Austerity Chic

Here’s Ed Glaeser:

Yet there are many Americans who spent the last eight years living within their means, and have plenty of resources left. For those Americans, the ones with cash in their bank accounts, this is the time to spend.

Cracking open the Champagne does not exactly feel in tune with today’s spirit of national austerity, but recessions get worse when prosperous people do not spend. In fact, if you can afford it, then this is exactly the moment to redo your kitchen or buy a car. Not only will you be able to get a good deal, but your spending will help revive the economy. The economist John Maynard Keynes convincingly argued 70 years ago that thrift was no virtue during a recession.

Despite the strength of the economic logic urging spending during a downturn, powerful psychological forces push in the opposite direction. America is hurting; thousands are losing their jobs. In today’s political climate, public displays of prosperity are the kind of thing that gets you lambasted by a Senate subcommittee.

I made a similar argument on Marketplace just before Christmas. Here’s what I said:

Most of us won’t lose our jobs, won’t face a pay cut. Yet we tighten anyway. Dollar-stretching tips circulate even among the most comfortable. But if your paycheck’s intact and you’re still cutting back, you may be part of the problem.

When home values surge, we tend to feel richer and spend a bit more, even if we don’t plan to sell the house. Economists call this “the wealth effect,” and it’s got a recessionary flip side. So when our 401(k)s dive as the economy hits a rough patch, we feel a bit of a pinch and rein in consumption — even when our incomes and the long-term value of our investments hasn’t changed a bit. In short, we don’t always look to our personal financial fundamentals when choosing whether to splurge or scrimp.

But just as “irrational exuberance” can keep a speculative bubble afloat, equally irrational anxiety, and the ethos of austerity it produces, can trap us in the doldrums. So maybe you went a bit crazy during the boom, and now’s the time to return to financial sanity. Good! But if you were living comfortably and responsibly within your means last year, you probably don’t need to cut back now. 

You know what? This argument DRIVES PEOPLE CRAZY. Check out Glaeser’s comments, and mine, which tend to confirm that there is in fact a Keynes-ish sort of pack psychology about appropriate consumption behavior. It’s funny that people get upset by a recommendation to do things that are both individually prudent (it’s just good financial stewardship to buy things when prices are low) and that have larger than ususual positive spillover effects. I doubt people really think it’s better to leave yourself and everyone else worse off. My diagnosis is that most people either don’t get the idea of periodic downturns and recoveries and so tend to suspect  with each serious recession that this time everything may go to shit permanently (which is true, it might, but what are the odds?) and to infer that prudence demands hoarding. My biggest worry about things going to shit is that government profligacy may leave us with a worthless dollar. But then why not spend all your dollars now on durable stuff!  I recently put a lot of my savings into a diamond ring, which I’m now thinking turned out to be fairly savvy move in several different ways.

43 Replies to “Austerity Chic”

  1. Ed starts off:”Yet there are many Americans who spent the last eight years living within their means, and have plenty of resources left.”how many people offering opinions on this situation are analyzing things based on an 8 year increment? that seems embarrassingly stupid and partisan.as to your point…i don't think its economic ignorance. i think it is the influence of the old-fashioned puritanism left in our culture. you can enjoy yourself but not TOO much. people have adjusted even that measured enjoyment to reflect the national mood. …but maybe thats just me and im projecting!

  2. I second that!!! Puritanism, that dirty habit our country never seemed to kick, I've always suspected is what's behind most people's revulsion towards economic profligacy, conspicuous consumption, environmentalism, and an enrichissez-vous middle class. In fact I think that liberals would be wise to take a deep personal inventory of their ideologies – it occurs to me one of the revelations might be that what passes today for a kind of broad coercive altruism that cannot abide democratic prosperity is in fact a collective subconscious vestige of that haunting fear that someone, somewhere, may be having a good time.

  3. Wait, wait, wait! Didn't Uncle Milton win a Nobel Prize in part, because of his life-cycle model? And what it suggests, what it describes and predicts, is EXACTLY this kind of behavior. Pro-cyclic patterns in consumption preferences are, in fact, extremely rational. People base their consumption on a combination of personal preference and on their expectation of life-long income. What you're seeing, with this current downturn, is a change in what everyone expects to earn over their lives. It doesn't matter if you've saved more in the past; those decisions reflected your personal consumption preference. But now, your perceive that you life-time earnings are going to be lower, so regardless of your marginal consumption preference, if you have any income, you will be saving more and spending less.The whole point about economics is that there are often situations where individually rational behavior is (objectively) sub-optimal for the collective. That's the lesson we learn from the tragedy of the commons, tulip bulb bubbles, bank runs and over-provisioning in wide area fibre. The whole point of Keynes' economics was that overcoming a depression required collective action, because making the necessary adjustments was in no one's individual interests. It's called “macro-economics” because it's about more than the sum of a very large pile of “micro-economic” questions.

  4. People with secure financial prospects may not need to cut back, but it seems wrong to classify them as “problematic” if they choose to do so. The way I see it, as long as people are not literally hoarding dollars in their mattresses, then a shift from consumption to saving/investment shouldn't make a recession worse and should actually bode better for our future. Isn't investment required for capital formation in the first place? If people are saying, with their dollars, that they want entrepreneurs to start focusing on making things that take more time but promise greater gains in the years ahead then shouldn't employment start shifting from sectors focusing on immediate consumption to ones that have a longer time-delivery horizon? It might be bumpy getting there of course, but that doesn't mean we're heading down the wrong path.

  5. I kind of agree with the last commenter; saving isn't a problem if it translates into investment. Some of the usual financial intermediation is broken right now, so I suggest durable goods and investment — spending $20,000 fixing up your kitchen isn't $20,000 of consumption, and, as you said, the cost of doing so now may be as low as it's going to get.

  6. I recently put a lot of my savings into a diamond ring, which I’m now thinking turned out to be fairly savvy move in several different ways.I know what you mean, economically, here.I just wish you and I didn't live in a culture that made that diamond ring purchase necessary.

  7. Tell me about it Brutha! Valentine's Day 'round my place is like a parole hearing, with jewelry and flowers.

  8. “confirm that there is in fact a Keynes-ish sort of pack psychology about appropriate consumption behavior”What people *say* isn't confirmation of much of anything.

  9. The Keynesian point is that people use social cues to reestimate lifetime income, and so turn consumption behavior on and off in a way that bears little relationship to a rational projection of long-term earnings.

  10. You are such an economist! I understand cheap talk, but I also understand that when people say, “I feel warm,” it tends strongly to confirm the fact that they feel warm. Can we meet in the middle?

  11. Glaeser seems to go a bit farther than you, from “don't cut your consumption just because the economy as a whole is in recession” to “increase your consumption because the economy as a whole is in recession.” I'll go for your version, but no so much for Glaeser's. I don't see why I should alter my consumption habits in order to help the economy. Seems like the risks outweigh the reward. I increase my consumption spending…I am now saving less; if the recession does turn out to affect me personally at some point, I am now worse off. I increase my consumption spending….I am now saving less; even if the recession doesn't turn out to affect me personally at some point, the economy isn't much better off because individually my few hundred/thousand or so increase in consumption spending per month made very little difference. I'm buying debt and equity, thanks.

  12. I'd be happy to increase my spending as soon as someone comes up with a cool new product I just have to have.Life is pretty good with an ITunes account, cable TV and high speed internet subscriptions.Where's the next flat screen TV or iPod to increase my consumption?

  13. Curious, Will – how do I arrive at this “rational projection of long-term earnings”? Independent of the evidence provided by “social cues”, there is no such thing!Take the social cues seriously, turn the handle on Uncle Milton's wonderful machine, and your “pack psychology” turns into a market rationally setting the price for labor and money!

  14. congratulations!!!! wow, i'm a new reader to the site and just the other day i clicked on your “my partner” tag to read the whole thing. what an exciting development. this will make it much easier for you two (you're going with “spouse,” right? though i like “wife” too).great news and good for you!

  15. I'm not holding back spending because I'm afraid that we'll lose our income . If that happened, we'd be up a creek without a paddle, whether or not I cut out a few luxuries now. I'm holding back spending because we're in a deflationary period and things are going to get cheaper. Trying to figure out when to pull the trigger without listening to the brouhaha on either side (“buy now to stimulate the economy” or “job losses—Everybody panic!!”) is interesting.

  16. Will, I've been a regular reader and have often enjoyed your viewpoint. I recently got my Merchant Mariner's license (within the last two years) and have taken advantage of the nomadic existence that this career affords, going out and working for weeks or months at a time and staying with friends in major port cities in between. Because of the tight labor market (which union sailors experience in a much more direct way than most workers, since you can see the jobs available each day on a big board and the people you are competing with to get those jobs in the same room with you) I have been somewhat concerned about how to proceed with my career and have considered finding a shore job to get me through, as well as just banking money and waiting it out. But on the other side I have a unique ability to “do as I please” and let my spending track exactly with my earning. Reading this article has just convinced me that I will do as I have been roughly planning and spend the month of March working sporadically on Oahu and surfing or drinking things with umbrellas the rest of the time. I'm doing my part for the stimulus, dammit! Just so you know that not only are you moving discussions on liberaltarianism, you are having effects in the real economy, too (small though my response may be). Thanks, I'll drink a toast to you (and Kerry) in Waikiki.

  17. “Goddamn deBeers”Careful…they're pretty much the sole reason your lump of compressed carbon will retain any value in the future. 😉

  18. Chris, actually, that's less silly than it seems. The only reason it seems wacky to us is that we didn't invest heavily in canals right before the railroads. We don't have anything to gauge this against. Chances are, the early 80's is already ancient history to most reading this site and would appear as catastrophe +1..Things could be much worse. Slashing wrists over high single digit unemployment proves Lucas right.

  19. Ok well for some reason this facebook connect thing doesn't display my current profile pic. It's me holding a bunch of shit I bought in the past month or so. Granted used snowboards probably don't do much to stimulate output, but a laptops and bass guitars do.

  20. Couldn't have said it better myself. You know, years ago the University of Florida developed a process to create real diamonds – diamonds that have the exact same properties as diamonds mined from the ground – diamonds that simply cannot be distinguished from mined diamonds because there is no distinction (other than at the atomic level (“natural diamonds have paired nitrogen impurity atoms while UF diamonds have single atoms”) – but when I brought up that possibility, just once and in passing and tongue almost in cheek, I think I risked a) death, and, more importantly, b) losing my girlfriend/soon to be fiancee/wife.http://www.sciencedaily.com/releases/1999/08/99

  21. A major cause of restricted spending is uncertainty created by constant government intervention. Until these waves of change are over, most people will hold off on spending. The anxiety is a valid reaction to uncertainty caused by constant changes which make financial decisions too iffy. In a large sense, it's the uncertainty within government as to the correct course to take which is causing the cut-back in spending — it's a chain-reaction of uncertainty.All this intervention is also a reason why capitalists aren't investing — it's basically the same principle — until you clearly know the rules — how you can win, what can cause you to lose — you most likely won't play.

  22. I have managed to save 5-6 months expenses up, and it's sitting in a couple of banks, earning meager interest. Mentally, however, I generally fall into the “I could always save more” category, and struggle with how and when I want to purchase things.The Glaeser article pushed me over the edge – I went out and bought that XBox 360 I've been jonesing for (I've wanted to play Halo 2&3 for a while now), and some other stuff. Because, at the end of the day, if I, as a high-end software consultant/programmer/architect can't find work for 5 months, the extra $600 or so I spent will not amount to a hill of beans.Basically, at this point, in order to “do my part” based on the Glaeser article, I have to pretty much commit myself mentally to spending every cent I make each month until the recession lifts. This is quite hard for me, but these are the kinds of sacrifice one has to make in these dark times!Now I just have to figure out what to buy – I like my car, live in an apartment and already have a nice TV, stereo, etc. I suppose I could get some furniture, but I don't think I'll derive much utility from it at this point. The only things that pop into my head are hiring an editor to spruce up my novel, and maybe a new(ish) tri-bike.

  23. Very, very true. All these goofy government efforts remind me of Atlas Shrugged. In and of themselves they are bad enough, but add the uncertainty and moral hazards they create and they are stewing a big enough pot to cook us all.My investment advice is guns and ammo. They lose little value and if things do get dire, you can use them to procure all sorts of goods and services.

  24. In my wife's defense, JB, she wasn't actively thinking of ways to screw over Africans. I doubt she'd ever even heard of deBeers at the time. She just wanted a traditional diamond for her engagement ring (and wedding band). Maybe that's unreasonable, but if you think so, you're probably going to remain a bachelor for a very long time.

  25. Scotland Bank ist krisisvon Raivo PommerDie verstaatlichte britische Großbank Royal Bank of Scotland (RBS) will sich Medienberichten zufolge von zahlreichen Unternehmensteilen trennen und bis zu 20 000 Jobs abbauen.Der neue RBS-Chef Stephen Hester will sich künftig auf das Kerngeschäft der Bank konzentrieren und die übrigen Geschäfte für einen späteren Verkauf zunächst in eine Unterabteilung der Bank auslagern, wie mehrere britische Medien am Wochenende berichteten. Zuvor war war bereits spekuliert worden, dass RBS bis zu 20 000 Stellen abbauen werde. Das wären etwa 10 Prozent der weltweit Beschäftigten.Zu den ausgelagerten RBS-Sparten sollen die Geschäfte in Asien und Australien gehören. Außerdem will sich RBS den Berichten zufolge aus der Hälfte der 60 Länder zurückziehen, in denen die Bank derzeit Geschäfte betreibt. Zudem werde erwartet, dass RBS ein neues Rettungsprogramm der Regierung in Anspruch nimmt und faule Kredite in Höhe von mindestens 200 Milliarden Pfund (225 Mrd Euro) auf Kosten der Steuerzahler gegen Zahlungsausfälle versichert.Die Pläne sollen am Donnerstag vorgestellt werden, wenn RBS seine Zahlen für das abgelaufene Geschäftsjahr präsentiert, hieß es in den Berichten weiter. RBS hatte bereits einen Rekordverlust in der britischen Unternehmensgeschichte von 28 Milliarden Pfund in Aussicht gestellt. Die Bank war im Strudel der Finanzkrise ins Schlingern geraten, auch weil 2007 Teile der niederländischen Bank ABN Amro übernommen worden waren. Mittlerweile befindet sich RBS zu 68 Prozent in Staatsbesitz.

  26. “remain a bachelor for a very long time”You are probably correct. It's sad that holding out for a girl who knows something about an object of her desire means that I'm picky.

  27. Do you really study the origins of everything you consume? Sounds fun. The other reason you're likely to remain a bachelor is that you kind of sound like a douche bag.But keep holding out, JB. I'm sure she's out there somewhere, waiting both for you and that wonderful emerald ring you'll bring her.

  28. I haven't lost my job, but I can't think of much that I want right now. Is there anything in terms of investment goods that it's a good idea to spend on? (By investment goods I mean ones that make money. Not art, or jewellery or other things that merely cost money to ensure and may, possibly, one day, be worth more than you sold them for).

  29. EurokrizeEesti-von Raivo Pommer–raimo1@hot.eeL'euro poursuit son repli ce mardi face au dollar. Vers 18h45, un euro s'échangeait ainsi contre 1,32 dollar, après voir touché 1,3168 dollar, au plus bas depuis le 11 décembre. Lundi soir, un euro valait 1,3362 dollar. Les cambistes spéculent sur une probable baisse des taux européens à l'issue de la réunion du Conseil des gouverneurs de la Banque centrale européenne (BCE), ce jeudi à Francfort.Face au ralentissement économique, l'institution présidée par Jean-Claude Trichet devrait opter pour un nouvel assouplissement monétaire. La majorité des économistes parient sur une baisse de 50 points de base du taux directeur européen, qui serait ainsi ramené à 2%.La tendance baissière de la devise européenne est par ailleurs renforcée par les craintes sur la dette de plusieurs gouvernements de la zone euro après que l'agence de notation Standard & Poor's a placé la note de la dette à long terme de l'Etat espagnol sous surveillance négative. Cette dernière pourrait ainsi perdre son rang “AAA”.De son côté, le billet vert a été soutenu par les propos de, Ben Bernanke. Le président de la Réserve fédérale américaine qui a estimé mardi que son institution disposait encore “d'outils puissants” contre la crise.

  30. Catastrophe Easternvon Raivo Pommer-Eesti-raimo1@hot.eeEastern Europe’s woes are not unmanageable. But they are not being managed. The result could be catastropheAMID the wreckage of Latvia’s retailing industry, which has declined 17% year on year according to the latest figures, one item is selling well: T-shirts with seemingly mysterious slogans such as “Nasing spesal”. Latvians are glad to have something to laugh about, even if it is only their finance minister, Atis Slakteris. In an ill-judged foreign television interview, using heavily accented and idiosyncratic English worthy of the film character Borat, he described his country’s economic problems as “nothing special”.Put mildly, that was an original interpretation. Fuelled by reckless bank lending, particularly in construction and consumer loans, Latvia had enjoyed a colossal boom, with double-digit economic growth and a current-account deficit that peaked at over 20% of GDP. Conventional wisdom would have suggested applying the brakes hard, by tightening the budget and curbing borrowing. But the country’s rulers, a lightweight lot with close ties to business, rejected that. Fast economic growth made voters feel that European Union membership was at last producing practical benefits, after a disappointing start when tens of thousands of Latvians went abroad in search of work, leaving rural villages and small towns depopulated.Click hereThe central assumption, in Latvia and many other countries in or near the EU, was that convergence with rich Europe’s living standards and other comforts was inevitable. Lending in foreign currency went from 60% of the total in 2004 to 90% in 2008. Why pay high interest rates in the local currency, the lat, when the cost of a euro loan was so much cheaper? In a few years Latvia would surely join the euro anyway. Similarly, worries about financing the inflows were dismissed: Swedish banks would no more abandon their subsidiaries in Latvia than they would pull out of, say, southern Sweden.Last year tested those assumptions nearly to breaking point. First, Latvia’s housing bubble popped. Then the main locally owned bank, Parex, went bust and had to be nationalised, amid fears that it could not pay two syndicated loans due this year. In December Latvia accepted a humiliating €7.5 billion ($9.56 billion) bail-out led by the IMF.The big cuts in social spending that the package entailed led to vigorous public protests. Now the government has resigned. At a time when strong leadership and public trust are needed more than ever, the country’s squabbling and discredited politicians look hopelessly out of their depth. Latvia is an economic pipsqueak, with just 2.4m people. But the rest of the region is watching nervously, fearful that more bad news from the Baltics could bring others crashing down too.It is easy to be pessimistic. This is indeed the worst economic crisis since the collapse of the communist planned economies and the wrenching process of privatisation, liberalisation and stabilisation that followed. The main ex-communist economies are likely to contract by 3% this year, according to Capital Economics, a consultancy. Yet the picture is not uniform. Only a few countries have needed an IMF bail-out. One is Latvia, whose economy is set to contract by at least 12% this year, and whose credit rating has just been downgraded by Standard & Poor’s to junk. Another is Hungary, burdened with a larger debt-to-GDP ratio than almost any other new EU member. It received $25 billion in October and faces a contraction of up to 6%. A third is Ukraine—chaotically run, corrupt and badly hit by the slowdown in its main export market, Russia. Ukraine’s IMF deal brought it $4.5 billion in November. But a second tranche of $1.9 billion is stuck; the deal is unravelling as politicians squabble over spending cuts. Its economy is likely to shrink by 10% this year. Other countries with IMF packages agreed or pending include Belarus (a Russian ally which is still expected to see growth this year), Georgia (which was bailed out after last year’s war with Russia) and Serbia.Most other countries in the region are faring much better, though. Poland—by far the largest economy of the new EU members—is nowhere near collapse. Unlike its central European neighbours, it is big enough not to depend chiefly on exports to the rest of the EU. By European standards, its public finances are in fairly good shape. Its debt-to-GDP ratio is below 50%. Growth will be negligible, or slightly negative, but nobody is forecasting a big decline. Some Polish firms and households have taken out foreign-currency loans—but the figure is around 30% of all private-sector lending, compared with twice that in Hungary.The second-biggest economy, the Czech Republic, is in good shape too. Its economy may shrink by 2%, but it has a solid banking system and low debt. Its neighbour Slovakia is in better shape still: it managed to join the euro zone this year. Like Slovenia, which joined two years ago, Slovakia can enjoy the full protection of rich Europe’s currency union, rather than just the indirect benefit of being due to join it some day.Farther afield, the picture is very different. For the poorest ex-communist economies, the problem is not financial meltdown. They lack much to melt. Their exports are raw materials, agricultural products and people. In six countries, money sent home by foreign workers counts for more than 10% of GDP (in Tajikistan and Moldova it is more than 30%). Outsiders who agonise over the Latvian lat or Hungarian forint are rarely bothered with worries about the somoni (Tajikistan), leu (Moldova) or manat (Turkmenistan).That highlights an important problem. Outsiders tend to lump “the ex-communist world” or “eastern Europe” together, as though a shared history of totalitarian captivity was the main determinant of economic fortune, two decades after the evil empire collapsed. Though many problems are shared, the differences between the ex-communist countries are often greater than those that distinguish them from the countries of “old Europe” (see table).They range from distant, dirt-poor despotic places to countries in the EU that are not just richer than some of the old ones, but have better credit ratings, sounder public finances and stronger public institutions. In almost any contest for good government, stability or prosperity, Slovenia (under a sort of communism until 1991) looks better than Greece, which invented democracy and was never communist.The thirst for capitalHistorical and geographical quibbles aside, what the ex-communist countries have shared over the past decade is a mighty thirst for capital. Having missed out on decades of growth and integration with the outside world, almost all (a few oddballs in Central Asia aside) are trying to catch up. Money from abroad has come in from borrowing on the bond market, from foreign direct investment or from selling shares. Most often it has come through bank loans.At one extreme is Russia, which enjoyed huge external surpluses thanks to its wealth of raw materials. But its big companies borrowed lavishly on the strength of that, creating a potential short-term debt problem. Russian corporate borrowers have to pay back around $100 billion this year. At the other extreme lie countries such as Slovakia. They attracted billions from foreign car manufacturers, drawn by a skilled workforce, low taxes and decent roads in the heart of high-cost Europe.Countries that relied chiefly on foreign direct investment are the least vulnerable now. The new factories may shut down. But it is harder for that capital to flee. Those that rely on foreign investors buying their bonds, such as Hungary, are the most vulnerable: their fortunes vary with every twitch of a trader’s fingers. In the middle are those that rely on lending from foreign banks to their local subsidiari

    es. That looked solid in the boom years, as Western banks scrambled to win market share by offering good terms to borrowers and lenders in the fastest-growing bit of Europe. It is still highly unlikely that any Western bank will pull the plug on a subsidiary anywhere—even in troubled Ukraine.But nerves are jangling. The ex-communist countries have survived the first phase of the crisis, thanks to their own policies and some external support. The second phase, in which the rich world is turning stingier and possibly more protectionist and lenders are scurrying to safety, may be harder. The ex-communist economies must repay or roll over a whopping $400 billion-odd in short-term borrowings this year. Coupled with the lazy but easy lumping of nearly three dozen countries together, that creates the region’s biggest danger: contagion (see article). In other words, failure in one place sparks a disaster in another, even though it may be far away and have the same problem in a far more manageable form.Contagion could happen in many ways. One is if depositors lose confidence that their savings are safe. So far, Western-owned banks have enjoyed rock-solid credibility: more so, in many cases, than governments or other public institutions. But that confidence could be undermined. If only one foreign bank pulls the rug from under one local subsidiary, leaving depositors stranded, it will cloud perceptions of banks’ reliability across the region. The most dangerous kinds of bank runs would be those in which depositors try to pull out either their foreign currency, or local currency which they would then attempt to convert into hard currency. In some countries that could overwhelm the ability of the central bank to support the financial system.Another weak point is where shareholders take fright. If a foreign bank with big exposure to the region—Swedish, Austrian or Italian—needs to raise more capital but finds that outsiders think its loan book is too risky, what happens? The price of rescue may be that it sheds a troubled foreign subsidiary. Signs of shareholder twitchiness are growing (see chart).For now, the most likely source of contagion is collapsing currencies. The paradox is that for countries with floating exchange rates, an orderly depreciation would in normal circumstances be a good way of cushioning an external shock, such as the slump in export markets now hitting the ex-communist economies. It stokes competitiveness and, along with lower interest rates, it lays the foundations for a return to growth. Governments with sound public finances might also consider running a looser fiscal policy to counteract the downturn.Propping up the currencyFor most of the countries in the region, such a textbook response is out of the question. Some have currency boards, or pegged exchange rates. In the Baltic states these have been the centrepiece of economic policy for more than 15 years. Abandoning them would not only bankrupt big chunks of the economy that have borrowed in euros. It would also be a huge psychological blow to public confidence in the whole idea of independent statehood. These countries have suffered the most painful part of being in the euro zone—the inability to devalue and regain competitiveness—without getting all the benefits.Countries with floating exchange rates have a bit more room for manoeuvre. Their problem (a big one in Hungary, a lesser one in Romania and Poland) is that falling exchange rates may bankrupt the firms and households which have, in past years, taken out unwise loans in foreign currencies, chiefly euros and Swiss francs. That was, in effect, a convergence play. If you believed your country was heading for the euro zone some time in the next few years, then why not take advantage of the low interest rates there, rather than suffer the higher ones in your domestic currency?What seemed a minor risk back then now looks painfully mistaken. For those earning forints or Polish zloty, the big swings in exchange rates in recent weeks have sent the size of both loans and repayments spiralling upwards. The zloty has dropped 28% and the forint 22% against the euro since the middle of last year. If the East Asian crisis of 1997 is any guide, these and other currencies may yet have further to fall.This risk of a currency collapse will limit these countries’ options. So far many big central European countries have cut interest rates heavily to try to boost their economies—Poland’s central bank cut its policy rate again this week. But currency weakness will limit their room for manoeuvre. The Czech, Hungarian and Polish central banks issued a co-ordinated statement this week hinting they might intervene to support their exchange rates. But that route is tricky. Russia has blown half its reserves in a series of unsuccessful attempts to try to prop up the rouble.Spending and tax policies would be another way of dealing with a downturn. But these are constrained, too. Those countries with a chance of joining the euro are scrambling to cut their budget deficits to get them in line with the 3% of GDP target set by the EU’s Maastricht treaty. Yet that aggravates the problem. The danger for Latvia and Ukraine is a downward spiral, where cuts in public spending damage the economy in a way that helps to entrench the deficit.So far, the economic crisis has not translated into populist or protectionist politics. It is the east European countries that have been demanding that the rest of the EU stick by the rules of the single market. Their development over the past decades has been thanks to the free movement of capital, goods and labour. They would like a lot more of it: in a contest to subsidise industries, rich countries always win.But that stance will not hold indefinitely if things get worse. Willem Buiter, a prominent economist, believes it is only a matter of time before some of the ex-communist countries introduce capital controls. That, in theory, would allow them to concentrate on stabilising their economies without worrying so much about the external value of their currency. If voters find the economic pain of adjustment unbearable, politicians can pass laws that will make foreign-currency borrowings repayable in local currency. That would be met with fury by the foreign banks, who would in effect see their loan books expropriated. But it could happen.Against that background, what can be done? The east European countries are, belatedly, co-ordinating their approach within the EU, holding their own mini-summit on March 1st. They want to embarrass countries such as France for what they see as its protectionist approach to the crisis. They are supporting each other: the Czech Republic and Estonia were among those contributing to the Latvian bail-out.But even co-ordinated local efforts are unlikely to make much difference, given the scale of the problem. The real lead, and the real money, must come from outside the region. That brings into play a slew of political problems. Having trumpeted their free-market principles in past years, and dismissed the stodgy approach of countries such as Germany and France, the new EU members from eastern Europe are now turning to old Europe in the hope that it can hurry up the flow of EU structural funds to counteract the downturn, bail out or prop up over-exposed banks in places like Austria, and stretch the rules of the European Central Bank to let it provide support to countries outside the euro zone. The case for such measures is strong, and it is in the interest of all Europe that contagion is contained. But that does not mean that it will happen.

  31. Raivo Pommerraimo1@hot.eeGeldschlossDie Schweiz, Luxemburg und Österreich suchen einen Weg, wie sie einen Rest ihrer Bankgeheimnisse retten könnenVier Wochen vor dem Treffen der 20 wichtigsten Wirtschaftsnationen der Welt (G20) kommt Bewegung in die Riege der europäischen Steueroasen. Die Schweiz, größter Finanzplatz für internationale Privatvermögen, hat sich am Freitag offiziell zu einer weiteren Aufweichung ihres Bankgeheimnisses bereit erklärt. Ähnliche Signale werden von einem Treffen der Finanzminister der Schweiz, Österreichs und Luxemburg am Sonntag in Luxemburg erwartet.”Wir wollen die internationale Zusammenarbeit bei Steuerdelikten verbessern”, sagt der Schweizer Bundespräsident und Finanzminister Hans-Rudolf Merz nach einer Kabinettssitzung in Bern. Die Drohungen von Seiten großer Industriestaaten seien ungerechtfertigt, aber ernst zu nehmen. Für die Schweiz gelte es zu verhindern, dass sie von der G20 oder einem ähnlichen internationalen Forum auf eine Schwarze Liste gesetzt werde. “Auf Verträge einzugehen, die unter Sanktionen entstanden sind, wäre ganz schlecht”, sagte Merz. Erwartet wird, dass Österreich und Luxemburg bei dem Treffen am Sonntag ein ähnliche Position einnehmen werden. Belgien und Luxemburg, so sagte der britische Botschafter in Bern jüngst, hätten ohnehin signalisiert, dass sie das Bankgeheimnis nach 2013 “nicht in dieser Form weiterführen werden”. Ein Sprecher des Luxemburger Finanzministers wies diese Darstellung am Freitag jedoch zurück.

  32. “One of our volunteers was passionate about the Portland, Maine, store. He teamed up with another volunteer and created the business plan,” said Van Allen.The organization proactively began looking for space in April. Once the board of directors approved the proposal in July, “it started progressing like a freight train,” said Van Allen. Julie Porter of Weichert Realtors, Points East Properties and Brian O’Brien of The Norwood Group helped the Habitat chapter secure a three-year lease thrift savings plan in early September of 2,800 square feet of retail space and 4,000 square feet of warehouse space at the former Holmwood’s furniture store at a “serious discount” said Van Allen. “We jumped at the opportunity. Where else could you find such a great retail space with a warehouse underneath on such terms?”

  33. “One of our volunteers was passionate about the Portland, Maine, store. He teamed up with another volunteer and created the business plan,” said Van Allen.The organization proactively began looking for space in April. Once the board of directors approved the proposal in July, “it started progressing like a freight train,” said Van Allen. Julie Porter of Weichert Realtors, Points East Properties and Brian O’Brien of The Norwood Group helped the Habitat chapter secure a three-year lease thrift savings plan in early September of 2,800 square feet of retail space and 4,000 square feet of warehouse space at the former Holmwood’s furniture store at a “serious discount” said Van Allen. “We jumped at the opportunity. Where else could you find such a great retail space with a warehouse underneath on such terms?”

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