It was obvious to those who understand Modern Money Theory that the set-up of the European Monetary Union was fatally flawed. We knew that the first serious financial and economic crisis would threaten its very existence. In a sense, it was from the beginning much like the US in 1929, on the eve of the Great Depression—with excessive lender fraud, household and business debt, and a boom that had run on too long. more »

The price levels in Europe are wrong, because the free market financial firms completely miscalculated and invested heavily in countries that are now bankrupt or very close. The price levels need to come down in the periphery, while in the core prices need to move up. Delaying Greek bankruptcy is a sure way to delay price adjustments in the real economy as well. However, it seems that politically the creditors are stronger than the debtors, and so much so that no serious discussion of a solution for the ongoing problems is possible. This is a sad state for the people Europe. They deserve to be saved, and not some financial system or currency that leads to persistent mass unemployment in wide regions of Europe. more »

Ireland, along with Iceland, became the Cato Institute’s Exhibits A&B for the purported success of deregulation and desupervision. European Central Bank President Trichet shared the Cato Institute’s praise for Ireland’s policies, but he came to Ireland on May 31, 2004 to make another claim – the “Celtic Tiger” proved the triumph of Ricardo over the errors of Keynes. Trichet made clear that he was an anti-regulatory supply-sider. more »

The people at Alphaville have recently quoted Deutsche Bank as saying: The $2 trillion in purchases have literally gone down a black hole. Required reserves haven’t been required to increase and the Fed reserve add has literally simply been hoarded as cash. more »

There are two threats in Europe: runaway inflation and killing off the recovery that is in process. In the coming months we'll see whether the ECB has fought the right evil at the right time. This is a situation which seems very strange. In one part of the currency area, you have inflation and growth rates above 2%, in other areas it is deflation and stagnation. more »