You can’t get Blood from a Stone

In the hope that someone in the EU reads it:I: Inflation is a tax. Create inflation when salaries are stale and spending will collapse

II: Printing money is stealing funds from savings and from efficient companies to give it to inefficient and indebted governments.

III: Trying to increase tax revenues to bubble-period figures is impossible. Those revenues disappear when the bubble bursts. You have to bring spending to pre-bubble levels.

IV: Increasing spending and debt means passing the bill or the consequences of a default to our children.

V: Offsetting private investments with government spending assumes that politicians are better managers and investors than private entrepreneurs.

VI: More taxes, less growth, less revenues. Same spending, more deficit. More debt, bigger hole.VII: Increasing debt today is to assume that we deserve to spend today the expected productivity and efficiencies of the future.

VIII: If our policy is that countries don’t have to worry about debt because governments don’t need to pay it we shouldn’t be surprised with increased cost of borrowing.

IX: Increasing public spending today assumes that the same governments that made spending mistakes in the past will now change their way and do it well.

X: If a country’s debt is “low” and its cost “manageable” yet demand for its bonds is collapsing and costs soaring, the debt is neither low nor manageable.


About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

5 thoughts on “You can’t get Blood from a Stone

  1. Dear Mr. Lacalle:
    IMO, imperative structural and administrative reforms (public spending and so on)are THE solution, but their effect is too far away (if ever really imposed by our politicians)

    But lower financial costs should help. Of course if tied to serious reforms that should avoid mad spending in the future.

    What do you think about the possibility of applying a “Brady bonds scheme” to European Rescue funds? This could rocket size the power of these funds. Europe could guarantee 15-20% of spanish and italian debt with no more than 250.000 million euros and lower financial costs in a significant way. Or don´t you think so?

    Sefuela (excuse me for logging as anonymous. got problems with these blogs for signing in)

  2. Dear Sefuela, The problem of the solution you propose is that the contagion effect on those bonds would be phenomenal, particularly when each country has a different fiscal and economic policy. Like we have seen with the EFSF and the ECB, which has ballooned its balance sheet to 30% of EU GDP, the solution unfortunately cannot be more debt but structural reforms.

    1. I know you are right. But what I´m thinking about is no more debt, and TIED to structural reforms, but a partial guarantee scheme from the UE to soverign bonds. An alternative to eurobonds with almost (I think) the same effect in lowering financial cost to pheriphery.

      Yes, the weakest point of this is political will. Probably intervention shoud be compulsed. But a guarantee scheme would multiply the power of rescue funds, which are not enough, right now, for rescueing Spain and/or Italy.

      As you very well know, derivatives are very useful when used the right way. Maybe the contagion you mention could be avoided with some kind of a swap.

      Thanks a lot for your quick answer and congratulations for your articles. Hard times for defending markets against the main stream when everyobdy speaks about risk prime without knowing a single word about its real meaning. Best regards.

  3. If you have read my post here in the blog “Eurobonds? No Thanks, debt isn’t solved with more debt” you probably know my view. Those schemes do not lower risk, they spread it. Even worse, every time I see bond yields fall I can picture a public servant in a ministry undusting the cheque book and putting another 100 million on a useless statue, airport, train or unproductive infrastructure. Also, the rescue fund would not be adequately funded because all the countries contributing to them have massive debt and more than half already finance themselves well above 3%.

  4. You´re right again. Thinking about lowering the extreme level of risk in the periphery (of which the high rates are only a synptom), didn´t realize of the increase in global risk through the spread effect.

    Was wondering about getting this idea through to IOSCO, but I better think a little bit more instead. Thanks again.


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