24
Oct
11

Omelettes and Eurozones

Tim Harford has an entertaining and informative piece on the upgefuckedness that is the Eurozone:

For example:

Think about what’s going to happen if Greece leaves the euro: a bank account with €10,000 in is suddenly going to have 10,000 drachmas in. A salary of €800 a month will become 800 drachmas a month.

Seems simple enough.

But then the drachma will immediately collapse. Your 10,000 drachma bank account will be worth, say, only €3,000. And that means you’d have been much better off if you had moved your cash to a bank account in Germany, or converted it into euro notes.

When the Greeks figure this out, won’t they start rushing to move money out of the country?

I think the Greeks are ahead of you on this one.

RTWT.

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1 Response to “Omelettes and Eurozones”


  1. 1 TMI
    October 24, 2011 at 21:14

    I went to Russia, (formerly the Soviet Union), after the collapse of the USSR.

    The FSU was interesting, in terms of micro- and macro-realities. Micro, it sucked. Macro, it sucked large.

    The people I was talking to were suddenly found to be free, and at liberty to do whatever they wished to do.

    I’m currently teaching two, new, young hires. College backgrounds. Bright intelligent young men. What we’re working on is the problem of learning how to orchestrate our interactions. You and I have certain expectations when we meet someone new. The question is, how do we learn to couch our first, given, impressions. to orchestrate certain outcomes; like shifting away from their expectations, to accepting us as we are, and how we are. Before we can do this, we need to examine our own expectations, what we see ourselves as being, and how we expect our outward appearance to be accepted by others.

    Expectations are, explainable, as oppositional. I’m a car salesman. I expect to sell a car. You’re a car buyer. You expect the salesman to screw you. And yet, cars are bought and sold. (Sometimes against the best wishes of either the seller or buyer.)

    Your expectations, as either buyer or seller, are apposite. The seller expects to sell, the buyer expects to be sold. Positive for the seller, negative for the buyer. But, they are both the same thing. How do successful sellers succeed? How do unsuccessful buyers fail?

    The inverse dynamics of relationships are important. In the FSU, the biggest challenge was capital accumulation. Millionaires were turned into paupers with the floating of the Ruble. Literally, thousands of millionaires were turned into paupers, overnight. There was no banking system in the U.S.S.R. There were no exchanges. Those with access to exchanges were helped, but those without access to international exchanges were reduced to putting their Rubles into pillow cases. Not a sound investment strategy. (It was, up until the end of the CCCP.)

    Immediately, lifelong, productive members of the Soviet lifestyle were reduced to poverty. Rubles were valueless. Twenty-thousand Rubles were worth five bucks. In this new, economic, reality, where and how to advance capital formation?

    If not for the Mayor of Moscow, Russia would have been lost (IMHO). The parties of Russian elections were all over the map, but the prominent party was not any of the libertarian, or simply “liberty” parties. It was Nasha Dom. “Our House.” I sat across the table with one of the more intelligent women I’d met, and she told me she preferred the dependability of the Communists.

    And yet, when I took a 20-thousand Ruble note in one hand, and a five dollar bill in the other, and asked, “Which would you prefer?” she answered, the five dollar note. I described to her Gresham’s Law. There is no substitute for value. We withdraw from exchange that which is most valuable.

    So, what is more valuable, the Drachma, or the Euro? And which would you rather be left holding?

    As Greece transforms into Greece, would you want to be holding Euros or Drachmas? Oh, that’s right, there aren’t any Drachmas. We’re looking at a currency devolution that will go far beyond the devaluation of the Peso, and the devaluation of the Ruble.

    http://www.questia.com/googleScholar.qst?docId=5001690504

    http://frank.mtsu.edu/%7Eberc/global/oldissues/summer95/p2.html


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