08:12 – The guy from Piedmont Natural Gas showed up yesterday to look at the gas logs. He blew out the thermocouple/oxygen sensor mechanism, as I’d done, but apparently more successfully. The pilot light has been burning since he left, but we haven’t had the gas logs lit yet, other than the several minutes that we let them burn while he was here watching them. The pilot flame now looks normal, a pure blue gas flame rather than blue tinged with yellow.
I’m almost finished with Lab IV-3: Investigating Cell Division. That will go off to the editors today, and I’ll jump back into the final session, Lab XI-4: Investigating Vertebrate Structures. I’ll finish that this week, and that’ll be it for new material, other than the Preface and Introduction. I’ll get those knocked out next, and then jump into rewriting and cleaning up the material I’d already written. This book will be ready to go to production on 31 January.
I’ve never yet been happy with a book at the point I have to let go of it and let production do their magic, and this one is no exception. As our friends Mary and Paul can confirm, I’ve been walking around for weeks now, muttering “I HATE biology!” Of course, before that it was “I HATE forensics!” and before that it was “I HATE chemistry!” And I don’t doubt that at some point it’ll be “I HATE physics!”
The good news is that the time between to-production on 31 January and when the book is actually published in April or May gives me a cooling off period. When I finally hold the printed book in my hands, I’ll flip it open to a random page and immediately spot an error. It happens every time. But then I’ll start paging through it and decide, hey, this is actually a pretty good book. That happens every time, too.
09:41 – Well, this is interesting. Italy, which is paying unsustainable interest rates with no relief in sight, has basically told the EU, “give us money or we’ll depart the euro and withdraw from the EU.” Of course, Monti didn’t phrase it exactly that way, but the meaning is clear. If Germany doesn’t pay Italy’s bills, which Germany is not going to do, Italy will leave the EU. And Italy has metric boatload of debt to sell in the near future. It’s paying over 7% now. I shudder to think what it’ll be paying soon.
RBT wrote:
“As our friends Mary and Paul can confirm, I’ve been walking around for weeks now, muttering “I HATE biology!” Of course, before that it was “I HATE forensics!” and before that it was “I HATE chemistry!” And I don’t doubt that at some point it’ll be “I HATE physics!””
Impossible. Not even you could hate Physics.
Typo. He meant “I HATE Phrenology!”
Monti is merely presenting the view of all the troubled EU countries: if Greece gets to pay back 20¢ on the euro, why should others pay more? Italy CAN pay more, but why should it, when Greece gets off essentially Scot free?
Europe is generally damned angry that Germany has turned out to be the dictator of Europe once again. Germany wants a closer political and fiscal union, just like they all do, but Merkel is the monkey wrench in the works. Some commentators are pointing out that what she is demanding will result in sure-fire significant inflation–in a manner similar to the Austro-Hungarian inflation after WWI–and her ideas will not stop inflation, as Merkel imagines. Some of her own advisers agree with that, but she stands unmoving against them. I agree her position is untenable to the current condition of the rest of the EU, and she is going to cause a significant recession with her demands. Her demands simply will not stand.
IMO, there are 3 ways of dealing with the situation: 1) get backing that guarantees against default, while the troubled countries get an extension to pay back their debts to the ECB (unfortunately, Germany has done absolutely everything wrong in dealing with this crisis, and I suspect that scenario is no longer possible); 2) default, which liquidates the debt, shifting the burden to the ECB, which is only allowed to make loans with securitized assets–which means those securities in the amount of the default will be lost, perhaps destroying the ECB; 3) figure out a way to shift the burden of liquidating the debt onto the backs of the taxpayers of the EU–which is exactly what the US did to prevent a banking crisis in 2008: bad debts of the banking system were transferred from banks to the balance sheet of the public tax rolls, and we all are paying off those debts.
If Merkel remains obstinate, then I believe that pressure on Germany by the rest of the EU, will force Germany to withdraw from the EU. My own feeling is that this will require the cooperation of France–essentially, France must abandon its current bond with Germany. France is in no condition to stand with Germany, and when push comes to shove, it needs relief, too.
After Germany leaves, the troubled states will then all default, and the costs apportioned across the EU as a whole. That, in my current view, is the most likely scenario, because it will get those remaining in the EU back on their feet the quickest, and I now assess that outcome as more than a 50% probability.
Germany would be a big loser in this situation, because they will lose tariff-free access to the EU and incur again the terrific costs associated with currency conversion that would put up barriers between it and one of its best markets–the EU.
Now default is not necessary. This idea that it is impossible to pay back these debts is just not true. But extending payment of those debts will slow growth everywhere, whereas default will be the quick solution that will get everyone back on their feet with less suffering than high unemployment and severely slowed growth of extending repayment. In almost all cases in modern times, default has permitted a quick resumption of growth–Argentina being a good example.
There is some history behind this, because there was a European union before this–the Austro-Hungarian one. They reached a point very similar to this one, and took the steps Merkel proposes with intolerable inflation resulting. The break-up of that empire had more to do with the results of WWI than the financial problems, because the League of Nations came to the rescue by guaranteeing the debt, and that stopped the terrific inflation dead in its tracks.
Germany came up with this whole idea of the EU, and they are now going to have to face the music: either help devise a guarantee for the EU’s debts; or pull out of the EU. They cannot stand against the whole of the Europe, whose attitudes are now turning strongly against Germany. Good thing nobody has much of a military over there, anymore, or it could turn nasty.
Chuck wrote:
“Germany would be a big loser in this situation … incur again the terrific costs associated with currency conversion that would put up barriers between it and one of its best markets–the EU.”
Do you really think it’ll be that bad? Most countries have to deal with currency conversion at some time or other. And I think the rest of the EU has to bear a lot of the blame and pain: they are the ones who went on the spending spree.
No. Currency conversion is a red herring. What Chuck is going on about is individuals traveling between EU countries having to exchange currency, which is a trivial problem. Currency conversion among countries, businesses, and banks occurs literally every millisecond every day of the year. It’s completely automated, with as close to zero friction as possible.
I do note that Chuck is coming around to my position, which is that Germany will leave the euro.
In some absolute sense, you’re right. It’s theoretically possible for all Italians to tighten their belts, get productive, private-sector jobs, and pay off the debt.
Realistically? Get real. Going from spending 130% of real GDP to spending 80% of real GDP (with the rest going to paying down the debt) isn’t going to happen. If by some miracle the politicians and bureaucrats forced it on the Italians, the shock would wreck the economy more thoroughly than a default would. Not that the Italians would stand for it, especially when they look at Greece’s unchanged habits and relieved debt. The pols would be dangling from lamp posts by the end of the week.
All praise and glory that we have now got off barefoot hobbits munching on poisonous fungi while humping dogs and smashing glass into tiny bits.
No, it’s not a red herring, but Americans believe it is, because American companies are profligate in their methods, have operated at higher margins than European ones, and have never really had to deal with currency transactions on a large scale as has the rest of the world outside the dollar.
I have mentioned here more than once before that in Berlin–one of the greatest modern cities of the world–you cannot get most restaurants or stores to take credit cards, unless the bill is €100 or more. They are not willing to lose the 3 to 4% on such transactions, as every American business will do without even considering it a loss. Small computer products like modems and routers use Linux as the OS, because–unlike American manufacturers–European companies are not willing to pay €1 per unit royalty to Microsoft or someone else, which again, Americans do without even considering that a cost that can be eliminated.
Do you think when American companies buy manufactured goods from China, that they first convert the currency from the dollar to the juan, and pay in juan? No–that’s what every other country in the world must do, but the US is exempted. China accepts payment in dollars with no conversions. There has been no relevant currency conversion cost to US, because America has been in a position to demand acceptance of payment in dollars.
But I assure you that has not been the case in Europe. I had students whose FULLTIME job, before the implementation of the euro, was tending to the currencies the company held in MANY various countries, and figuring out when and how to move them, in order for business to be transacted at the lowest cost. Have a transaction with Poland? Well, this week it is cheaper to move company money from France to Poland, than from Germany to Poland. Next week, it may be cheaper to move some money from Italy to Spain for some transaction, rather than from Germany to Spain.
And that does not even include the fact that European banks were made rich beyond belief by the transaction fees they charged, and they continued doing that right up to the day the euro replaced all those currencies. There is no competition to the banking system, and their fees for currency conversion are astronomical. Have you had to change currencies recently, and seen what the charges are? No, I didn’t think so.
So, eliminate the overly high monopolistic transaction fees, eliminate many people across a whole economy whose fulltime job was managing company currencies held in various places around Europe, and you have just saved companies some significant money.
I have never yet discussed this with Americans who held any view but that currency conversion is a negligible cost. They always say, well the banks have efficient electronic systems to do this swiftly and it isn’t a problem. On the other hand, I have never yet discussed it with a European who did not consider it a problem. ‘We have to go back to having accounts in different currencies? Back to having to watch exchange rates of multiple countries every day? And every time money crosses a border, our assets decrease?’
Americans live in their own little isolated world, without much knowledge of what goes on outside of it. And our clout–up to now–has meant we have escaped the nasty work of having to deal with anything but the dollar.
For all intents and purposes, the world currency is the US dollar. The reason our economy isn’t in worse shape, is that a lot of international transactions are in dollars. So every time somebody sells barrel of oil, they get dollars, and park the dollars here while waiting to decide what to do with their dollars.
Yup. Think of this for a moment. If you are the US and want some oil, you just take dollars to any country with oil, pay them the dollars, and they give you the oil.
But if you are Peru–for instance–what must you do? Well, you have to go out and make something that Americans want, sell enough of that to them to amass a significant amount of dollars, then take those dollars to the oil sellers and buy the oil. No oil seller wants Peruvian Nuevo Sol currency; they want dollars–so go out and get some, then come back.
Americans are just not aware how easy we have had it for so long.
Not at all. Peru could, for example, buy oil from, say, Venezuela or the UK, either of which would would be happy to accept payment in its native currency. If what you’re complaining about is that some currencies–such as the US dollar, British pound, and Japanese yen–are widely accepted, well there’s a reason for that. But if I have, say, Italian lira or German marks, I can certainly use them to buy oil, directly or indirectly. That’s what currency markets are all about.
Chuck wrote:
“Well, this week it is cheaper to move company money from France to Poland, than from Germany to Poland. Next week, it may be cheaper to move some money from Italy to Spain for some transaction, rather than from Germany to Spain.”
They employed people to do that? Sounds like something an entry level programmer could write in Fortran in a week or two…
Chuck is correct, however, that Americans are blind to how easy we’ve had it for many decades now, and there WILL be a reckoning at some point; this house of cards, on so many levels, cannot be infinitely sustained.
Robert has said that he thinks North America and a couple of other places will somehow muddle through, and I hope he’s right but I am more pessimistic. I don’t think we have a common cultural frame of reference in this country anymore; and that we are hopelessly polarized and deadlocked on major issues; and we are completely bereft of any political leadership that is willing and able to do the right things. Once the rest of the world realizes that we’re paying our debts in dollars worth less than the original deals that were made and that we can’t do otherwise, the roof is gonna fall in here. Despite our mighty nuke arsenal and the brilliant bonzes of Wall Street and Mordor on the Potomac.
Chuck wrote:
“And that does not even include the fact that European banks were made rich beyond belief by the transaction fees they charged, and they continued doing that right up to the day the euro replaced all those currencies. There is no competition to the banking system, and their fees for currency conversion are astronomical. ”
We have four or five major nationwide banks in Australia and they used to be on a nice little earner: interchange fees. When I buy something using my Westpac credit card I might be shopping at a store which uses the Commonwealth Bank. Did the banks charge a fee for shuffling the money around? You bet. They used these fees to partially fund various loyalty schemes, but a lot wet to the bottom line. Eventually the Reserve Bank of Australia (our equivalent of the Fed) stepped in and closed down this rort, and the loyalty schemes became much less generous. Good thing too as I think loyalty schemes are a waste of money and just smoke and mirrors anyway.
…but a lot went to the bottom line.
The thing that surprised me about shopping in the US is that they *never* checked my signature. (It was only just last year that Australian supermarkets started not-checking for small amounts, say under $30.) But supermarkets did want proof of age when I was buying grog, this 45 year old was pretty surprised to be asked to prove he was over 18 (or 21?)
Last I checked, OPEC was accepting only dollars and euros. Yeah, you could negotiate with a neighboring country, but few countries outside of OPEC, see themselves with a surplus. Most want their oil for themselves — and actually, very few are pumping. It just sits there. My example is based on Brazil of about 7 or 8 years ago, but Brazil is now just beginning to tap its own reserves. Back then — although they had huge reserves, — they were not yet pumping them. At that time, there was an article in The Economist, where a Brazilian economist described exactly what I described, as the method they had to use to get OPEC oil.
I chose Peru, because that may no longer be a true depiction of the circumstances of Brazil. Peru is probably a bad choice for the illustration, but it is certainly true for serious suckers of oil — economies that can only drink from the quantity the OPEC straw can deliver.
Right, you could trade through several currencies to get to dollars, but you lose worth with every trade. And only Americans would say that loss is too small to matter.
SteveF wrote:
In some absolute sense, you’re right. It’s theoretically possible for all Italians to tighten their belts, get productive, private-sector jobs, and pay off the debt.
Realistically? Get real.
Yeah,–at this point–you are most likely right, but I noted that scenario as almost certainly no longer likely. What you describe is definitely not going to happen. The debt CAN be paid down without default however, but it requires loan guarantees that perform a similar function to a judge telling creditors that they will have to wait and give a bankrupt corporation time to reorganize and repay over a longer period than the original contract. Probably too late for that to happen now; that is what should have taken place before Xmas.
What has happened during the last 6 months or so, has definitely put the troubled countries in much greater jeopardy. When all this surfaced in 2009, (except for Greece, who lied about their figures) we were talking about debt ratios that were being exceeded by just a couple percent, and those were in the 20’s% of GDP for even the most troubled countries (excepting Greece).
But what happened? Germany demanded austerity,–of economies that were nowhere near the size nor with the reserves of Germany,–those economies DID implement the austerities, but just like Argentina when Alan Greenspan allowed the dollar to climb to all-time recent highs in value, Argentina–who had been encouraged by the US to peg its currency 1:1 with the US dollar–endured a ride like being tied to a whale diving to the bottom of the ocean. Argentina could not hold its breath as long as the whale, because it was nowhere near the economic size of the US, and it nearly drowned.
Germany demanded austerity, and what–predictably–happened? GDP of the troubled states ultimately fell through the floor. The austerity WAS implemented, but it did NOT make things better, it caused economic contraction, and made things much, much worse. Now I detect in your rhetoric, that you think the Italians are spendthrifts. Their current condition of 120% of GDP (that is a CIA estimate as nearly as I can tell, because recent official figures have not yet been released from Europe) resulted in a fall in revenue, NOT from a yet further increase in spending. The austerity Germany would like to see, will starve masses. That just ain’t gonna happen.
The bottom line is that Germany is going to have to pony up, or leave the game. And they could have taken care of this whole thing 2 years ago, and it would have cost a pittance. Instead, they have held everyone hostage to a waiting game that has made the cost to salvage now very high. The only way Germany is going to avoid taking a bath, along with the rest of Europe, is to pull out.
Let’s see, the next long holiday period is . . . . — not until Easter weekend 6 through 9 April. Wonder if they will wait that long.