Monetary mismanagement has not been limited to the United States and the Federal Reserve System. The European Central Bank (ECB) has also been an engine of monetary expansion and artificially low rates of interest.
One of the effects of ECB policy is the emerging financial crisis in Eastern Europe, which I discuss in a new piece of mine on, “Growing Fallout from Eastern Europe’s Busted Bubbles.”
Governments, private investors, and consumers in many of these Eastern European countries took out easy credit loans denominated and owed in Euros from Western European banks, with a total debt in the region coming to between $1.5 trillion and $2 trillion. About $400 billion of this total needs to be repaid or rolled over in 2009.
But, now with falling export revenues and declining exchange rates against the Euro, governments and private citizens are getting into a serious financial “squeeze.”
Much of the government spending was used to prop-up and expand welfare statist programs. Some was used to support misdirected “industrial planning.”
And private individuals found it cheaper to borrow for home mortagages (this is especially the situation in Hungary) from Austrian and Italian banks at those artificially low interest rates than borrow money in the domestic financial markets. Now, many of these individuals find themselves facing a rising cost to making mortgage payments in Euros, when the Euro is gaining value against their own currency.
Of course, this “crisis” will again be blamed on “capitalism” and “unregulated markets.” And various governments will come forth with additional “stimulus” and bailout” plans to save various special interest groups close to the halls of political power.
Richard Ebeling
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The article linked below needs to be fixed (I’m blocked, can someone else do it?) :
http://en.wikipedia.org/wiki/Liquidity_trap#Austrian_Critique
“Most economists question the Austrian explanation because it completely ignores the possibility of an extended recession.”
Undoing Socialism
Wednesday, March 11, 2009
Europe Needs A Stateman Like Ron Paul!
Since a principled scholarly classical liberal that has the fortitude to enter and succeed in the political arena is so rare, Europe may need to borrow Ron Paul!
But that is not so far-fetched since we share a common heritage of the western civilization that spawned classical liberalism. So forget the artificial, man-made boundaries since they do not apply to the human intellect or to the cause of liberty and freedom and peace and prosperity.
Step one: Get rid of the central bank and return to a gold standard.
Step two: Stop economic interventionism and return to a free market economy.
Step three: Cut government spending and cut taxes.
Step four is more of a European thing and it has great possibility there: Return to constitutional monarchies.
If there are voices in Europe that speak of these ideas as the solution to the economic blight in Europe then you may have a statesman in your midst.
There is no reason there cannot be more than one statesman on earth at the same time. In fact we need more and the sooner the better! Ron Paul can help you and you can help Ron Paul.
Hi, Mises folk. Don’t mean to hijack this post, but my question is somewhat related. It’s actually not a specific question, but I’m wondering what you Austrians think about my friend’s article:
http://greenfaucet.com/economy/did-the-fed-worsen-the-credit-crunch/92738
I’m new to a lot of this stuff and still learning, and the Mises site has taught me plenty in the past several months. But my friend is a financial journalist and knows quite a bit more than me. He’s not an Austrian — I’m not exactly sure how to categorize him, but, regardless, I’m interested in hearing an Austrian’s opinion on some of the stuff he’s written. Specifically the above piece, but he has a lot more on his blog:
http://djr-musings.blogspot.com/
Thanks in advance!
Please Fix
Refer to the following article:
http://mises.org/daily/3266
Mentioning euro loans only in the context of CEE (real or would-be) crisis is quite an oversimplification. Many countries have borrowed heavily, if not mainly (mortgages, commercial loans, govt bonds) in swiss francs (mainly via Italian and Austrian banks; these countries are e.g. Poland and Hungary); some are deep in dollar-denominated debt (the “rapidly deindustrializing”, a.k.a. economically catatonic Ukraine).
Richard Ebeling,
I have to say that I am not sure the point of your article. Granted the European economies are having problems but you seem to imply that the eastern block is having problems because they borrowed from the western block yet you never address the problems with the western block.
Is the eastern block more socialist than the western block? If not then are you saying that socialist countries are stronger than capitalist countries?
I’m confused.
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