:rolleyes: Not that shit again!
Just a quick post until BrightNShiny gets back.
The Eurozone is not one integrated and regulated thing the way a country is. They’ve made steps to make movement of people, goods, and currency easier but they are still about 30 separate governments with separate rules, policies, markets, banking systems, and all that goes into it. One government can decree policies that are helpful to it and harmful to another.
You can argue this is true for the U.S. Austin is booming; Detroit is failing. That, however - despite what some people say - is due to structural differences not governmental policies. Detroit benefits from the Fed’s low interest rates in the same way that Austin does. The government can decide to push funding toward Detroit. Individuals can leave Detroit and take all their goods and money with them to any other point in the country. And Detroit sends representatives to the national government who have a say in overall policy.
Greece has none of this. Favorable rates in Germany aren’t applied there. They can’t get money moved to them; only loans they have to pay back at high rates. Individuals cannot take money freely across country borders. And while Greece is part of the EU, they have no say in what Germany does. If Germany refuses to loan them money they have no recourse.
I’m trying to think of a good simple analogy. Maybe a house and a homeowner’s association of an entire neighborhood. In an association you’re bound by all the rules and supposedly get all the benefits. If your needs are wildly different from the others’, though, you can get screwed.
Currency backed by gold has historically always wound up to the benefit of certain groups. And bubbles have occurred throughout history under gold standards.
No modern society can be run on gold. That’s probably the only rule economics has.
But the big difference is Alabama or California don’t have control over their currency. Their currency is controlled by the United States and neither state can unilaterally adopt a new currency policy.
India and Japan have both independent currencies and independent policies. Either country can adopt a new policy but the other country isn’t compelled to live with the result. If Japan adopts an unsound policy and the value of the yen plummets, the Indian rupee is unaffected and India can just switch its trade to South Korea if it chooses.
If India and Japan had a joint currency - let’s call it the yuppie - then Japan could adopt a policy that devalues the yuppie and India would see its currency losing value even though it hadn’t done anything wrong.
Apparently there is an economic theory, pioneered by Robert Mundell, of an optimal currency area, which according to the theory can be larger or smaller than a state/country. It has its critics.
See also the Mundell-Fleming model:
You’ve stated what a solution would look like in the US, but then ignored that solution in the EU.
“So, let’s take the [EU]. If, say, all the banks in [Greece] fail tomorrow, then the [EU] government will step in, seize the banks and recapitalize them. Or, it can step in and lend them money until they get back on their feet. Now, the [EU] government can do this because it has the ability to borrow money and it can print money to lend to the banks if it has to.”
Basically, you seem to be indicating that the EU needs to establish the idea of bankruptcy at the Federal level.
But there is no EU government with the power the US government has.
The answer to the OP’s question is implied by many of the posts here - a world currency requires a world government, one that could enforce fiscal standards, step in as described above without fighting local interests, and which could move money to areas needing it just like the US government does.
A world government doesn’t solve the problem it only mitigates it. Different areas will need different amount of monetary growth. It would be great for Detroit if they had a currency to devalue so that it was economical to make cars in Detroit again. They don’t and so they lose all of the car manufacturing jobs to plants in the south. It helps some that the workers in richer parts of the country are taxed to pay for welfare for people in Detroit and people in Detroit can move to where the economy is better. However, I am sure most people there would rather have the manufacturing jobs then welfare or moving vans.
Of course the more monetary zones you have the harder it is to trade because you’re always having to do currency exchanges. This is why it is a good idea for the US to have a single currency, but it still causes alot of pain around the country.
One advantage of a single global currency is that it would drive the fundies absolutely apeshit. Right now, they talk a good game about how we’re approaching the end times, but most of them don’t really mean it. A global currency would fix that, big time. 
Sure. It would certainly not lead to economic utopia. If we got to the point where all parts of the world were economically equal, more or less, and money would be moved for natural disasters or local economic upheavals, it might work well. But that isn’t going to happen in my lifetime.
People in the EU are moving - I read that large numbers of new graduates in Spain have moved to Germany, for instance.
I’m saying that a world government is a necessary but not sufficient condition for a world currency to work.
If we had one currency, wouldn’t we need to have one controlling entity over that currency? The problem is always inflation or deflation of value in one area or another, so we need to stop a government in some random part of the world from being able to just print money for what it wants.
Beyond that, I’m a little fuzzy on how financial markets work. Why would it matter if the US were on the same currency as South Sudan? Couldn’t the value of money work out if they simply get paid less and we take into account economic realities on the ground? Or if Greece decides to pay all its people lots of money and give them 6 months of vacation a year, eventually they’ll run out of money literally; why would that impact anyone else on their currency, why would anyone else’s value be reduced?
#2 basically means that there should be free movement of basically everything (goods, services, labor, capital, money) across the OCA. Think of it this way. Let’s say one area experiences a boom. That’s going to create demand for everything, which is going to push up prices, so you’ll get local inflation (because local demand exceeds local supply). Ideally, what should happen is that stuff (goods, services, labor, capital, etc.) starts flowing into the area to increase supply and bring prices back down. In the real world, this is never going to work ideally, but the further away you are from the ideal, then the further away you are from an Optimal Currency Area.
#3 means that some central authority is redistributing money around the OCA. Take the US for example. It collects taxes all over the country. Then it takes that tax money and it spends some of it directly throughout the US (government employees, military bases, Medicare, etc.). It sends some of the tax money to state and local governments (Medicaid, education spending, infrastructure grants, etc.). And it sends some of that money directly to people all over the country (Social Security, etc.).
More-or-less, yes, although most people typically don’t use the word bankruptcy with regards to banks, so that might be a little confusing to use that term. But I think the EU needs to establish something equivalent to the FDIC. Right now, the ECB can loan money to banks, but (AFAIK) its regulatory authority is limited, and (AFAIK) it doesn’t really have the power to seize banks and recapitalize them. All of that is left to the member nations.
So in foreign countries, where the locals prefer to use U.S. Dollars, I guess those holders of cash are subject to the whims of The Fed.
Sure, and they’re welcome to trade in any other currency they wish.
That they choose dollars says something of it’s reputation and stability.
The issue (and this is something Senegoid and others missed when examining Krugman’s analysis) is that when comparing the US and the EU, there’s one crucially important distinction: the US is one country. The federal government is willing to and quite regularly does send an awful lot of money to any given state to help stabilize financial woes. The EU… doesn’t. Basically, he argues that if the EU had become a fiscal union, as well as a monetary union, they could’ve made it work. Like the US! But they didn’t. I mean, think about it. We don’t tend to think much of it when a whole mess of federal funds get sent to some random state to help deal with a huge disaster. But when a comparably small (by respective GDP) transfer is proposed between Germany and Greece, we often get really pissy about it. It’s understandable - to many, this is us “giving handouts to those lazy Greeks who can’t get their shit together. They aren’t us, they aren’t with us, why should we care? We never should have let them join the Euro!” Which are, to an extent valid complaints, but that kind of thinking makes a monetary union pretty damn unworkable.
I don’t know if it’s in any of the links provided but the Krugman’s comparison of Greece to Miami was the one that stuck with me. The economy of Greece is about the same size as that of Miami and both were hit hard by the financial crisis. But Miami didn’t have a meltdown because it got the very thing Greece did not: massive inflows of cash. While the EU hemmed and hawed about whether or not to help Greeks caught up in the mess bureaucrats in America quietly and automatically began sending unemployment benefits and increased EITC payments into Miami.
The lesson is that monetary consolidation should only follow political consolidation. Are you proposing one world government? If not then one world currency is not a good idea.
Sure, but my point was that the overall impact of the currency union on bringing down Greece was largely nill and the total amount of aid that it could have given them, in a properly integrated union, is probably 10% of the total force that can be brought to bear. Just as the Federal government doesn’t have as much power to help out, as a still largely sovereign state, Greece has a much wider latitude to implement local countermeasures.
Pre-war Japan, for example, was able to kickstart themselves from living in the age of Knights and Kings to modernity in a few decades, through basic internal unification of intent and methodology. China has been much the same thing over the last 2-3 decades. And while those states did have their own currency, Japan certainly didn’t have monetary theory nor even Keynesian theory, to guide them. Japan’s currency was probably still based on the gold standard.
While there’s certainly some amount of math involved, and hydrodynamics, behind economics, a lot of building a healthy economy comes down on infrastructure, lack of corruption, honest trade (i.e. actually paying for services), and the popularity of establishing a strong economy among the populace. Those are all fully within the bailiwick of Greece to foster and are the 90% of all things that could be done to help out their economy.
The problem with the US and the South Sudan having the same currency is that they then would need the same monetary policy. As long as the same monetary policy is needed in both places you are fine but when needs diverge then someone is going to get hurt. This is what happened with the Euro, Greece needed a very aggressive monetary policy and Germany prefered a tight monetary policy. Since Germany is in charge of the EU they got what they wanted and Greece got told to pound sand. Germans balked at sending massive aid to Greece since the are lazy and dishonest and already wasted all the money they had before. Greeks got resentful of the skinflint Huns who were trying to ruin their country for the second time in 70 years.
None of this changes if there is a political union as well. The Germans would still need to either hurt their own economy to run a more aggressive monetary policy or send huge amounts of aid to the Greeks. What needs to be changed is the nations in Europe stop thinking of themselves as individual countries and start thinking of themselves as part of one country. This is a horrible idea for anyone who like democracy so the idea of seperate currencies is a better one.
What exactly do you mean by monetary policy? I know somewhat of what happened with Greece, but I don’t see why bailouts are necessary in this world with one currency. If Greece or South Sudan is squandering their allotted amount of cash, then let them suffer the consequences. This doesn’t need to impact the currency at all. Presumably, South Sudan can go bankrupt whether its using the One World Currency, rubles, dollars, or seashells
How I would see it working out in the real world using Greece as an example is that the government of Greece cannot pay its bills, therefore its banks and assets get bought out by another country and now Germany owns all Greek banks and can impose whatever policy they feel like.
Why’s it so bad for democracy for everyone to think of themselves as part of one country? You can still have whatever laws make sense to your local region, democracy doesn’t have to mean one size fits all, it just means that people get a voice in their government
Monetary policy is controlling the amount of money in an economy. Money is like any other good in that if there is alot of it then it is worth less than if there is a little bit. When an economy tanks for some reason and it is reduced by one tenth then either everyone needs to take a pay cut of one tenth or one tenth of the people need to be let go. Since it is unpopular to cut everyone’s pay unemployment results. If you increase the money supply enough you make everyone’s pay worth less and it is like everyone gets a pay cut without them noticing. Thus you can avoid the unemployment. Also if you devalue your own currency then the things you sell to other countries suddenly gets cheaper and you can sell more of them.
In the case of Greece, if the quantity of Drachmas was increased so that they were worth less relative to the other currencies of Europe then that would make it cheaper for tourists to come from other countries to Greece, helping the economy without anyone in Greece having to take a pay cut. Also unemployment would be much less than it currently is. They would still be bankrupt, but suffering would not be as great.
Democracy means having a voice in the government. The bigger the government the more diluted the voice. If you are going to have each local region have its own laws, why not just call these local regions countries and let them rule themselves.