Monday, February 9, 2015

Thomas Philippon, hero economist of the year

Stern School of business: Greece has a problem with debt that must be addressed on way or the other. This column proposes a way to estimate a ‘fair’ level of fiscal consolidation in Greece. The author’s central argument is that contagion risk made the Greek crisis worse by preventing early debt restructuring. If restructuring took place in 2010 instead of 2012, Greece’s debt to GDP ratio would have been 30 percentage points lower today. To bring Greece’s debt under 120% of GDP, it would be fair for Greece to run a 3% primary surplus over the next decade or two. This is less than the current target of 4.5% but still requires a significant effort.

I haven't read it yet, but this abstract tells me everything, no arbitrage currency banking.  Once the material change occurs in the central banks network, then bingo, reset rates at the ECB to take gains and losses at that point. Quit trying all this Simon Wren Lewis-Krugam crap about inserting a partial hedge.  If we had the complete Schramm-Loewner theory available for bankers in a form they could have used, then by god, a whole bunch of this crap would never have occured.

John Taylor is right, but  not complete.  The rule we need for the currency banker is no arbitrage hedging, replace the whole friggen Federal Reserve with a  spreadsheet. We need a savings rate and a lending rate, independently adjustable.  Then we target net rates paid to the growth rate of the economy.  We recognize losses and gains at the currency bank, as part of the currency function. The spreadsheet is designed to lose and gain 'InknPaper' at the proper moment.

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