In Europe.
http://www.theatlantic.com/business/archive/2012/10/25-and-rising-unemployment-in-spain-and-greece-is-still-spiralling/264343/

Quote :

" There's a saying among companies, especially start-ups, that the metrics you pay most attention to move in the direction you'd like, so, the key is focusing the right metrics. It's the same with central banking, really. For most of this crisis, Europe's central bankers fixated on inflation when the real problem for European countries in the periphery -- e.g.: Greece, Spain, Portugal -- was falling growth and rising unemployment. Rather than risk a dose of inflation to help their competitive, the strongest countries in Europe, led by Germany, administered austerity and watched their neighbors shrink and protest and burn. "

Basically merely trying to keep inflation low doesn't inherently help with growth.

It's a pretty intuitive concept... you have to spend money to make money. Could Europe be in a different situation if perhaps some of the governments invested more to encourage businesses to do the same or provide them opportunities to do so?

10/31/2012 8:24:01 PM

This is a really interesting topic, especially if you compare it to the Federal Reserve. The US Federal Reserve has a dual mandate, maximium employment and stable prices. The ECB, however, only has a single mandate, stable prices. One could wonder if the lower unemployment in the US is due to the central bank having it as a goal. Maximium employment, as a goal, would certainly allow the quanititative easing that the Fed has done, while quanitative easing would work against a single goal of controlling inflation.

11/1/2012 9:49:24 AM

Buying assets from commercial banks does little good when commercial banks aren't lending or investing much due to low demand. Quantitative easing has no almost no effect on inflation during a liquidity trap. Inflation occurs only when money enters the economy at large and actually exchanges hands between employers, employees, consumers, producers, etc.

Fiscal stimulus, like infrastructure spending and welfare, puts money directly into the pockets of consumers, stimulating demand and (If money is printed to do it) causing inflation, which incentivizes businesses to shift from liquidity to investment (Good thing).

[Edited on November 1, 2012 at 10:07 AM. Reason : .]

11/1/2012 10:03:26 AM

I agree with you, however, if your only job is stable prices, why would you take the action of quantitative easing?

11/1/2012 10:12:50 AM

Quote :

"I agree with you, however, if your only job is stable prices, why would you take the action of quantitative easing?"

If that's your only job, no idea; I honestly am unsure what Bernanke thinks he's accomplishing, but as Fed director I guess he has to do something to try and help the recovery, but this is just about all he can do? Maybe it's a safeguard to make sure interest rates stay at near-zero.

If you have a dual mandate to also curb unemployment, you might do it not in hopes of causing inflation (It wont) but instead attempting to crowd investors out of safe investments and into riskier, higher-return ones to try and jumpstart growth and get money back in motion.

[Edited on November 1, 2012 at 10:22 AM. Reason : .]

11/1/2012 10:22:06 AM

Maybe I am wording things poorly. The US has a dual mandate, and because of the "maximium employment" part of that they have undertook quanitative easing. The European Central Bank only has a goal of "stable prices", so they have no reason to do something like quantitative easing. This could be part of the reason why unemployment is huge in Europe while it is shrinking in the US.

11/1/2012 10:32:55 AM

Too much good discussion ITT to let it sink,



To play devil's advocate:

The overall unemployment rate in Europe is between 11% and 12%
http://www.guardian.co.uk/news/datablog/2012/oct/31/europe-unemployment-rate-by-country-eurozone.
Germany, Austria, Scandinavian countries, etc (4-6%) are doing atleast as good as the best performing states in the USA (ND at 3% up to NV at ~12%)
fairly recent US state unemployment rates: http://www.bls.gov/web/laus/laumstrk.htm

The PIGS countries are what is really dragging their unemployment down, as well as a few countries that are doing so-so (France, Poland, croatia @ ~10%).


So in reality, there are a few countries that are doing horribly compared to the average US state, a few that are doing a little worse, and several countries that are doing as good or better than the best US state.



To me, its pretty plausible that there are other factors at play contributing to the EU's higher unemployment besides the FEDs mandate. Especially when I can't really point to any FED policies that I would say were targeted directly toward unemployment, instead they are directed toward liquidity (I think this may be Str8Foolish's argument, correct me if I'm wrong)



To broaden the discussion, something I've been mulling over:

My understanding is that trade imbalances (due to a variety of complicated reasons) are really at the heart of why PIGS (excluding Ireland perhaps) countries are doing so poorly compared to those EU countries that are doing reasonably well. Personally, one of the biggest reasons is that I think capital/investment/wealth follows where capital has already gone. That is, captial transfers and trade balances tend to gain momentum and stay in one direction once they get started in that direction. I believe that this is inherent in our system, and unlikely to change anytime soon.

In the US our federal government allows for the "redistribution of wealth" in that many of the US's more underdeveloped states receive significant federal assistance ranging from infrastructure to safety nets. This lessens the blow to states that should have skyrocketing debts and unemployment and overall leads to a smaller range in unemployment across the states, and thus lower overall unemployment in the US.

The solutions I've seen for PIGS countries (especially Greece and Spain) is to either

a) leave the EU, and start inflating their currency to become competitive again (and reduce the trade deficits)
or
b) recieve cash infusions from countries that are doing relatively well (much like the US is doing to slow growing states) -- which has been the option they have tried except they haven't been able to go far enough due to pullback from the well-to-do countries



but here is the point, even though its slightly off topic:

If you accept the above to be true (and I hope that its somewhat clear), then does it also carry over to individuals? In other words, is some redistribution of wealth necessary in our system to maintain more balanced trade deficits (between individuals) and thus a more stable system?

I tend to say YES!

11/2/2012 5:30:38 PM