Where is the US economy headed?

I agree that a bailout of some kind will happen, but from the perspective of tax payers, the argument as presented only means that in case of a bailout, neither Greece nor France nor Germany profit - the financial institutions do. Should no bailout happen, though, Greece would suffer, and as a consequence the financial institutions and their customers in France and Germany. Socialized losses, privatized profits.

See, you guys are more like America then the Right-wingers will admit!

Cycloptichorn

Thank you, OE. But the polls show Germans strongly oppose this. Can Merkel politically make this work?

So am I. This is an unprecedented crisis within the European Union, and I have no idea how it will play out. We'll find out soon enough. All the analysis I can give you is to say "I told you so." I was always against the Euro.

Why were you against the Euro, if you don't mind my asking? Was it on principle, or the practical question of which countries should be participating?

http://www.ncpa.org/sub/dpd/index.php?Article_ID=19239&utm_source=newsletter&utm_medium=email&utm_campaign=DPD
AN ECONOMY OF LIARS

Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides to entrepreneurs allocating capital across time; and a firm's accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars.

The cause is straightforward: crony capitalism, says Gerald P. O'Driscoll Jr., a senior fellow at the Cato Institute.

Nobel laureate Friedrich Hayek described the price system as an information-transmission mechanism:
• The interplay of producers and consumers establishes prices that reflect relative valuations of goods and services.
• Subsidies distort prices and lead to misallocation of resources (judged by the preferences of consumers and the opportunity costs of producers).
• Prices no longer convey true values but distorted ones.
Hayek's mentor, Ludwig von Mises, predicted in the 1930s that communism would eventually fail because it did not rely on prices to allocate resources.

He predicted that the wrong goods would be produced: too many of some, too few of others. He was proven correct, says O'Driscoll.

In the United States today, we are moving away from reliance on honest pricing:
• The federal government controls 90 percent of housing finance.
• Policies to encourage home ownership remain on the books, and more have been added.
• Fed policies of low interest rates result in capital being misallocated across time.
• Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery, says O'Driscoll.

If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice, says O'Driscoll.

Source: Gerald P. O'Driscoll Jr., "An Economy of Liars," Wall Street Journal, April 20, 2010.[/quote]

Asymmetric shocks. If a recession hits one part of Europe harder than another, individual currencies allow the affected parts to print money and devalue their currencies. That's a relatively painless way to deal with it. But once you have a single currency, the only way to match aggregate supply and aggregate demand is to put your country through a deep recession. (That's what ultimately brought down Argentina 10 years ago.) For a more extensive discussion see Paul Krugman: Monomoney Mania. Slate, April 16, 1999. You could also Google "optimal currency zones".

rjb ,
a/t german news sources , chancellor merkel is pushing hard for bailout of the greek economy .

there is quite a bit of interesting info in the english section of SPIEGEL magazine - rather difficult to summarize in a few sentences .

you may want to look at it :

http://www.spiegel.de/international/europe/0,1518,691898,00.html

SPIEGEL ( mirror ) is one of the best german news sources - the best imo .

i think that merkel will not " bulldoze " this issue of massive support for greece - and the EURO - , but very cleverly negotiate it both in germany and with other european leaders .
my bet is that she wants to maintain both the unity of europe and the EURO without personally going down in flames in the process .
if anyone can do it , i think chancellor merkel has the best chance of success - even though her victory would be costly to the german taxpayers .

( i would not want to see the european union to fall apart over this issue - simply too much to lose for generations to come if europe breaks apart imo )

Thank you. I will probably have to read Krugman's article more than once.

Sorry if it sounds complicated. The underlying idea isn't that hard. Perhaps, instead of reading the same article several times, it would work better if you read the same idea differently stated. Recently, Krugman has restated the same idea in his blog (here and here).

I will, I promise. Mostly, I don't really have clear concepts on international currencies.

Thanks, Thomas, for the link to Krugman's essay. I certainly am not as smart as he is about this or any other topic related to economics. I know enough about it to be, like you, dangerous.
I agree with him that adopting the euro over a number of countries creates a disconnect in that individual countries can't do tweaking with regards to the value of their (formerly) own currencies. This hinders their ability to stimulate exports or tamp down inflation as needed.
He doesn't mention in his 1999 article something I consider to be a fatal flaw of the eurozone. It is too big. It includes countries (France and Germany) that have large, reasonably healthy economies and political systems. At the other end are countries (Greece being the obvious example but also perhaps Portugal) that have some very serious shortcomings.
I guess I disagree with him about, if I read it correctly, how useful it is to businesses to deal with a single currency vs multiple currencies. Sure, we have really, really smart computers that can keep track of things. But having a single currency in a group of similar countries makes thing easier.

A single currency still sounds easier to me. So what if you can do calculations based on an exchange rate? What the Spanish Real, or whatever might have a known rate today, it will probably be different sometime next week. There might even be a black market rate in Reals, or whatever, especially in times of flux.

Sure! Drunken teenagers on the road everywhere! WooWoo!

Where are these alleged drunkard teenage masses? Even the media, which is prone to fear mongering, rarely claims as you have.

Thanks for the link to Spiegel. Merkel looks like she can make the deal happen over the weekend or early next week.
I would repeat my question about the elections a week from Friday. Will there be a backlash? Is this particular election, if it goes badly, potentially damaging to her? It looks like her coalition partners are not vehemently fighting the Greece bailout. Am I reading that right?
I must admit I have been following the U.K. and U.S. races more closely. This one I am more than a step behind on.

I think pom was responding to your desire to get government out of our lives by suggesting we eliminate the drinking age and the DUI laws.

After all, why would we possibly want any regulation from government?

No one suggested such....what we were talking about is business so afraid of a single sale to a minor because of government pressure that they adopt outrageous practices to protect themselves. The root of the problem is an out of control government, not the practice of having government active in regulating alcohol sales.

The rule used to be that if a business made a practice of failing to refuse sales to minors then the government would lower the boom. THAT made sense. What we are doing now , this zero tolorance bullshit that has done so much damage to our society, makes it very clear that government is out of control. We can no longer ignore the problem of a broken government.

The root is the problem is that you will say any ridiculous thing for the sake of argument. Those fines levied on sales people at liquor stores are meant to protect the likes of you, even if you are ungrateful for the protection.

Thanks