the corner office

a blog, by Colin Pretorius

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Cyprus

Cyprus has run out of money and the solution ain't pretty. Thoughts:

  • you can moan about austerity all you like, but sooner or later, you have to pay the piper.

  • of course, if you can print your own money the piper is easier to pay (in nominal terms), but someone's still paying. A once-off levy leaves you poorer, but inflation also leaves you poorer, yet there aren't bank runs because of that. Which isn't to say that Cypriots shouldn't be unhappy, just that when Mervyn King says he's happy to have 3% inflation with near-0% interest rates for the sake of 'economic growth', as far as the purchasing power of your bank account goes, he's doing the same thing, just a little more obtusely and slowly.

  • so I think the reaction is psychological as much as anything else. But that's enough.

  • what will the repurcussions be? How will markets react? The unnerving thing is that while things could just splutter along like they have over the past few years, there is also the possibility (unnerving to be reading pointers to historical precedent) that it might take just one misstep for a chain of unintended consequences to cause things to go bang in a very bad way. Is this that misstep? The crux of the issue is this: if you live in an indebted EU member country, how safe does your nest egg look now?

  • the Russian money angle is interesting. Geopolitics is never far away.

  • the irony is that the harder the politicians try to preserve the euro, and the EU, the more they fuel euroscepticism.

  • interesting reads by economists: Tyler Cowen, Scott Sumner.

{2013.03.17 - 23:47}

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