIIP.
Otherwise they would have had much larger output gap / GDP swings

How they bring that down again, will be interesting.

When one looks at the Current account balance for the GIPS countries vs output gap in the most simple linear regression, one actually gets a “multiplier” of 0.5 for Ireland, Netherlands, Portugal, and Spain, and Greece closer to 1

A pity there are only 8 comments. This paper is hugely important. Explains why US exit velocity is unlikely, why Yellen is probably wrong on asset bubbles, why another Minsky moment could well be on the cards, why low interest rates are likely for a very long time, why a lot of models are useless given the macro context, why more economists should read Monthly Review, why economic history is so important and why we really need to understand what is happening now. The market does not.

“”More generally, the reality is that the events of the past few years have redefined the term ‘unusual’” p82.

If I understand this correctly – the Great Financial Crisis arrived, asteroid like? I fancy not. Its been ‘fermenting’ for 40 year or so.

This probably means that the current ‘pilots’ have no up-to-date charts to navigate by, nor simulators to practice on. Its ‘unusual’ – to say the least.

Maybe its totally (at the moment anyhow) beyond both their intellectual and technical expertises. But Persistent Practice makes for P*ss Perfect Performance. Now is that rain I feel on my back, or …..?

Knightian complexity comes to mind. And if this is correct, then sleeping with one eye open and right next to the exit would be a sensible career move. We are looking at the need for an economic paradigm shift here. How likely is that? Not!

” …bears may defecate in forested areas.”

Yes they do, but if they are hungry enough, it will be on your front lawn!


re breaking the treaties. I think now would be the appropiate time for Germany and its client state Austria to leave the euro and the EU and go off the see how they get on with Uncle Vlad.

@ Tull

I really like your idea of ultra long bonds with low coupons. It’s either that or destroying debt. The markets would still buy the former, as it would have a pulse. Get all of the dud stuff replaced and start again.


The UK issued the 3.5% perpetual war loan in 1932. I presume Neville Chamberlain had something to do with it as he was Chancellor.
We need a massive 100 year bond held to maturity by the ECB. One of the QPQ would be a mandatory requirement to run a balanced budget on the current side so that you cannot come back again for another go.

The US economy is having a good go at escape velocity. No wage inflation yet though. I see the CEO of John Lewis has some interesting comments on France.

@ Tull

I note the CEO of JL has just apologised.
I wonder what the cost of WW1 as a % of GDP was and what portion of it was wrapped up those war loans. Were the consols the same thing ?

Consols go back to the 18Th Century. I have seen some estimates that put the cost of WW1 at about. 100% of GDP for the Brits, financed by borrowing from the US and from monetary finance. So that is what you do in a crisis- borrow from a sugar daddy and the CB. Then you grow your way out through expansion of nominal GDP.
So let me see. Who did that in this existential crisis and who has a better chance of escaping. Who did not of that yet and are they snookered?
Quite simply, the EZ has to shake off the Teutonic shackles. Either they go or we go?

Graph of the Year …

‘Rising Tides Don’t Lift All Boats. Who wudduva thought?

Actually, you have to conclude that economists and policy-makers are an optimistic lot. Going all the way back to the Kennedy days, it has been conventional wisdom that if you can boost economic growth, everyone wins.

Actually, as I’ve long argued, that is remarkably naïve and counterfactual. In good times, the powerful grab the spoils. In bad times, they get government bail-outs.

Why on earth would you want to be powerful if you could not protect and even enhance your well-being no matter what the economy does?

Why do elites everywhere always clamor for economic growth? Every policy advocated by them is justified on the argument that it will boost growth. Cut taxes on the rich! Eliminate regulations! Free trade! Slash welfare! Balance the budget! Save Wall Street!

Every policy they hate is said to hinder growth: raising minimum wages; environmental protection; school lunches for poor kids; vacations and sick leave for workers.

Where such policies do enhance growth, the rich will get more than their fair share. Where the policies do not boost growth, they will increase the share of the rich. Heads they win and tails they win too.

Who would be surprised by that? Well, just about every economist and policymaker on the planet. Why? Because they refuse to consider POWER. While our economy is often referred to as “market-driven”, it is actually driven by power. P. O. W. E. R.

… with apologies to the ghost of Sean Lemass!


Bad debts for the EZ would be what % of GDP? 30% ?
Some Yank investor said a while back that the wallahs in Frankfurt will only do the right thing when they are staring down the abyss.

Absent QE go with that number. Is that what Draghi is saying when he implies he has done everything he is able to. There has to be another existential crisis before Crazy Jens get booted and the Yanks tell the Krauts to wise up.

I think Draghi is actually trying to drive the euro down and cause a blow out in spreads so he can do what he has to do.

I suggest you start reading Paul McCulley on Pimco website.


This extract from the coverage by Le Figaro spells out what may happen!

Ce train, déjà lancé, peut-il être stoppé? Sauf rapide marche arrière à Bercy, seul un arrangement politique entre grandes capitales pourrait amortir le choc. Les déclarations publiques des unes et des autres ne tendent toutefois pas au compromis. Jeudi, au lendemain de la présentation du budget français, Angela Merkel en a fait une affaire de crédibilité et a mis en garde contre une «recrudescence catastrophique de la crise de l’euro». Avant d’ajouter, à destination de la France et de l’Italie, également dans le collimateur de Bruxelles, qu’il revient à chacun «de tenir les engagements et les obligations pris en commun».


<<de tenir les engagements et les obligations pris en commun».

pacta sunt servanda

The EU can throw Ireland, Greece or Cyprus to the wolves but when France or Italy reach the tipping point the game changes. I suspect that is the point at which the Germans threaten to leave the EU or Draghi gets to do what he all wanted which is QE.

@ seafóid

Indeed! The Commission is but the referee in this matter, its power of action deriving not from the fact that it can blow the whistle but that the players respect the rules of the game. Not questioning the decisions of the referee is one of the most fundamental.

The problem for Ireland!

The best solution!

Both our ministers for finance have effectively told the referee to take a hike. Perhaps not the best strategy at this juncture! Of course, what goes on on the Continent barely registers with the political class and media in Ireland, a failing which has already cost us dear.

This is not rugby nor even GAA. It is more like Serie A from the 1970s where the refs are dodgy. There are no rules in this game. The EU is a morally bankrupt organisation and should be consigned to the dustbin of history. We don’t really miss the USSR do we? Of course you would have to get another gig.

Maybe the EC should introduce the Black Card and enforce it as rigorously as the GAA. There could also be a Rules Bending commiteeee so nobody gets suspended.

Only one Cody. Jens is someone who walks and carrys a small stiick . Not sure who his GAA comp is. In soccer terms he is close to Arsene Wenger. Fearsome rep but no success

The report repeatedly refers to a “credit crunch”,

e.g. page 78 “The issue of how to allocate the losses, which is the next stage in the process,
is obviously complex. At the macroeconomic level, they have to be allocated
so as to minimise a credit crunch”

The only data potentially related to that, I could find are Fig. 4.13 and Fig 4.14

4.13 starts only in 2006, when the excessive loan cycle was already in full swing, please compare to Fig 4.14 underneath.

Looking at the NET flows in Fig 4.14 shows to me mainly that the cumulative excess flows during 2004 – 2007 are now slowly reduced, a healthy process

the last (half) year the alleged credit crunch for SMEs was often brought up as a reason to do unconventional things,

until the surveys of the ECB (
showed, that financing is a minor problem, with the exception of the special case Greece

This was also discussed in a thread here.

And as the report says, we dont see much deleveraging so far.


I had brought up several comments on other Graphs, that I dont see that much of a problems, when they are drawn up correctly (per capita) from the IMF excel sheet.

I assume, that argument is accepted, since I didn’t hear anything back, or ….?

FT from April 2009

“The problem is that while these forces are helping to prevent a repeat of the Great Contraction – the unremitting US economic collapse that lasted from 1929 to 1933 – it is still not clear from where new demand will emerge to permit a sustainable, long-term recovery.
The US household sector, usually a reliable source of demand, is over-leveraged. Already drowning in debt, US households’ total liabilities have increased by 2.5 per cent to $14,242bn since mid-2007. Their assets, however, have fallen in value by 16 per cent to $65,719bn. Household savings rates usually soar as consumers brace themselves for recessionary headwinds. But US consumers might well spend even less than is usual as they deleverage themselves.
Meanwhile, world demand remains weak. Outside China, few of the structural surplus countries seem to grasp the need to turn themselves from dedicated mercantilists into mass consumers. They should; if the US import-and-consume business model is dead, so too is the export-and-save strategy used in Germany and Japan.
If neither the US citizen nor foreign customers increase their final demand soon, Uncle Sam will need to keep it propped up with continued expansionary policy. The Obama administration’s pledge to halve the budget deficit by the end of the president’s first term suggests they are assuming it will not come to this. If it does, however, they will have little choice”

If the last 4 years of relative stability have been bought by the expansion of debt where is sustainable demand growth supposed to come from ?

This article from Die Welt goes in detail into the politicking behind the ECB announcement of ABS purchases.

It could well be entitled “Draghi and his backseat drivers”. When other players, and notably the political leaderships in Paris and Berlin seem incapable of any decisive action, he is left with little choice; a fact recognised at the end of the article.

“If Ireland is not a tax haven. What is it? A bagel”
From Nicholas Shaxson of FT.
The UK will win the race to the bottom. We knew this all along.

Ireland as described by the Tax Justice Network in 2013.

“Ireland has also triggered “beggar my neighbour” competition from other nations: most recently Liechtenstein announced plans for an across-the-board 12.5% tax rate, explicitly to match Ireland’s. The UK has more recently been offering competing tax products.

I have a response to Alan Ahearne, I consider important:

Short version:

I say, Ireland paying down debt, even faster than recommended, is the best invest the Republic of Ireland can do.

Long version:

With respect to Irish budget policy, the topic of the thread,

1. Infrastructure

2. Budget targets

1. Infrastructure

I want to mention, that “social housing” and “education” are not “infrastructure”.

Looking at housing prices in Dresden, I get a really picture perfect dependence on prices before and after the last tax subsidy in Germany went out in 2003. You do not lower the cost for the buyer, just the price for the owner. Doing “unconventional things” is OK and needed in extreme situations like Germany after WWII, with 20 – 40% of roofed space bombed away. But certainly not now, and not in Ireland

When did higher teacher pay, or higher teacher numbers in mature countries, like at least 30% income level of Ireland now ever translate into any discernible post of outcome?

Straight K-12 instead of 13 years Gymnasium, lower teacher pay and numbers do not keep Saxony from being number one in Germany in PISA numbers
Papers, databases, anything? Please

2. Irish Budget targets
I think it would be very wise for the Republic of Ireland, to not only follow the advice of pretty much everybody else, to cut the 2 billion, but actually go by a nominal value beyond that, lets say 2.25 billion.


a) low interest rates don’t last forever,

for quite a few years yes, but not to eternity. I have not seen any example, where real interest, after tax and inflation was substantially (> 0.5%) for more than a few years ( > 5 years) below zero. Maybe somebody shows me an example?

b) Storms are coming

As we see with all the ECB discussions, and the Ukraine thing, and maybe even the HongKong situation, the extremely smooth times, like now, will not last forever. And than the markets might go blind risk on / risk off, like US and German treasure on one side and everything else on the other side of the lever, just that German treasure is touching ground already now.

c) Greakiness

In the recent NTMA paper thread, I defined “greakiness” as a simple fit parameter, describing the investor reaction to the behavior of various countries. It was not the accounting details, unknown to most of them anyways, but the general impression on where some sovereign is on the scale of “honesty, trustworthy, intelligence, risk”. The craziness risk of Ireland, a.k.a. the spread against the Bund, has come down for Ireland from about 10% peak to a mere 0.8% now. That makes “debt sustainability” easy beyond any reasonable doubt. Whatever debt you pay down now, you don’t have to leave to your children. And how more the Irish people distance themselves from criminals, the less risk premium they have to pay.

P.S. remarks

I checked on the Fratzscher pamphlet. The largest bookstore in Dresden (2 mio people area) had it not on the 3 “most popular” places on ground floor, not on the “economics” display in 3rd floor, but only in a shelf there, like “completely irrelevant”. One week later I checked the 2nd largest, they have NONE available, and would order Fratzscher only on pre cash. A complete publication disaster. But very appropriate to the total intellectual garbage on display (not a single reference) which kills the Glienicker Gruppe as any kind of relevant in the process. Eery silence in all German media about, or ….. who digs up what tiny journal mentioning Fratzscher?


Regarding IT IS THE LAW

Do you remember the Maastricht Treaty ?
Limit of debt to GDP of 60%.
What sort of debt levels do the CORE countries have now ?

1. Lane paper related

a) USA (related to Figure 3A.4 on page 32)

there have been attempts before, to stoke real GDP per capita in a large mature country before, by, at that time, unleashing inflation to a cumulative deflator change by a factor of 2 beyond the 2% per anno
the easiest way to look at, I have found so far, is at URL:

There is absolutely no discernible influence in real GDP per capita data, but please take a look for yourself

2. Sweden 1991 (Figure 3A.5 on page 32)

First, please see also wiki/Economy_of_Sweden for the completely unsustainable situation leading up to this crisis
(“In the 1980s, a real estate and financial bubble formed, driven by a rapid increase in lending.” , “unemployment skyrocketed, causing the worst economic crisis in Sweden since the 1930s” )

The figure is fundamentally misleading.

If one compares the real GDP per capita (PPPPC in the lingo of the International Monetary Fund World Economic Outlook : IMF WEO Version 2014) of

a) 1990, 1 year before the crisis (0.750 relative to the US) and any other political upheaval to be taken as a cheap excuse, and

b) all years past 2001, with more than 0.750 relative to the US)

Therefore, there is ZERO evidence, that doing the false (running up inflation, or unsustainable debt) helps anything, nor doing the right thing (righting your structure, and balancing the budget) hurts in any way. Even with the most brutal crisis in 80 years, Sweden was fully back 10 years later.

To the contrast, but of course I do invite people to bring more examples, they might feel to show otherwise, ……

Before I lay my hands on the data : – ))

Infrastructure in Ireland means construction jobs for the girls and the boys. Social housing projects are very useful as job creators in that they can be scattered around the country in every Parliamentary Constituency. The TDs (MdB) just love it, great vote getters on the eve of an election. I am confining the definition to the actual construction, the day to day operation is definitely in the Social Services realm. Ireland is noted for the National Government building projects such as Swimming Pool/Fitness Centres that have high operating costs that that must be borne by the local government. The Swimming Pool/Fitness Centre at Ballybunion, County Kerry is an example, it closes and opens as the management raises voluntary donations locally and from Municipal/County/National Gov’ts. The tight and efficient political machines we exported around the world do not operate in Ireland.


the 60% debt / GDP target is still enshrined in the fiscal compact. In a very realistically way to be achieved.

And just trust me on this one:

Those who don’t follow the rules, will get a constant earwash on it, France and Italy might be actually the first in the row this year.

And we will certainly not hesitate the slightest to give those violators a constant nagging guilt trip, against which your parents-in-law are hapless amateurs.

Maybe I cite for starters the Prophet (720 AD or something like that) Al-quran 8:12 (

I prefer actually the translation of some New York Iman, who was disappeared a while ago:

“We will strike terror into the heart of the enemy”


what many folks, especially FT Münchau(sen) conveniently try to forget, is that an independent central Bank, like the ECB, is not above the law, the treaties.

and any attempts of violations can not only, but will be called out very clearly

“The Law is the Law rigid and immutable.”
One of the surprises I got from my German exposure was that they firmly believe exactly that. My Irish mind which sees laws as an accumulation of passing fads that can and must be changed frequently is something that I have come to realise is best kept quiet. For example when people complained about the abrupt nature of Angela Merkel’s dictum that nuclear power plants would be closed. I told them that after the next election it would be easy to reverse the enacted legislation. I was met with a wall of incomprehension to the point where my wife told me not to touch pillars of belief that are deeply entrenched.
On the other side of the equation is that it used to be legal for German companies to pay bribes abroad (now changed). Similarly with Legislatures, foreigners can chop and change at will but in Germany it is writ in stone for eternity.

@ Francis

“an independent central Bank, like the ECB, is not above the law”

The Eurozone economy has seen a 5 percentage point increase in unemployment since 2008. Real demand is down by the same margin. The pillars of ECB policy- inflation and money supply- are both significantly below target. The transmission mechanism by which banks finance growth remains dysfunctional. Public debt continues to rise.

Ein Loch ist im Eimer !


There is no credit crunch, Credit for businesses available at very low rates,
page 3 in

Please compare that to pre crisis levels.

Public debt rises because folks dont balance their budgets, by raising tax rates and cutting benefits. Germany absorbed the 20% eastern German addon by doing so. This can and will be done.

Rising unemployment in Italy and France is the logical consequence of their massive lack of structural reforms, 6 years after the crisis hit.

Greece is said to have over 1000 action items left from the previous program.

And when you look at Germany 2003 and Sweden 1991, it takes typically 2 years before changes bear results in reducing unemployment.

Credit to Euro countries cane only come with “strict conditionality”, an ESM program, attaching strings to the money.


we had those same pork barrel “social” projects in Germany as well in the 1980ties,

those “invests in Infrastructures” which then result in permanent negative payoffs in form of maintenance and personal costs.

Public Swimming pools, ice skating rings, city halls

@ Francis

Credit is available but there is no investment. It’s all share buybacks now.
The logic of the system is nuts.

Furthermore to the “infrastructure” hype which is at present

drummed up by the IMF and friends.

Reading for example

The infamous Larry Summers “Why public investment really is a free lunch

The IMF finds that a dollar of spending increases output by nearly $3”

and comments to it,

one finds very frequently stories of “hovel ready” projects, which are nice to have, but do not provide any “productivity” enhancement, just the one time wage fraction of the costs, which are now also mostly much lower than in the 1930ties, when people were still using shovels, and not big machines.

Mickey Hickeys examples, many such “park” projects here around, while the productivity enhancing bottleneck street improvements are blocked in bitter ideological fights.

The greenie Heinrich Böll foundation now demands even 1% GDP savings, and many want to destroy “unneeded” infrastructure.

The second hype are high profile projects e.g “High speed trains” which have only a few stations, often even destroy frequent access inbetween, and with extremely questionable cost-benefit analysis.

Germany did not built the Transrapid “mag-lev” trains because of that, and recently put more emphasis in the local connectors, instead of the high-speed “euro-city”

That does not means that some of such projects can be reasonable.

e.g. an interesting link ( which also proviedes further links to a voxeu article, the IMF chapter, and an pretty interesting RIETI paper

From the IMF chapter I want to mention at least Fig 3.4, showing the high quality of German infrastructure despite our alleged investment gap

For the RIETI paper, of course it has very tangible benefit, if you connect a remote province to the rest of long existing high-speed train network

They couldn’t do cost-benefit analysis, but there are several clever things in the paper, especially when one compares that to Krugmans rumblings disconnected from the real world.

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