In Response to Trump's Tax plan and the Dollar 

This was my written response to an article I read on Project Syndicate about Trump's intention to cut the Corporate tax rate as well as impose a border-adjustment tax. This is the link:


This is my response:(Comments appreciated)

Your premise is based on the assumption that owing to a floating exchange rate the US dollar will appreciate as much as the corporate tax reduction eroding any competitive gains form the reduction in the tax rate. This is very debatable on the one hand and not necessarily permanent on the other. A tax reduction increases long term investment in capital goods which includes investment in export minded companies. Whilst a currency by its mere definition is in constant search of equilibrium. You are thus comparing investment in capital goods and equipment on the one hand with a short term fluctuating price mechanism. Not comparable. Furthermore if I am an international investor who is seeking to manufacture in a particular country I will invest where there is a favourable tax treatment of my investment as well as the prospect of a stable or longer term appreciating currency


Whats in Greece's best interests- A logical conclusion.

Inadequate expansionary monetary policy by the ECB was the reason why deficits & debts ballooned in Southern Europe following the financial crisis. In contrast to what the US and UK central banks did which embraced aggressive QE avoiding recession in spite of, in one instance ( the UK), contractionary deficit reduction. In every respect therefore, ECB inaction was also largely to blame for Greece's predicament. Unprecedented, mostly tax induced austerity, coupled with tight money conditions was a recipe for a perfect depression. Now that the ECB has finally decided to act its in Greece's best SHORT TERM interests to compromise with the institutions and aim to accept lenders terms, this way it will ride the expansionary monetary tide and may thus alleviate a large part of the continuous fiscal contractionary policy imposed upon it.


Does a strong dollar affect US growth?

The euro/dollar exchange rate has fluctuated between 1.50 and 1,20 over the last eight years as the market was trapped in this wide range without trending in any major direction . The dollars trending strength commenced in May of 2014 and accelerated breaking the 1,20 psychological and technical support as the market priced the comparative growth differentials between the Euro zone and the US. The Feds announcement of the possibility of a slight tightening of future conditions was a policy response to the strengthening economy and thus reinforced the dollar's strength (without putting a damper on growth), whilst the ECB's QE program, a reluctant response to the depressed state of growth in the Euro zone, added further momentum to its direction. Without doubt therefore the dollar's strength was mostly fueled by the perception of comparative growth differentials between the two continents. Clearly, this was enhanced by the existential problems of the Euro and Greece's predicament. 

Now will this large exchange rate move put a damper on US's growth? Well, to the extent that the stronger dollar will lower the competitiveness of US exports and increase that of imports thus worsening the US's trade balance and hence its GDP, it will. The US being an open economy is thus likely to be adversely affected by its strengthening exchange rate. 

The counterargument here is that QE should bolster Euro zone growth & will thus help the US's  trade balance as Europe increases consumption and thus imports too. However, this will need to play out especially to see whether ECB QE does indeed increase growth. However, for as long as Germany and the rest of the core Euro economies continue to have negative yields on their debt instruments, growth prospects will remain bleak and hence the strong dollar will withdraw growth from the US economy. 


The Greek simple

The Eurozone does not seem to grasp the messages being sent from Greece's last election results and Syriza's prominence to government.

1- There is no doubt the previous Greek government implemented disastrous policies impoverishing Greeks without embarking in any meaningful reforms in an attempt to protect their own hard won privileges and playing good cop to the Eurozone, this way they could on the one hand keep the Europeans happy and on the other tell the Greeks it is all the Troika's fault. A game of compromise whose ultimate victim was Greece's unsuspecting citizen.

2- However, what they missed is that all this austerity brought Greeks to a dead end. They could no longer live a respectable life continuing to observe a misstructured program serving the Greek nomenclatura. Greeks had reached their limits of austerity.They no longer have anything to give under the terms of the previous governments self serving program.

3- In such circumstances, it is not a question of the Dutch or German tax payers, for that matter, paying more to finance Greece’s pensioners. Its very simply that if push comes to shove Greeks will not be able to coexist with the current program and opt to exit the Eurozone and regain their dignity.What the EZ should then ask is how much will the German or Dutch tax payers pay when Greece defaults and what will the ultimate repercussions of such an outcome be? This is not black mail it is the common responsibility bestowed upon a Eurozone for the erroneous policies which have been in effect in Greece in total Unison.

 4- Isnt it then clearly in the interests of the whole of Europe to allow some slack and common sense to prevail and come to an agreement? It is not beyond them to accept, that what may have partly worked in Portugal has been disastrously administered by the previous government and should now be reconstituted to allow the possibility* of real reform efforts to take effect.


The Greek tourist product in reply to a blogger

Greece has undoubtedly one of the best tourist products available worldwide.

1- Fantastic weather

2-Fantastic beaches

3-Fantastic crystal clear temperate waters

4-One of the richest cultures

5-One of the richest of histories

6-The birth of civilization

7-The birth of education, 

............and so on and so forth. 

Now if you are able to combine these privileges uniquely available to Greece with the local traditions of each periphery one can add unequalled genuine value to the tourist product which then can sell at a premium to the all inclusive product. A product which is identical whether you find it in Greece , Turkey, Croatia ,Spain or wherever its available. So maintaining the all inclusive is not a long term strategy for a country empowered with such abundant riches. It degrades its inherited wealth to the lowest common denominator and transforms what can become a unique experience into a mere cheap commodity. 

If we want to differentiate our product  based on our comparative advantages this, I believe, is the road to our future in Hellenic Tourism. 


Redistributing the socially financed financial gains . A question of equality.

Just a reminder of what I was saying back in June of 2012. Inevitably we are where we are.

This was in response to a Paul Krugman article "Catastrophic Credibility"


Authorities have three choices:

1- Go through many years of austerity and or growth enhancing policies to reduce both deficits and debt to sustainable levels a very long process of perseverance.

2-Central banks abandon their narrow mindedness and allow inflationary EXPECTATIONS (it is this variable expectations, that is important to trigger demand side incentives)

3-Even more importantly design a process to redistribute wealth to households by increasing mortgage debt forgiveness and thus wealth, allowing for increased final demand as net worth and prosperity values rise. 

In summary, it is a function of transferring wealth from creditors to debtors. If this process is not accelerated then it will be imposed by market forces and or political and ultimately social repercussions. This effectively, is what is currently happening in Greece. 

It goes without saying that a combination of all is also another desirable mix.

I speak of mortgage debt forgiveness as my answer was directed to the US economy where the biggest part of household debt were mortgages. It may or may not apply to Greece I do not have the statistics handy. 

And for good order's sake the socially financed gains to save the World  financial system have created the current inequality in the developed economies with the QE programs and excessive liquidity directing investment to stock and bond markets. Isn't it high time for a more equitable distribution? 


Response to Krugman on Inequality

This is Paul Krugman's post in the New York times


This is my comment on his post. 

I wholeheartedly agree with the premise after all Ford himself saw logic to paying higher wages to his workers to generate new buyers for the cars they were producing. The same principle if extended to a macro level should increase the propensity to consume, to educate, to invest at a local national level thereby adding to Gross Domestic Product.

However it is one thing to agree to redistribute it is very much another how.

I claim that taxing wealth is the wrong approach as it disrupts the markets. The right approach would be to tax what generates revenue this way there are no liquidity issues and its non disruptive.For example imagine taxing bank savings or security investments or real estate all on an annual basis. Automatically, there will be a flight of capital, the securities market would collapse and the real estate market would freeze. The alternative if INCOME would be taxed at progressively higher levels or CAPITAL GAINS from the sale of all assets this would neither produce any disruptions in any market and there will be ample ability to collect.

Alternatively a worldwide policy of a minimum respectable wage disincentivising companies from relocating production on basis of wages alone, would induce companies to home grown production and a higher GDP. Equally incentives for companies to provide shareholders rights to workers with various schemes,thereby sharing company profits increasing worker participation and productivity and thus profits and equality.