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Tuesday 14 February 2012

Soros' criticism of German policy

George Soros' criticism of Germany's inherent values of financial prudence is based soundly on Keynesiamism.  Although taught universally for decades, there is growing scepticism about some of Keynes' doctrines.  The IMF has already concluded that the second Greek bail-out is now not big enough to achieve the intended rescue purposes.  Therefore a third bail-out would be required should the current Greek economy be sustained.

"Pump priming" only works if there is water to be raised.  The Keynesian analogy is that money needs to be injected into an economy to start money circulation and economic activity.  Critics of Keynesianism argue that externally injected liquidity doesn't necessarily result in productive or useful economic activity.  People can be paid to destroy assets and then rebuild them, for no net benefit.  Money might circulate, but nothing gets done and money, labour, capital, time and resources are wasted.

Priming a pump in a dry aquifer simply wastes scarce water, to disappear down a hole, and to seep away. 

How much more pump priming will Greece require, after already hundreds of billions;  and would any amount of easy money, liquidity or bail-outs create a sustainable Greek national economy?

At which financial level would Soros limit Greek bail-out aid?  Or does he advocate absolutely unlimited financial support for Greece?

Keynesiamism under stress requires global infinite quantitative easing (QE), which is unlimited money printing, which is not a solution.  When the velocity of money increases again, inflation will result, destroying the value of "eased" currencies.  Read Erich Maria Remarque's "The Black Obelisk".

This matter is cultural:  not economic;  and certainly not Keynesian. 

George Soros' interview with Der Spiegel can be read here.

2 comments:

  1. Few people, if any, predicted that Greece would into this mess (even if they did nobody listened) so I don't think any body can accurately predict how Greece will get out of this mess (and it they can - nobody will listen).

    ReplyDelete
  2. Few people, if any, predicted that Greece would into this mess (even if they did nobody listened) so I don't think any body can accurately predict how Greece will get out of this mess (and it they can - nobody will listen).

    ReplyDelete