Yesterday, 14th February 2013, I spent a wonderful 75 minutes visiting a wonderful class of students at Evergreen College – the inverted commas denoting that I did so from… Austin, using the excellent AV facilities of both Evergreen and the LBJ Graduate School of Public Affairs (thanks are due to the excellent support staff on both ends).
The purpose of this e’visit, which was organised by colleague Peter Dorman (thanks Peter) was to hold a discussion, on the state of our troubled global economy, with Evergreen’s students who seem to have read my Global Minotaur. Following a 29 min introduction by yours truly, in which I was invited to allude to how I came to write the book, students posed questions and the discussion proceeded. A heartfelt thanks to the students and to Peter for making this possible.
Click here for the audio - and, if you wish to avoid my talk and go straight to the students’ questions, jump to 29’50”
Very edifying presentation to Evergreen College. We regular readers of your blog have heard it all before…and with pleasure, I might add. However, I have a feeling that you must have made quite a few of the sweet young things at Evergreen College rather dizzy with analyses that shook their perception and their world! Possibly they lost sleep for a few nights. Of course that diet is good for them!
The example that a profitable company in Spain cannot borrow is a little theoretical. Who said that it needs to use a Spanish bank? It could use a German bank and if the company is so great the german bank would loan money to it.
I do not usually intervene in these debates but here I have to make an exception. I can give you countless examples of profitable companies in the Periphery which were refused loans from German banks unless they move their headquarters to Germany. Or unless they pay usury rates.
Well than the problem cannot be such a big one! If it is essential to your business you move your headquarter. Maybe German tax rate are less attractive than the ones in the periphery!
The bank needs to protect itself from the risk that the country in which the borrower resides and exits the Euro area.
If it is a medium sized or big company it can use capital markets.
Very informative and clear presentation of the causes behind today’s financial crisis. As an engineer I sometimes stuck to the complex terminology that economists use, but Prof. Varoufakis displays the topics so clearly that I am always pleased to listen to him. So much, that I’ve transferred his discussions into my portable audio device to hear them over and over again. Thank you.
http://gr.news.yahoo.com/%CE%B2%CE%B1%CF%81%CE%BF%CF%85%CF%86%CE%AC%CE%BA%CE%B7%CF%82–%CF%80%CE%BF%CF%8D-%CF%84%CE%BF-%CF%80%CE%AC%CE%B5%CE%B9-%CF%84%CE%BF-%CE%B4%CE%BD%CF%84–121025007.html
I am a fan of your work and have followed your speeches closely, including this most recent one. However, I unable to follow the logic underpinning one of your key arguments related to the Global Minotaur: the need for foreign capital to finance the US trade deficit (or for that matter the US Government deficit).
I am aware that the media continuously bemoans an assumed US dependence on foreign capital, but a recap of the actual transactions involved seems to reveal the reverse. Take the example of a US consumer buying a German car. If the consumer pays cash for it, the consumer’s checking account in a US bank is debited and the German carmaker’s account is credited, thereby increasing foreign savings of USD financial assets. Total deposits in the US banking system remain unchanged.
If the consumer borrows to buy the car, the bank makes a loan to the consumer, which results in a loan on the asset side of the bank’s balance sheet and a new deposit on the liability side (loans create deposits). After the car is paid for the German car company has the new bank deposit. Consumer borrowing increased total bank deposits and funded foreign savings of USD. That’s what the finance behind the trade gap is all about – foreigners desire to net save USD financial assets and sell goods and services to the US to obtain those assets.
Following the above transaction, the foreign holder of USD bank deposits may instead desire to purchase US Treasury securities. At the time of purchase, the seller of the Treasury security becomes the new holder of the bank deposit, and the foreigner the new holder of the Treasury security. (If the foreigner buys securities directly from the Treasury the result is the same.) The US government is now said to have foreign creditors, and the US is said to be a debtor nation.
While this is true as defined, a look past the rhetoric at what the US government actually owes the holder of the Treasury security is revealing. What the government promises is that at maturity the foreigner’s security account at the Fed will be debited, and his bank’s reserve account at the Fed will be credited for the balance due.
In other words, the US government’s promise is only that a non-interest bearing reserve balance will be substituted for an interest bearing Treasury security. This is not a potential source of financial stress for the government. Moreover, there is no foreign cash that flows into Wall Street for the loop to close. Your thoughts and comments on the above would help me as I am not an economist and admire your work very much. What I am missing?
Thanks for your question Alejandro. It inspired me to write this post: http://yanisvaroufakis.eu/2013/02/17/on-the-global-minotaurs-recycling-loop-an-elementary-comparison-of-us-german-and-intra-eurozone-trade-capital-flows/#more-3401
http://archive.org/details/AV_032-THE_NOT_SO_JOLLY_SIDE_OF_OLDE_ENGLAND
Peter Bell’s unflattering portrait of English society shot just before the 1979 UK election.
A must see.
The original neoliberal government of Thatcher — and the failure of the media to discuss the economic ideology that was about to be imposed not only on the UK but ultimately across the world.
Yanis – you say how happy Obama would be not to have any federal debt and then you say Europe should have a federal debt. Also as a side note, to have a federal debt there needs to be direct federal taxes ie an EU income tax. Don’t you think?
Devaluation happens overnight and causes panic. That is not good. And again the Drachma is not required for a devaluation of the currency in Greece. If taxes had remained stable and the government had defaulted the prices inside in Greece would have adjusted on their own.
Just like in some parts of a country prices and lower than other, just like inside the same city some areas are more expensive than others. The same holds true for Greece. Greece would have gone through a devaluation even in the Euro. No recycling mechanism needed, no Drachma necessary.
Again, the Euro system as it stands is good. If only Greeks were not forced to pay for their governments mistakes and if only foreigners stopped propping up an oppressive government.
“investment strategies in Greece” – How about letting the Greeks banks fail and simply reimburse savers.
“the right” – Survival of the fittest refers to business obviously not the public.
“the left” – the points you highlight deal with the public not business.
In short, your examples are incomplete. A small but important point.
Good talk.