Thursday, 18 November 2010

The Irish Play (Acts Two, Three and Four Recurring.)

"Hello. I'm an esteemed professor of economics and no "wall-flower" when it comes to offering the UK Gov. advice. Yesterday I published an article in the Guardian Newspaper suggesting inflation is good for us - meaning, it's good for the UK economy. It's my belief that in these troubled times, when talk is of austerity, of cutting housing benefit, of controlling inflation etc etc, we should be doing the opposite. We should actually be encouraging prices - that is, property prices and rental prices - to rise. We shouldn't be tightening our belts. No! We should be encouraging growth, encouraging expansion... even if that means, encouraging inflation.

"That argument, my argument, was made quite persuasively, I believe. And many commended the points I made. But now, I would like to offer the same advice to the European Union. Because surely the same arguments apply to it as the UK government - or US government for that matter. Here we go:-

"The news from the Irish Republic, indeed the news from Europe, is looking increasingly gloomy. House prices have nosedived and the banks are saddled with crippling debt. The Irish government has, until now, resisted pressure from the European Union for a multibillion-euro bailout. Prospects for an emergency package of help - part bankrolled by Britain - are moving ever closer, and negotiations between finance ministers from the 16-nation eurozone are tense.

"But here's what we should do: Let the ECB printing presses roll! Let the quantitative wheeze generate some quantitative ease! Instead of bailing out Ireland, why not let the ECB step in and buy those mortgage backed securities and those loans the Irish, or, for that matter, the Portuguese, the Spanish, the Greek banks took onto their balance sheets in those heady days we called the Roaring Noughties?

"Isn't about time the ECB set up a bank to purchase the mortgages of the "zombie households", those mortgage defaulters, that run the length and breadth of the European Union? Isn't it time the ECB let inflation run wild? 10% should do it for now. That way the eurozone could inflate its debt away and avoid a lot of this austerity nonsense everyone's talking about. Euro-quantitative easing would add stimulus to the Euro economy - which would be positive for house prices - and those mortgages wouldn't be quite the "zombies" we originally thought they were. Then everybody would be happy. And more important, no bailout would be necessary."

"You know, it's easier than you think to achieve this - Euro-willing!

"And here's a thought: If you want to know what the future looks like, why not simply look at the past? You see, the past is essentially a series of bubbles. History teaches that. History has taught us that. We economists know the way to limit the damage caused by the last bubble (i.e. the last bubble that burst) is - yep, you guessed it - to magic up another, another bubble. Or, you could look at it this way: It's a bit like relationships really. Relationships? I hear you ask. Yes relationships! One thing we all know when it comes to relationships is, the best way to get over an ex is the next. That's how we move on in life. Right?

"So, let's move on!

What I'm basically saying is this: Think not too hard on the last bubble that burst. Think more about the next, the next bubble we can create. And if there's one thing that we economists are good at, it's - you guessed it - blowing bubbles, forever blowing bubbles.

"So let's all sing together - the economists' favorite song:-

I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.

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