“Misery”: A Postscript To “The Euro Is Not Unassailable”

By Marshall Auerback

This memorable scene in Misery is a perfect metaphor for the ECB’s much vaunted bond buying program.

In essence you have two distinct, but related problems: the solvency issue and the problem of deficient aggregate demand.

The bond buying deals with the first, but at the expense of the latter. They should be doing unconditional bond buying, but the Germans would never stand for that politically.

So they’ll still have the same “problem” of fiscal profligacy because as they deflate these economies further into the ground (as a condition of the bond buying), tax revenues will fall further, the automatic stabilizers will go up and the deficits will become larger.

It’s a bit like a patient in the hospital being fed on a drip until he recovers, and then breaking his legs as he emerges from the hospital bed, a la Kathy Bates to James Caan in “Misery”:

The patient, like James Caan, is perpetually “hobbled”, even though he remains alive.


7 responses to ““Misery”: A Postscript To “The Euro Is Not Unassailable”

  1. But isn’t the ‘unlimited’ bond buying limited by the sterilisation process?

    They have to sell a bond to buy a bond, so it’s just a maturity swap. How is that going to help. Surely they’ll run out of long bonds before then. Or are they issuing ECB ones? Selling short?

    • Stephanie Kelton

      It helps because the ECB effectively caps yields and allows them to fund themselves at interest rate levels where they can survive, when the markets find the ECB’s pledges credible (which hasn’t been the case until now).

      As for running out of bonds, so long as there are deficits, they’ll be bonds.


  2. Maybe the Troika have been reading the manuals from Fort Benning? Counter-insurgery doctrine deploys torture for its demonstration effect on recalcitrant populations. People get into line and modify their expectations when they see the guy on the rack. The point is to hold up the bleeding remains of Greece as a warning to the rest of the PIIGS. Oderint Dum Metuant

  3. Alex Gheg has a new framework that makes sense of these issues. Quantity, Quality, variety and convenience in one equation. Imagine a scale that measures hidden thoughts. http://www.youtube.com/watch?v=u6tFLGpcOpE

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  6. This is just kicking the can down the road! I witnessed this ploy while living in the Chicagoland area. They made this move famous even though they were not the original users of this age old method of confusing the public in an attempt to regain some confidence in financial markets. It’s another type of desperate attempt to correct a fraudulent past & hook some of the new generation of “suckers”! Shame on us!