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2010-05-29

Grekland, Spanien och grunderna i macro

BNP är C + I + G +/- X Skall det vara så svårt att förstå för microhjärnorna? Det frågade jag på denna blog i februari.


GDP = C + I + G + (Net Exports)

Which is to say, that Gross Domestic Product in a country is equal to total Consumption (personal and business) plus Investments plus Government Spending.

Det skrev John Mauldin häromdagen.

Det är ingenting genialt vi har kommit på. Det är grunderna i macro-delen av den nationalekonomiska  vetenskapen,  i den mån nationalekonomin är en vetenskap.

- This equation is known as an identity equation. It is true for all countries and times.

 If you play with the variables a little bit you find that you get the following equation.

Domestic Private Sector Financial Balance + Governmental Fiscal Balance – the Current Account Balance (or Trade Deficit/Surplus) = 0

This equation was introduced to you a few months ago in an Outside the Box written by Rob Parenteau. We are going to review this briefly, as it is VERY important.

As Rob noted, "...keep in mind this is an accounting identity, not a theory.
If it is wrong, then five centuries of double entry book keeping must also be wrong."

Leading the PIIGS to an (as yet) Unrecognized Slaughter
Everyone cannot export their way out of this crisis.
Someone has to actually run a current account deficit.
Rob Parenteau at John Mauldin 9/3 2010

Here is their dilemma. In order to reduce the government's fiscal deficit, either private business must increase their deficits or the trade balance has to shift, or some combination.

If Greece wants to reduce its fiscal deficit by 11% over the next three years, then either private debt must increase or the trade deficit must drop sharply. That's the accounting rules.

But here's the problem. Greece cannot devalue its currency. It is (for now) stuck with the euro. So, how can they make their products more competitive? How do they grow their way out of their problems? How do they become more productive relative to the rest of Europe and the world?

Since the beginning of the euro, Germany has become some 30% more productive than Greece. Very roughly, that means it cost 30% more to produce the same amount of goods.

That is why Greece imports $64 billion and exports $21 billion.

What needs to happen for Greece to become more competitive? Labor costs must fall by a lot. And not by just 10 or 15%.

But if labor costs drop (deflation) then that means that taxes also drop. The government takes in less and GDP drops.

The perverse situation is that the debt to GDP ratio gets worse even as they enact their austerity measures.

There are no good choices for the Greeks. No easy way. And then you wonder why people worry about contagion to Portugal and Spain?

Where will the /IMF/ money go? It will buy mostly Greek rollover debt from European banks getting out of their Greek debt. It is a back door bailout for German and French banks.

The US Senate voted 94-0 that the US should not fund any such debt if the Treasury cannot certify the probability of getting repayment. If the Obama administration allows this funding to go through, the hue and cry will be large. It is bad enough that we have to pay for Freddie and Fannie (already $400 billion and counting!). Not meaning to be churlish, but the French and Germans can bail out their own banks.

Grekland - Spanien (landet som jag tror fäller EMU) -  Stabiliseringspolitik - Rebalancing

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