Greece definitely is a special case as is every member state of the Eurozone because economic theories usually assume that a country controls both their fiscal policies and their currency. In the Eurozone that has been split so one needs to look at the Eurozone as a whole for international trade equilibrium.
As for the US, it has the world’s reserve currency and that helps it sustain large trade and current account deficits. But this need not be the case in theory. The US benefits from its exorbitant privilege but it need not.
It is worrisome that the last point doesn't seem to hold empirically - that inflation and money supply growth should be in parallel. Friedman's well-worn saying that "Inflation is always and everywhere a monetary phenomenon" is widely held to be true. He and Rose Friedman wrote a classic tome to support the claim ("A Monetary History of the United States, 1867-1960") and prior cross-country empirical papers have supported it too.
I wonder whether the next to last point is foundational, that "The difference between long-term interest rates and inflation (i.e. real rates) is constant in the long run and reflects both a risk premium and economic growth." Yes, real rates should relate closely to real economic growth and risk. But if real economic growth varies, which it does because population growth and labor productivity growth vary, and if risk aversion varies, as it arguably does, then real interest rates on long-maturity .instruments also should vary.
Of course, because the "V" in MV = PY is not constant. Still, roughly speaking, too much money chasing too few goods seems to lead to accelerating inflation, like now.
Looking forward to the next installment of your comments! Your highlighting this fascinating line of research is important.
Greece definitely is a special case as is every member state of the Eurozone because economic theories usually assume that a country controls both their fiscal policies and their currency. In the Eurozone that has been split so one needs to look at the Eurozone as a whole for international trade equilibrium.
As for the US, it has the world’s reserve currency and that helps it sustain large trade and current account deficits. But this need not be the case in theory. The US benefits from its exorbitant privilege but it need not.
I agree with you and no, I don’t see a solution to it.
It is worrisome that the last point doesn't seem to hold empirically - that inflation and money supply growth should be in parallel. Friedman's well-worn saying that "Inflation is always and everywhere a monetary phenomenon" is widely held to be true. He and Rose Friedman wrote a classic tome to support the claim ("A Monetary History of the United States, 1867-1960") and prior cross-country empirical papers have supported it too.
I wonder whether the next to last point is foundational, that "The difference between long-term interest rates and inflation (i.e. real rates) is constant in the long run and reflects both a risk premium and economic growth." Yes, real rates should relate closely to real economic growth and risk. But if real economic growth varies, which it does because population growth and labor productivity growth vary, and if risk aversion varies, as it arguably does, then real interest rates on long-maturity .instruments also should vary.
I will deal with all this tomorrow, but essentially, Friedman was wrong.
Of course, because the "V" in MV = PY is not constant. Still, roughly speaking, too much money chasing too few goods seems to lead to accelerating inflation, like now.
Looking forward to the next installment of your comments! Your highlighting this fascinating line of research is important.