Greece leads the way

Well you know... It's with pennies that you make dollars.

Let's hope Greece isn't leading the way into catastrophic economic failure.

It isn't leading it is just one small symptom of a much larger problem.

http://www.theoildrum.com/files/Tipping%20Point.pdf

I still do not agree with starting to tax churches who follow the 5013c rules.

There is a damn good reason to not tax them because as soon as you start taxing them, you legitimize their claims to be involved in the political system.

The key is better enforcement of the 5013c rules and revoking their tax exempt status if they do not follow them. Whether this will ever happen is of course an issue up for hot debate.

/flame on

There are beautiful monasteries in Greece--in particular, those at Meteora and on Mount Athos stand out to me--built in remarkably difficult-to-access locations. At Meteora, the monasteries are atop giant rocks, hundreds of meters high; at Athos, they are built on steep cliffs overlooking the sea. In both cases, what might seem an attempt to be "closer to God" is actually a pragmatic solution to the problem of robbery. Vows of poverty should never get in the way of having a fragment of the true cross, leaved in gold and embellished with diamonds, as a relic. So, to avoid pirates, make the monastery as inaccessible as possible.

Pirates are one thing. Tax collectors? Even God won't be able to hide!

http://globaleconomicanalysis.blogspot.com/2010/02/greece-outlaws-cash-…

More Greek economics.

As long as Germany continues to wring its hands about actually doing anything about Greece's problems, Greece is going to go bankrupt.

As for taxing the church's real estate incomes - if it's behaving as a business, treat it as a business. It is charging rent, it should pay taxes on that income.

Greece is the only Country in the EU, that showed the religious affiliation in the identity card. I don't know that they still do it.
Meteora is beautiful, and the monks make a lot of money from tourists, so I think it's fair they pay taxes.

EU Economic Summit Overshadowed By 'Greek Tragedy'

Greece's public debt is estimated at some 300 billion euros ($400 billion) -- almost 120 percent of gross domestic product -- and it will need to find 20 billion euros within a month to refinance it. Athens' credibility on the international money markets, however, has taken a severe beating. Meanwhile, its empty coffers and attempts at cutting back public spending have led to protests that threaten political instability.

But the main fear of EU -- and, above all, eurozone -- leaders is that other spendthrift governments could face similar problems. Apart from Greece, the group comprises Italy, Portugal, and Spain. This could put in jeopardy the future of the euro currency union as such.

Adding to the concerns was the news on March 24 of a debt downgrade for Portugal, along with comments by a senior Chinese central-bank official today that the Greek debt crisis was just the "tip of the iceberg."

The Greek economy is a mess. Its governmental deficit is over 12%, which is more than four times what supposedly allowed under eurozone regulations. Greece must refinance over €50 billion this year, including more than €20 billion by the end of May. Athens must now pay roughly twice the interest that Germany does to borrow money, and has asked the EU to either guarantee loans or lend money outright if Greece cannot raise the funds it needs at reasonable rates.

At this point, Greece and the EU have no good choices left. It's hard to see how Greece can muddle through on its own.

As for taxing the church's real estate incomes - if it's behaving as a business, treat it as a business. It is charging rent, it should pay taxes on that income.

That's what it's always done... take money to provide income for the clergy... except when it was in power and it was the one taxing the people.

Either way, it's a business now, selling snake oil to fund its ability to buy more property and sell more snake oil. To me it's no different than any other company selling lies...

RevBigDumbChimp: There is a damn good reason to not tax them because as soon as you start taxing them, you legitimize their claims to be involved in the political system.

That's only if you consider that private organizations have legitimate claims to be involved in the political system, separately from the legitimate right of the members of the organization to be involved in the political system.

Yes, it's a distinction that doesn't currently exist in the US, where all organizations have a "voice" independent of the human beings that compose it, and therefore "freedom of expression". But I think that makes little sense -- since in reality only individuals "express" themselves, this is simply in effect giving some individual more "voices", voices as themselves, and voices as leaders/owners/etc of the organization without individual (and legal) responsibility for that voice.

There are "agents" that never resolve to an "agent of" some person who is personally and privately liable for the statements of the putative "agent". Seems insane to me.

Of course, that also leads to trouble for government "agents" where partial or complete immunity occurs for "agents" without any ultimate responsible party, except for the distributed response of the electorate.

This isn't just an American problem -- it's an essential problem of modern political theory that is faced neither on the left nor the right, that "social mechanisms" have a life of their own, privileged over mere humans -- at least the mere humans who are unable to cloak themselves in "social mechanism".

Well I think it's important to tax them at least for the use of the land. I mean, if they take space that could be used for something useful, they should pay for it. Don't we all pay property taxes?

mfd512 @5,

More Greek economics. LOL! Indeed.

Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". [1] Current economic models developed out of the broader field of political economy in the late 19th century, owing to a desire to use an empirical approach more akin to the physical sciences.
Source Wikipedia

Of course saying that economics is akin to physical science is in itself patently absurd...

http://www.scientificamerican.com/article.cfm?id=the-economist-has-no-c…

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

Global economic collapse is a given and coming a lot sooner than most people think.

Good luck!

That's only if you consider that private organizations have legitimate claims to be involved in the political system, separately from the legitimate right of the members of the organization to be involved in the political system.

I don't necessarily disagree with anything you've said. But that doesn't change the reality of the current situation.

IANAL (obviously) but I think that religious organizations are and should be treated differently than corporations. Yes churches make money and yes that is part of what they are set up to do, but they have a different goal than say Exxon or Pepsico or [Insert Corporation here] outside of making money and gaining "customers (parishoners)".

And the way that things are set up, especially considering the recent SCOTUS decision, we (as in the USA) do consider that private organizations have claims to the political system.

But Churches are different and we have set up a system to keep them out of the system.

We just suck at enforcing it.

Don't worry, guys; Ireland's close behind. I think a betting pool is in order as to which country will default first.

@#13: The problem with economics is that as of right now it is, as you point out, not incredibly scientific. However, I do believe it's getting much better in that regard; economic research is becoming less of "I think X country will fail/succeed because it sounds nice!" and more "let's get some data and try to have some predictive validity in our predictions". It's slow, and it's probably going to take a while, but econ is slowly becoming less of a voodoo fest.

Chris
http://hegartyblog.wordpress.com

Fred the Hun,

Its all Greek to us.

Fred the Hun #13

I was in the middle of writing a response to the idiotic SciAm article showing that Nadeau's knowledge of modern economics is essentially nonexistent when I decided "why bother?" I'm sure he got a lot of jollification from writing a critique of a field of which he's profoundly ignorant. As for showing that economics isn't as rigid as physics, so fucking what? Nobody claims any of the social sciences are hard sciences. All Nadeau did was show his ignorance of economics. On the basis of that article neither I nor any other economist is likely to take him seriously on any subject.

Tis:

The Greek economy is a mess. Its governmental deficit is over 12%, which is more than four times what supposedly allowed under eurozone regulations.

So, what happens if the Greek government goes bankrupt?

IIRC, Iceland has already gone bankrupt. They didn't have the money to pay their debts and so stopped paying them.

Other than a lot of people mostly in the UK getting stuck with the debts and the Icelandic government falling, nothing much seems to have happened.

@18: Iceland was independent; Greece is in the Eurozone. If Greece goes down, they take the Euro with them.

@18: essentially, the Euro weakens dramatically as a reserve currency if Greece defaults on its debt. It will also spread quite a bit of fear throughout the Eurozone (not to mention the rest of the world; stocks were off in the US quite a bit just because Portugal got downgraded credit-wise) and possibly force the EU (by EU, I mean Germany; Europe's piggybank) to pull some of those bailout shenanigans. It's a complex situation since Germany only adopted the Euro with the condition that they'd never have to bail out any stupid countries (like Greece) who utilized "creative accounting". Iceland isn't on the Euro, so it's not as dangerous.

So, pretty much what #19 said.

I still do not agree with starting to tax churches who follow the 5013c rules.

I'm all for removing the 501c3 automatic exemption for being a religious institution. If they can get it by following the same procedures as any other 501c3 organization, that's fine by me.

There is a damn good reason to not tax them because as soon as you start taxing them, you legitimize their claims to be involved in the political system.

This isn't entirely true. There are laws that limit how much corporations can participate in politics. Most churches are incorporated, and must be to be tax exempt under 501c3.

The key is better enforcement of the 5013c rules and revoking their tax exempt status if they do not follow them. Whether this will ever happen is of course an issue up for hot debate.

I agree, as well as reforming campaign financing for all corporations.

Tis Himself, OM | March 25, 2010 10:57 AM:

I was in the middle of writing a response to the idiotic SciAm article showing that Nadeau's knowledge of modern economics is essentially nonexistent when I decided "why bother?"

In some ways it would be nice if you would bother, because some of us don't know much about economics, and don't know what to make of Nadeau's article.

@7 El

Greece has removed the religious affiliation from new I.d cards at least 7 years ago. People were not required to change to the new card leading many people to hold on to the old one as if it's a lost treasure.

Greek economy is on a downward spiral right now. I'm glad I had the opportunity to move out before the real trouble starts.

I'm still against taxing churches in the US. If we stop giving churches 5013c status, or whatever the religious exemption rule actually is, then they are going to simply be considered corporations. Corporations can publicly support any candidates they want and that is going to really erode our first amendment religious protection that states: "Congress shall make no law respecting an establishment of religion."

If congress or the IRS or whoever allows the taxing of religions, then they are pretty much allowing the taxation of poor religions into non-existence. Once a few churches croak due to taxation, I can see a whole bunch of lawsuits coming up that would either put the no taxation policy back in place, or even start defining laws respecting religion in ways that will be unpalatable to the atheist community.

Rev. BigDumbChimp, I agree that "Churches are different" -- but only that they don't have an actual product. They are selling something that doesn't exist. They are breaking truth in advertising laws. They target minors in particular. They actively discriminate.

For those that provide social services, let them continue to do so without the mumbo-jumbo, like other social service not-for-profits.

Tis Himself @17,

As for showing that economics isn't as rigid as physics, so fucking what? Nobody claims any of the social sciences are hard sciences.

It's not the rigidity I'm worried about it's the fact that our entire global economic system seems to ignore things like the laws theromodynamics. Unfortunately It seems that most economists are still pushing growth in a finite system. There are of course economists who are exceptions to this rule. http://www.uvm.edu/giee/?Page=about/students/Nathan_Hagens.html&SM=abou…

I'm going to assume that your version of economics is a bit more reality based than say the likes of this guy...

Chief amongst these optimists was the late Dr Julian Simon, formerly professor of economics and business administration at the University of Illinois, and later at the University of Maryland. With regard to copper, Simon has written that we will never run out of copper because “copper can be made from other metals.” The letters to the editor jumped all over him, told him about chemistry. He just brushed it off: “Don’t worry,” he said, “if it’s ever important, we can make copper out of other metals.”

Now, Simon had a book that was published by the Princeton University Press. In that book, he’s writing about oil from many sources, including biomass, and he says, “Clearly there is no meaningful limit to this source except for the sun’s energy.” He goes on to note, “But even if our sun was not so vast as it is, there may well be other suns elsewhere.” Well, Simon’s right; there are other suns elsewhere, but the question is, would you base public policy on the belief that if we need another sun, we will figure out how to go get it and haul it back into our solar system? (audience laughter)

Now, you cannot laugh: for decades before his death, this man was a trusted policy advisor at the very highest levels in Washington DC.

Dr. Albert Bartlett: Arithmetic, Population and Energy

gr8hands, there's another difference. Churches not only have no real product, they don't charge a fixed amount for what they claim to be providing! How many other corporate entities base their product cost on a percentage of the client's income? The only examples I can think of are all health-related therapies where only the doctor's time is on the bill (psychotherapy and counseling, massage, some PT and related).

I agree with RevBDC: Enforce the laws to keep preachers from politicking, rather than remove their reason to avoid politics!

Raven #18

So, what happens if the Greek government goes bankrupt?

The world's economy is credit based. Credit forms the basis of the global monetary systems. In a growing economy debt and interest can be repaid, in a declining economy not even the principle can be paid.

Money is loaned with the expectation of repayment with interest. If the expectation goes away then so does the likelihood of further loans. Right now it costs Greece twice as much to borrow money than it does Germany. That's because the Greek government's credit rating is poor compared to the German government.

So what happens if Greece, or more specifically the Greek government, defaults on their debts?

● Civil servants face pay cuts or don't get paid at all. The usual response from the civil servants is to strike. Remember these civil servants include transport workers (airports, railroads, seaports, etc.). In an economy heavily dependent on tourism this can have devastating effects.

● Infrastructure will be minimally supported.

● There will likely be frequent changes of government with mostly coalition governments. Long term policy becomes very iffy under those conditions.

● Hyperinflation becomes a major concern. The surest way to stabilize an inflationary economy is introduction of a stable currency. The Euro is such a currency but Greece already uses Euros. So one of two things happen: Either Greece is pushed out of the eurozone (probably de facto rather than de jure) or the entire EU has a currency crisis.

● There are several other EU countries with economic problems similar to, albeit not as bad as, Greece. Portugal, Ireland, Spain and Italy are getting close to Greece's economic situation. Italy is a member of the G8! Spain has a nominal GDP of over $1 trillion. The rest of the EU could probably support Greece's government for a year or two. They would be hard put to support Spain or Italy, let alone both of them. The political ramifications would be, let us say, interesting.

This isn't entirely true. There are laws that limit how much corporations can participate in politics. Most churches are incorporated, and must be to be tax exempt under 501c3.

Right I understand that. My point was we would remove the existing limits imposed by the 5013c, not give them the exact same rights as individuals (though the SCOTUS is trying).

Rev. BigDumbChimp, I agree that "Churches are different" -- but only that they don't have an actual product. They are selling something that doesn't exist. They are breaking truth in advertising laws.

Good luck prosecuting that. My point is not what they are "selling" so much as their desire to steer legislation on morality.

They target minors in particular. They actively discriminate.

Well of course they do but (and again I stress that IANAL and if you are, please correct me) I believe that Title VII of the Civil RIghts Act of 1964 allows for some exemptions for religious institutions on the question of employment discrimination based on the religion's beliefs and mission and the prospective employee. As far as Church membership goes, well there are plenty of private "clubs" that limit their membership.

For those that provide social services, let them continue to do so without the mumbo-jumbo, like other social service not-for-profits.

Yes that's great and I agree, but we're talking the reality of the current situation here.

Tis Himself, OM @ 28,

As an economist I'd be very interested to hear your critique of this paper.

http://www.theoildrum.com/files/Tipping%20Point.pdf

To clarify I am not an economist I meant that since you are an economist I'd like to hear your critique.

Fred the Hun #26

Gee, Julian Simon had ideas pretty far removed from reality. Let's take him out back and beat the crap out of him.

I really get frustrated with the idea, common even among people who should know better, that "the economy has problems and IT'S THE ECONOMISTS' FAULT!" Nobody says "my grandmother died of cancer and it's the doctors' fault" but a whole lot of you are ready to blame economists for economic problems. "But why didn't you guys tell us?" Just for your information, the concept of peak oil was invented by economists.

Unfortunately It seems that most economists are still pushing growth in a finite system.

Ever heard of the economic problem? It's a concept Adam Smith talked about in his seminal book An Inquiry into the Nature and Causes of the Wealth of Nations published in 1776. The economic problem is most simply explained by the question "how do we satisfy unlimited wants with limited resources?" The premise of the economic problem model is human wants are infinite but resources to satisfy these wants are limited.

The economic problem is basic Econ-101 stuff. Sure, you find people like Simon who try to wish the economic problem away but the majority of economists recognize its validity.

Fred the Hun #30

As an economist I'd be very interested to hear your critique of this paper. http://www.theoildrum.com/files/Tipping%20Point.pdf

It looks like an interesting paper. I just glanced at the first three or four pages but what I saw seemed reasonable to me. I've bookmarked it and will read it later today or over the weekend.

@El -- there is no longer a religion field on the new versions of greek ID cards.

the greek public wants the church to be taxed... people have been demonstrating in the streets over it. it would have been political suicide not to do something about it now, when we're being told we have to make sacrifices.

it's about time, but i'm afraid that most of the income goes unreported. last i knew, the church didn't give receipts for tithing and income the church is going to be taxed on its real estate holdings, not its entire income, which is of mythical proportions.

BTW... i'm still here and the trouble's just getting started.

This non-economist is wondering who the hell do all the nations of the World owe their money to, exactly? If nearly every nation on earth is in debt, someone out there is supplying the money. Does China hold ALL the debts?

I was in the middle of writing a response to the idiotic SciAm article showing that Nadeau's knowledge of modern economics is essentially nonexistent when I decided "why bother?"

So that people like me might learn something? You know, collateral wisdom?

All I can tell is that the article seems rather extreme (as in "is it possible that nobody ever noticed?") and is contradicted by several of the 75 comments.

Tis Himself, OM @33,

It looks like an interesting paper. I just glanced at the first three or four pages but what I saw seemed reasonable to me. I've bookmarked it and will read it later today or over the weekend.

I'm serious about engaging you or anyone else who cares to, in this discussion. I'm not sure if Pharyngula is the proper forum for it or not.

Perhaps commenting on The Oil Drum is more appropriate. We are already engaged there. In any case I can be reached at
fred underscore magyar at yahoo dot com

Nobody claims any of the social sciences are hard sciences.

quoted because I am an asshole in a bad mood

Somehow, you just know that some right-wing organization will spin this into a narrative about how economic collapse followed on the heels of church taxation. Apart from that, davem @36, did you ever consider the possibility that states can borrow money from non-state actors?

I am a Greek born and bred and there are many, any things I could have said on all the topics mentioned to the point that any single comment I make would be badly structured and muddled. So I am only going to say a few things and if you want more details on something I would be more than happy to oblige. I would also like to assure you that we are far behind a true separation of church and state and it's only due to special conditions that this is even a viable suggestion.

Priests are civil servants, which means that their salaries and health insurance come from the tax payers. Priests can also get hired as teachers in junior high and high schools for the lessons on religion (yes, it is bad but no better way to make children atheists).

The GOC has huge amounts of real estate, some religious landmarks pull in heavy cash and when the Archbishops were having a conference to see what would be done about the tax issue, they all arrived in Mercedes etc.

Ten years ago, revoking the tax exempt status would not have been possible. But the last decade was rife with all sorts of scandals, the latest one being basically a real estate scam that implicated members of the previous (right wing) government as well.

If I say people are pissed off, I would be making a serious understatement. Plus, the general public is annoyed with the difference in the opulence the (celibate) heads live in and the stupid rules the (usually married) lower clergy have to put up with.

Jeez, PZ. Can ya warn a person before they accidentally journey to LifeSiteNews? I'd prefer a well-placed goatse or some donkey porn to fill space in my browser history. ;-)

Now! That's a real tragedy (Greece's economic woes)!

Roestigraben@#40:

Somehow, you just know that some right-wing organization will spin this into a narrative about how economic collapse followed on the heels of church taxation.

My thoughts exactly. I'm not familiar enough with country-scale economics to make any real points there, but as soon as I got the gist of the post, I had an image in my head of some right-wing American preacher using this as powerful propaganda for the teabaggers and their ilk.

If they tax the churches, and then still collapse, it will be seen by the deluded as straight cause and effect, a righteous punishment for their "godlessness" and "socialism".

Oh, shit, make an edit or two and add a bit more drool and a crying fit, and I think I just wrote Glenn Beck's script for him!

It's been a few hours and no one's answered davem's great question. I'm scratching my head about it myself.

Oh, and, since this is the Internet, I'll have to specify: no sarcasm intended. I really have no idea what the answer is, and am not sarcastically calling the question great.

i'd like to reinforce what @somewhereingreece said.

the church of greece has got to be one of the wealthiest churches in the world -- i'd say that the current taxation of 20% of profits from its real estate is a pittance. they got off easy.

still, it's a start, and hopefully it may develop into a worldwide trend.

It's been a few hours and no one's answered davem's great question. I'm scratching my head about it myself.

Uh, I sorta did. As I understood his question, he seems to believe that states borrow exclusively from other governments, which would totally ignore the fact that there's a market for government bonds and that individual and corporate investors can purchase them?

This non-economist is wondering who the hell do all the nations of the World owe their money to, exactly? If nearly every nation on earth is in debt, someone out there is supplying the money. Does China hold ALL the debts?

The short answer is various financial institutions, most of which you've never heard of like the Oversea-Chinese Banking Corporation (no, that's not a typo), DBS Bank, and MetroCorp Bancshares.

I'll give the long answer in an hour or so but first I have to prepare dinner.

There's an organization which few Americans have ever heard of that's vital to the American economy. This is the Bank for International Settlements (BIS). It coordinates international monetary and financial cooperation and serves as a bank for central banks. It is not accountable to any national government. The BIS provides banking services, but only to central banks or to international organizations like itself. The BIS works as a clearing house for international debt.

I'm going to get a little technical now and explain a few things about bank capitalization. Tier 1 capital is the book value of its stock plus retained earnings. Tier 2 capital is loan-loss reserves plus subordinated debt*. Total capital is the sum of Tier 1 and Tier 2 capital. In the US Tier 1 capital must be at least 4% of total risk-weighted assets. Total capital must be at least 8% of total risk-weighted assets. When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity. That causes its capital ratio to drop. Thus the capital requirement limits the total amount of credit that a bank may issue. It is important to note that the capital requirement applies to assets while the bank reserve requirement applies to liabilities.

United Widgets of Podunk, East Virgina buys $10 million worth of junque (a necessary ingredient in widgets) from Chow Mein Junque Manufactury of Wuhan, China. United Widgets gets a loan from the Farmers & Swineherds Bank of Podunk to pay for the junque. The Farmers & Swineherds Bank passes the debt through various clearing house banks (each of which adds their bit of interest) to the Federal Reserve (the US central bank). The Fed deposits the loan instrument in the BIS.

Now comes the fun part**. Remember that bit about Tier 1 capital being least 4% of total risk-weighted assets and the other bit about capital requirement limiting the credit a bank may issue? The Fed hit the 4% ceiling in the 1960s. The BIS, using the United Widgets loan instrument as collateral, lends the Fed $11 million (the extra $1 million is for the additional interest tacked on the loan). The BIS then sells the loan to the Peoples' Bank of China (PBC, the Chinese central bank).

Chow Mein Junque Manufactury manufactures and ships the junque to United Widgets, who sell widgets and pay off their loan to the Farmers & Swineherds Bank. The payment goes up the line to the Fed. However, remember how the Fed had to borrow $11 million but only gots $10 million from the Farmers & Swineherds Bank? The extra $1 million is paid in US Treasury Bonds. Those bonds go to the ultimate loan holder, the PBC. That's how United Widgets buying junque from a Chinese company results in the PBC holding US Treasury bonds.

This, of course, is highly simplified. Often the PBC will sell the loan to a private bank. Or the PBC may not buy the loan from the BIS but instead the Bank of Japan (the Japanese central bank) may buy the loan.

*Subordinated debt is debt which ranks after other debts should a company fall into receivership or be closed.

**Well, it's fun if you're an economist, banker, or other financial maven.

'Tis #49:

o_o

We're... we're doomed, aren't we?

'Tis Himself: Thank you! I figured the short answer would be more or less that the debt is owed to non-governmental corporations/organizations, but that longer detail (which I haven't quite digested all of) looks delicious.

Yahoo! I don't care if it's $10 - it's infinitely more than now. Greece, once again showing the way!!! If this is what "going Greek" now means, count me in.

Greece:
Debt / GDP = 86%

How's that look compared to the USA?

Debt / GDP = 88%

Can we tax churches now? It's not like our president would get more bad press, there's already more of that than the republicans can actually sell!

We're... we're doomed, aren't we?

The end is nigh!

Sooner or later other central banks will stop accepting US Treasuries as collateral or payment for commercial loans. If you think the subprime bubble or the housing bubble was big, wait until you see the collapse of the Treasuries bubble. It'll be spectacular. The interesting question is how many other countries will go under as well.

The Chinese are already feeling uncomfortable about the US national debt becoming owned by China. The Chinese could easily be bankrupted along with the US.

@RDBC: I disagree; tax the churches. Other corporations are taxed and their interference in the political system is more a matter that the public tolerate these corrupt practices - in fact they make up excuses to keep the status quo. Churches already influence the system by telling their members how to vote. Although it may not be "Vote for McPalin, not The African" it would still be something pretty obvious like "Don't vote for the party that supports abortion or you'll make Jesus cry." Hell, look at the Texas Board of Miseducation and try to tell me with a straight face that religious groups aren't already screwing the system.

@Stephen Wells #19: The euro's already taken a big hit and is sucking shit through a straw. This is very bad for my foreign contracts because at the moment the euro has dropped so much that I will make no profit; if it drops much more before the project is done I will make a loss. But hey, those are the risks of playing with multiple currencies.

'Tis @ 49

The BIS then sells the loan to the Peoples' Bank of China

What happens if BIS can't find a buyer for the loan?

I have always imagined the BIS as a sort of global clearing house, but its role seems to be a bit more sophisticated than that. It seems to have its own liquidity reserves but looking on its website seems to be rather coy about what they may be used for.

Sooner or later other central banks will stop accepting US Treasuries as collateral or payment for commercial loans

Sorry for being dense, but why would they do that? Is there a view that the US might default on its Government Debt? Or would it be worry over the value of the USD? (If there is that serious a run on the USD, it would surely devalue all USD denominated assets, and rather than just the US Government the entire global financial system would be hit). Or are you intimating that we may be reaching a saturation point after which there may be a global shortage of buyers for government debt?

I'm not an economist, so apologies if I am missing the obvious.

I still don't see why we don't tax churches in the United States. Doesn't the Constitution preclude Congress from making laws concerning an establishment of religion and isn't exempting their institutions and employees from taxes doing just that?

@'Tis, thanks for the explanation.

@ Usagichan: I guess that as long as the US are seen as a good risk, ie that they will eventually pay a loan back, then people will take their bills. As soon as the debt increases to such a point that the US is seen as unable to eventually service the debt, the whole system wil collapse.

Timothy @ 58

Not certain, but I seem to remember that the US treats Churches as charities and that's how they are exempt from taxes - the problem would be to prove they're not charities before taxing them (I doubt they would happily 'unbundle' the charitable work they do just to become subject to taxation). Not a good reason perhaps, but given the extent to which the establishment is tied up to the religious lobby any change would seem to be unlikely.

davem @ 59

What about a situation where no-one wants new debt? The US could be good for the loans, but would still not be able to get them away if no-one had money to lend!

Usagichan, I don't really see why there should be any reason to worry about a shortage of investors willing to lend money. What else should they do with their capital? If they don't make any profit through the interest, inflation will decrease their net worth. Stable nations don't really have any problems finding buyers for their bonds, because they're exceptionally reliable debtors - they can, after all, raise their revenue easily through new taxes, unlike a company or an individual. Of course, there's always a possibility that even a state could default on its debt, although I'm unaware of any such case in the developed world, and in any case the risk involved for the lender is almost always much lower than if he gave a loan to a private enterprise. One of the most common arguments I've heard against increases in government debt is, after all, directly related to the exceptional credit-worthiness of states: if the government takes up a lot of new loans, which many investors are eager to supply, the additional demand will drive up interest rates for loans in general and make it more difficult for companies to obtain credit at an interest rate that still allows for profitable investment. That's how a layperson like me makes sense of this, but maybe someone with an actual background in economics could elaborate on these relationships?

Roestigraben, I'm no economist either, but I remember the recent Argentine economic crisis.

@18: Iceland was independent; Greece is in the Eurozone. If Greece goes down, they take the Euro with them.

that's a whole load of bollocks and shows you have no clue how international debt financing works.

The main reason why an Icelandic debt default mattered less than Greece's is that its size was about a tenth of the other.

The entire Greek economy is about 3% of the Eurozone. A greek default alone wouldn't take the Euro down.

This story with greece matters because it is a symptom of a much wider and general problem which affects the economies of almost ALL countires in the developped world.

I'm very glad the UK is not a part of the Eurozone (and, hopefully, will never become so).

Sheesh, negen, cut a guy some slack. I am not implying that the Euro would cease to exist. I am simply saying that having Greece default on its debt would be pretty bad for the Euro as a trustworthy reserve currency. How is that controversial? Why else did the Eurozome governments just line up to guarantee backup loans for Greece if the market won't supply them?

Touché, so let me change that statement to "government defaults are extremely uncommon in the developed world". Still, if you look a how cheaply the US government can currently finance its huge deficit, this means that a) there's no shortage of willing creditors; and b) they perceive the default risk as being virtually zero. Of course, Greece's situation is completely different.

Roestigraben, my point was that a global liquidity shortage might lead to a lack of willing purchasers for sovereign debt. For example, the Japanese National Debt has largely been absorbed into the domestic market up until now, but this has reached the point of saturation (government debt is exceeding local savings) thus will in the future will have to find international takers for the debt. Unless we assume there is effectively an infinite amount of liquidity available for Government Debt it seems to me there must be some risk of illiquidity causing a lack of appetite for further government debt.

As for default on Sovereign Debt, how about the Russian financial crisis (Which I most remember because it caused the collapse of LTCM because they overestimated the security of Russian Government Debt, and their products were highly leveraged.

@RDBC: I disagree; tax the churches. Other corporations are taxed and their interference in the political system is more a matter that the public tolerate these corrupt practices - in fact they make up excuses to keep the status quo. Churches already influence the system by telling their members how to vote. Although it may not be "Vote for McPalin, not The African" it would still be something pretty obvious like "Don't vote for the party that supports abortion or you'll make Jesus cry." Hell, look at the Texas Board of Miseducation and try to tell me with a straight face that religious groups aren't already screwing the system.

Once again, this is an issue of a lack of enforcement of the current system.

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

Certain activities or expenditures may not be prohibited depending on the facts and circumstances. For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.

On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, will constitute prohibited participation or intervention.

and

In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.

Legislation includes action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure. It does not include actions by executive, judicial, or administrative bodies.

An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.

Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.

If we weren't a bunch of big babies when it came to dealing with religion and actually enforced the code we would have churches that didn't "break the rules" and stuck to the business of faith and stayed out of openly endorsing candidates, lobbying, trying to influence legislation or they would have their 5013c exemptions revoked and they would be taxed and penalized.

Roestigraben,

What else should they do with their capital?

Buy real tangible assets, such as Gold Oil or food reserves. Or simply leave their cash on the short term money markets.

Stable nations don't really have any problems finding buyers for their bonds, because they're exceptionally reliable debtors - they can, after all, raise their revenue easily through new taxes, unlike a company or an individual.

If they don't have any problems finding buyers for their bonds, please explain why the federal reserve has been forced to monetize (ie buy back with freshly printed new dollars) about $100 billion worth of treasuries each month for the last twelve months ?

Governments can't just raise revenues "easily" through new taxes. This is identical to thinking that someone can easily survive by raising the intake of nutrients by connecting a tube from one's ass to one's mouth. You'll see easily that after a while, that person will die.

if the government takes up a lot of new loans, which many investors are eager to supply, the additional demand will drive up interest rates for loans in general and make it more difficult for companies to obtain credit at an interest rate that still allows for profitable investment

Additional demand for debt wouldn't drive interest rates up, but down.

It's because demand for Government debt at current rates would not be sufficient to absorb the auctions for new debt that interest rates would go up. The only reason this hasn't happened yet to the extent it should have happened is because the Fed has absorbed a big chunk of the newly issued debt. Quantitative Easing is helping to maintain rates artificially low. But this cannot obviously continue forever as an unlimited amount of additional QE would encourage investors to sell their dollar denominated assets and lead to a hyperinflationary debt spiral. It's not a linear phenomena.

I'm not sure if this is happening elsewhere in the country, but Syracuse, NY is trying to get the Catholic church to pay property taxes on buildings no longer being used as churches.

http://www.syracuse.com/news/index.ssf/2010/02/syracuse_trying_to_tax_c…

Five Catholic churches have recently closed there. It's a good start.

Walton,

I'm very glad the UK is not a part of the Eurozone (and, hopefully, will never become so).

And there comes the typical british ignorant anti-Euro nonsense.

Of course you have absolutely no fucking clue what your talking about, but parroting the tabloid press's stupidity makes sense.

Please show how Greece would have been in a much better situation if it hadn't been in the Euro. I want the details, not just your uninformed opinion.

Please show how Greece would have been in a much better situation if it hadn't been in the Euro. I want the details, not just your uninformed opinion.

I don't know whether Greece would be in a better position had it not joined the Euro. I did not claim that Greece should have stayed out of the Euro. Rather, I said that the UK should not join the Euro. We are not in the same position as Greece.

The UK already has a stable currency, the pound sterling, which is trusted around the world and frequently used in international business dealings. I don't want to risk throwing that away by giving control of our currency to the European Central Bank, a body without a proven track-record, and which has to face the challenge of coping with the unstable economies of Greece and several other European countries. The pound sterling and the Bank of England are already fulfilling Britain's currency needs adequately; and, in the words of one of my favourite adages, "if it ain't broke, don't fix it."

Stephen,

I am not implying that the Euro would cease to exist.

What does "If Greece goes down, they take the Euro with them" mean then ?

I am simply saying that having Greece default on its debt would be pretty bad for the Euro as a trustworthy reserve currency.

What does "pretty bad for the Euro as a reserve currency" mean ?

Why else did the Eurozome governments just line up to guarantee backup loans for Greece if the market won't supply them?

Simply because the largest creditors of Greek public debt are large private French and German banks and European governments are doing exactly the same to bail out these banks as what the US did last year with the TARP funds and American private banks. This of course has put pressure on the Euro, which is not a bad thing as the Eurozone is a net exporter (unlike the US).

I'm reacting to your "Iceland was independent" (ie not part of thez Eurozone) as if being part of the Eurozone is a bad thing. I know this is the favourite myth being spouted on a daily basis in the british press, but I'm just fed up with it because none of the people who keep parroting this are able to argue and justify their stupid prejudice rationally.

So either you are willing to justify it properly, or you don't, and then the best is to stop repeating it.

The UK already has a stable currency, the pound sterling

A stable currency ? You must be joking, one that has lost about a third of its value against the Euro or the Yen in the last 18 months ? And it's far from finished...

Usagichan, I thought you were worried about an unwillingness to purchase government bonds on the part of investors, not an outright inability to do so. I've got no clue about long-term developments in liquidity relative to government debt, but to me and at least as of now, the latter seems to be a pretty small fraction of the former.
Negentropyeater, the fact that the Fed is monetizing treasuries does not necessarily mean they couldn't be sold to the public - the obvious alternative explanation is that the Fed is deliberately trying to increase the flow of money, when the interest which it is charging banks is already pretty much as low as it can be. Second, raising taxes to serve its debt obviously can't continue forever, but this is at the very least a short-term instrument that non-sovereign debtors are simply lacking. Third, by "demand" I was referring to the demand for new loans on the side of the government (which probably is an incorrect and confusing usage of the term, I don't know), not the demand for treasuries on the part of investors.

I don't want to risk throwing that away by giving control of our currency to the European Central Bank, a body without a proven track-record, and which has to face the challenge of coping with the unstable economies of Greece and several other European countries.

Because you think the UK economy is more stable ? With a level of private debt which is one of the highest in the world, a public deficit almost as high as Greece %wise, private banks with assets larger than the GDP of the country, an economy which is almost only dependent on financial and real estate assets which are still greatly overvalued and which almost doesn't produce any real stuff anymore. If there's one medium to large sized economy which is at risk to collapse first, it's the UK.

It's good to see that you feel so confident for the UK and that you are well blindfolded by the illusion of fake prosperity. Now I understand why you feel that Thatcher was such a gift.

Roestigraben,

Still, if you look a how cheaply the US government can currently finance its huge deficit, this means that a) there's no shortage of willing creditors; and b) they perceive the default risk as being virtually zero.

You keep repeating this but it's simply not true. The main reason why the US government can currently finance its debt with low rates is not because of a) nor b), but because the Fed has the capacity to print new dollars to pay for it. It's called monetizing the debt, or a form of quantitative easing. If it didn't do this, rates would be sky high already.
So the only reason why the US can do what it is doing now and still avoid a currency crisis is because of its exorbitant privilege of issuing the international reserve currency.

negentropyeater, I agree that the UK has plenty of economic and financial problems, mainly due to the incompetence of the Labour government (who have been in power since 1997). But I want the next government to have the means at their disposal to fix some of these problems. If control over our monetary policy were to be transferred to the European Central Bank, this would limit the ability of a future British government to take measures to deal with forthcoming financial crises.

I don't have anything against European economic integration in and of itself. As you know, I'm strongly opposed to nationalism, so I don't give a damn about our "national sovereignty" being eroded, as such. I despise the tabloid press as much as you do, and I think European economic integration does bring some benefits: for instance, the common market, and the free movement of people, goods and services across national borders, is a very good thing IMO.

So my opposition to the Euro isn't some sort of knee-jerk anti-Europeanism. If I trusted the European Central Bank, and thought they would do a better job of handling British monetary policy than the Bank of England, I'd be perfectly happy to transfer control of British monetary policy to them. But at the moment, the ECB is untested, and has not proved its ability to deal with financial crises in several different economies at once - so we have no basis on which to entrust them with our currency.

the fact that the Fed is monetizing treasuries does not necessarily mean they couldn't be sold to the public

Of course they could be sold to investors, everything can be sold as long as the price matches what investors are willing to pay for. But if the Fed didn't absorb $100 billion each month worth of treasuries, they'd have to be auctionned, and with such a huge additional supply, the price would go down tremendously (it's called a new equilibrium of supply/demand as you well know, when the price of debt goes down, that means rates go up).

Third, by "demand" I was referring to the demand for new loans on the side of the government (which probably is an incorrect and confusing usage of the term, I don't know), not the demand for treasuries on the part of investors.

The correct term is "supply". Demand comes from those who are willing to buy an asset. Supply comes from those who are willing to sell.

You were referring to the supply of new treasuries issued by the Government, not the demand for treasuries on the part of investors.

Walton,

mainly due to the incompetence of the Labour government (who have been in power since 1997)

Which shows you really don't understand fuckall about why we are having this crisis.
It's simply because we (as developped societies) have consumed too much and in order to support this had to pay for it with a promiss to pay for it in the future, ie with a balooning debt (private and public) which is now about the same in every developped economy, ie worth more than 4 years of work. We'd have to stop consuming anything and work for 4 years to pay it back.. That's the result of unfettered capitalism, the result of a mythical belief that markets are self adjusting, the result of believing that one can grow as fast as one wants without saving and paying for the consequences in the future. These are all the results of the voodoo economics of Milton Friedmann championned by your conservative heroes Reagan and Thatcher. New Labour, like democrats, just continued with the same recipies. No difference there.

This crisis would have been exactly the same for the UK if conservatives had been in power instead of New Labour. Or maybe just a bit worse as they would have probably been even more adepts of deregulation and would have dismantled even further the social stabilizers which are helping those in need to survive through this. The savings rate would be even lower. Hyperconsumption and astronomical debt levels would be the same (and again I'm talking of total debt, private and public, which is the only thing that matters really).

And then, why do you trust the Bank of England and not the ECB ? They are both led by the same kind of people, who've studied the same things in similar schools, neither of them has had any relevant experience with dealing with this kind of crisis before.

Your preference for the BoE over the ECB is purely irrational emotional. Like prefering the pound banknote with the Queen over the Euro banknote with a bridge.

negentropyeater, you're putting forward a left-wing partisan view and presenting it as though it were undisputed fact. Plenty of the world's leading economists would strongly disagree with you. I don't have the economic expertise to argue the point myself, but your view on this is very much a contestable one.

negentropyeater, I don't know what exactly your beef is with me. but I don't think I've said anything problematic. Somebody asked why Greece was getting more attention from the Eurozone than Iceland was; the answer, obviously, is that Greece affects the Euro much more than Iceland did. Also, you appear to have parsed "If Greece goes down they take the Euro with them" as "if Greece is destroyed, so is the Euro", which is a tad bit too apocalyptic, no? I didn't think the utter destruction of Greece was on the menu.

Walton,

it's not a left wing partisan view, it's just a simple constatation based on facts. That's where we are today, the level of total debt is what it is, that it started growing at a much faster rate than the output of the economy around 30 years ago and that it never stopped can be very simply verified looking at any curve for any developped economy. There's nothing controversial about that.

There are indeed a large proportion of neoclassical economists who still deny that this can have consequences, and who think we can continue growing debt three times faster than our output for another thirty years. It's absolutely clear these people exist, if they hadn't dominated the financial world for the last 3 decades, we wouldn't be where we are today.

So just tell me what is contestable about "my view" ? Which part ?

Stephen,

sorry for the misunderstanding, but then I still don't understand your comment:

Iceland was independent; Greece is in the Eurozone. If Greece goes down, they take the Euro with them.

What has Iceland's "independence" got to do with this? If Iceland were the size of Greece and its debt were held by French and German banks fixed in Euros, whether it'd be in the Eurozone or not would have the same consequences.
And I still don't understand the second part either.

I apologize for disappearing for a day. My only excuse is I do have a social life outside Pharyngula.

For some reason monetary policy seems to be a major bone of contention among the regulars here. So let's look at the subject.

I previously discussed how the BIS provides banking services for central banks. But what does a central bank do? Like a commercial bank, a central bank accepts deposits and gives loans. It charges interest on the loans made to borrowers, primarily the government and commercial banks, typically as a lender of last resort1. However, a central bank differs from a commercial bank because it has a monopoly on creating currency to be loaned to the government as legal tender.

Functions of a central bank often include:

● Implementing monetary policy.
● Controlling the nation's money supply.
● Acting as the government's and the bankers' bank.
● Managing the country's foreign exchange and gold reserves.
● Regulating and supervising the banking industry.
● Setting the official interest rate. This is used to manage both inflation and the country's exchange rate.

Monetary policy is the process a government or central bank uses to control (1) the supply of money, (b) availability of money, and (iii) cost of money to promote the growth and stability of the economy. Monetary policy can be expansionary (increases the total supply of money in the economy) or contractionary (decreases the total money supply). Monetary policy is not fiscal policy, which refers to government borrowing, spending and taxation.

Monetary policy rests on the relationship between the rates of interest2 in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control these to influence economic growth, inflation, exchange rates with other currencies, and unemployment.

The primary tool of monetary policy is open market operations. This entails managing the quantity of money in circulation through the buying and selling of various financial instruments, such as treasury bonds, corporate bonds, or foreign currencies. All of these purchases or sales result in more or less currency in circulation.

Usually, the short term goal of open market operations is to achieve a specific short term interest rate target3. Monetary policy also targets a specific exchange rate relative to some foreign currency. For example, in the US the Fed targets the federal funds rate, the rate at which member banks lend to one another overnight. The monetary policy of China targets the exchange rate between the Chinese yuan (renminbi) and a basket of foreign currencies.

There are two challenges to monetary policy. The first is the most serious. It may not be possible for the central bank to simultaneously achieve all of its goals. The best the central bank can do is to choose between two or more conflicting goals. But a second challenge is easier to solve. That problem arises because the central bank doesn’t directly control the variables it cares about the most. So to achieve its goals, it adopt strategies to set targets for variables which can be directly controlled.4

Other means of conducting monetary policy include:

● Discount window lending (lender of last resort).
● Fractional deposit lending (changes in the banking capitalization and reserve requirements).
● Moral suasion (cajoling certain market players to achieve specified outcomes).
● "Open mouth operations" (discussing monetary policy with the market).

1A lender of last resort is an institution willing to extend credit when no one else will.

2Interest is the price for borrowing money.

3Targets refer to goals the Fed or other entity intends to achieve and which they believed is attainable.

4There are other problems as well. For instance interest rates tend to rise during business cycle expansions. Thus a higher rate of economic growth might not be possible without rising interest rates. In this case, the goal of high employment and economic growth conflicts with the goal of stable financial markets and interest rates.