The Asian Crisis Versus The Euro Crisis

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#1
Quite a good article from Krugman (rare ones that are not rumblings abt the GOP anyway!)

http://krugman.blogs.nytimes.com/2013/08...isis/?_r=0

The natural restoration of competitiveness/reforms via ccy devaluations ensures the resumption of the business cycle (something the eurozone is not getting - at least not before the German elections). Crisis comes, crisis goes (after quite some pain that is)

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So, I’m feeling young again — well, middle-aged, anyway. The rupiah is plunging again!

I was one of those economists for whom the Asian crisis of 1997-1998 came as a disturbing revelation, a demonstration that events all too reminiscent of the Great Depression could still happen in the modern world. Between the acute crises in Southeast Asia and the long stagnation in Japan, it was — or so I thought — all too clear that we did not, in fact, have this thing under control. Unfortunately, not enough people grasped that lesson, and a decade later we had a global crisis that made the Asian crisis look trivial by comparison.

But anyway, the moving finger of crisis seems for the moment to be pointing back at some of the old crowd. And I’m catching up on what’s been going on in that part of the world.

The first thing you want to say is that all the crisis economies — even Indonesia, which had by far the worst time in the beginning — eventually bounced back strongly:


Total Economy Database
This is in stark contrast to the experience of the countries that seem like the closest parallel to SE Asia this time around, the troubled euro area debtors. Here’s a comparison of Indonesia after 1997 and Greece after 2007, with the later years for Greece being the current IMF projections; the number of years after the pre-crisis peak is on the horizontal axis:


Total Economy Database, IMF
By this point in the aftermath of the Asian crisis, even Indonesia was well on the road to recovery; Greece, Spain etc. are still sinking.

What’s worth remembering is that everything people say about why Greece can’t bounce back — structural problems, corruption, weak leadership, yada yada was also said about Indonesia. So why could Indonesia come back while Greece can’t?

Well, two obvious reasons: Indonesia had a currency that it could devalue, and did, massively. This caused a lot of short-term financial stress, but paved the way for export-led growth. And the IMF, after initially pushing austerity policies in Asia, backed off and reversed course; this time around the Troika has been relentless, learning nothing from experience.

Much more on this topic in future posts.
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#2
Seriously this guy is talking rubbish.

Indonesian people works hard to repay their debt, what has Greek done?

It's a disgrace to even compare them.

Plus devaluation of Rupia is natural because it was overvalued during Asian Financial Crisis. It's not just Rupia, Baht and Riggit as well. And the debt Indonesia incurred were in USD, devaluation of Rupia did not help repay the debt.
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#3
I guess his main point is Indonesia can devalue (naturally or whatever) RupiaH but Greece can't.
So to be competitive, Greece has to devalue the wages (which is tougher to do).
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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#4
(29-08-2013, 08:56 AM)ksir Wrote: I guess his main point is Indonesia can devalue (naturally or whatever) RupiaH but Greece can't.
So to be competitive, Greece has to devalue the wages (which is tougher to do).

Zimbabwe devalued its currency, did it help?

Vietnam also devalued its currency, did it help?
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#5
Definitely. What if they didn't?
Granted that devaluation won't be the only silver bullet but it arguably a tool in the arsenal.

Greece doesn't have that option with Euro.
That is the main message, imo.
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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#6
(29-08-2013, 08:56 AM)ksir Wrote: I guess his main point is Indonesia can devalue (naturally or whatever) RupiaH but Greece can't.
So to be competitive, Greece has to devalue the wages (which is tougher to do).

Correct. When everybody pays the inflation bill it is much easier than cutting wages of segments of population. The tragedy of the commons

There is a price to pay for giving up monetary policy or currency sovereignty. HK is a good example in our region through the decades but it is much more robust because it is currency Board and not soft peg. And there is a BIG difference between say pegging to USD and dollarised, though academics don't see the difference. If Indonesia was dollarised instead of pegging to USD at ~2400-2500 in 97, things would turn out very different. That's why first step to Eurozone is always to have fixed exchange rate mechanism so there can be exit strategy like the GBP.

Frankly I think the Greeks had it at least twice as bad as we did in 98.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#7
(29-08-2013, 10:23 AM)ksir Wrote: Definitely. What if they didn't?
Granted that devaluation won't be the only silver bullet but it arguably a tool in the arsenal.

Greece doesn't have that option with Euro.
That is the main message, imo.

Have you studied the economy of Greece?

It's more a consumption-based economy, than an export-driven economy such as Thailand/Indonesia.

Devaluation will not have much an impact on Greece. Greece knows it, that's why it does not go back to its own currency as there isn't anything good about it.

Devaluation will only cause hyperinflation in countries like Greece as it already broke. No amount of devaluation can save someone from bankruptcy.
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#8
(29-08-2013, 11:01 AM)freedom Wrote:
(29-08-2013, 10:23 AM)ksir Wrote: Definitely. What if they didn't?
Granted that devaluation won't be the only silver bullet but it arguably a tool in the arsenal.

Greece doesn't have that option with Euro.
That is the main message, imo.

Have you studied the economy of Greece?

It's more a consumption-based economy, than an export-driven economy such as Thailand/Indonesia.

Devaluation will not have much an impact on Greece. Greece knows it, that's why it does not go back to its own currency as there isn't anything good about it.

Devaluation will only cause hyperinflation in countries like Greece as it already broke. No amount of devaluation can save someone from bankruptcy.

Indonesia is not an export oriented country as well. The point is countries compete by selling products & services.
So currency devaluation (with its negative impacts that u mentioned) create competitiveness by lower the costs (wage, house, tourism etc).

Granted that either way, austerity or devaluation, carry with it the punishment for Greece people. But which is better? Or the combination of both will lower the weight for the people to carry?

Unfortunately, Greece doesn't have the devaluation option!
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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#9
(29-08-2013, 11:12 AM)ksir Wrote: Indonesia is not an export oriented country as well. The point is countries compete by selling products & services.
So currency devaluation (with its negative impacts that u mentioned) create competitiveness by lower the costs (wage, house, tourism etc).

Granted that either way, austerity or devaluation, carry with it the punishment for Greece people. But which is better? Or the combination of both will lower the weight for the people to carry?

Unfortunately, Greece doesn't have the devaluation option!

Why not? Greece can exit EURO if they dare. Greek knows better than anyone else what it means. It was no better than a Sh** hole before it joins EURO.
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#10
(29-08-2013, 11:18 AM)freedom Wrote:
(29-08-2013, 11:12 AM)ksir Wrote: Indonesia is not an export oriented country as well. The point is countries compete by selling products & services.
So currency devaluation (with its negative impacts that u mentioned) create competitiveness by lower the costs (wage, house, tourism etc).

Granted that either way, austerity or devaluation, carry with it the punishment for Greece people. But which is better? Or the combination of both will lower the weight for the people to carry?

Unfortunately, Greece doesn't have the devaluation option!

Why not? Greece can exit EURO if they dare. Greek knows better than anyone else what it means.

Yes, if they dare or even allowed to.
Cmiiw, i am coming from investor point of view.
To illustrate:
If a company is bleeding, I will be interested to invest if their price is devalued lower and if they cut cost (or even cut part of the unprofitable business).
But in this case, the company price just wouldn't go down, just because they are backed by strong friends (eg: Germany).

Just my 2cents with all my amateur view of economic.
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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