Tuesday, 20 December 2011

Second review of the IMF - December 2011

The IMF has concluded the second review, see press release

Relevant note: the drop of the fiscal devaluation is now official, but no substitute is known up to the moment.

4 comments:

  1. O blogue "Erros de números" é agora "À volta dos números" (www.avoltadosnumeros.blogspot.com).

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  3. Interesting article by Krugman about national debt: "Nobody Understands Debt" http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html?_r=1

    ... to a certain extent it reminds me of Paul Samuelson's idea from 1958: "If the rate of interest on government bonds is forever less than the growth rate of the economy, the government can run a sustainable Ponzi finance of deficits, where it rolls over the debt plus interest forever and never needs to increase taxes, so there is no burden on future generations."

    What do you think?

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  4. This only works when the Central Bank can (print their own currency, then) buy their Treasury's bonds, because with yields pushed artificially low, which foreign investors are going to "invest" in near zero return bond yield below the rate of inflation (real or otherwise-CPI)? The long term cost of this, is currency devaluation. You need to look no further than Japan as to the outcome of these financial engineering tactics. The difference in Japan is that at least most of their bond purchases were coming from the public sector. Without foreign buyers and no national public sector substantial buyers, the only option left is for the Central Bank to replace both those sources of purchasing power.

    It's a ponzi that works until any remaining foreign holders of said bonds finally lose confidence - given that not only the yields are ultra low, but also that the currency of said bonds is devaluing year after year - and when they finally decide to dump (sell) all said bonds, the jigg is up and the currency collapses.

    But what do I know? I haven't spent 1 day in economics class ;-)

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