Comments (7)

• Raymond T. Walter

  Well done!

  Published: September 3, 2009 12:02 PM

• USA Today

  Is the central bank of Zimbabwe broke ?

  Did it ever got broke ?

  Did you know that Zimbabwe also has a federal reserve like us in the USA ?

  Published: September 3, 2009 3:46 PM

• panika2008

  Mr. Howden,

  I like your article very much, but a little nitpicking is in order. Of the countries you mentioned - those with potentially insolvent banking systems - only Lithuania and Hungary qualify as marginally Eastern Europe, although not even quite. Lithuania, Latvia and Estonia are usually classified as Baltic States - they are quite distinct culturally and ethnically from Eastern Europe (Poland, Slovakia, Ukraine etc), although in a sense (because of recent history) they sometimes are classified as (ex-)Eastern Bloc and also because of current politics viewed in common with the pro-US part of Eastern Europe (Poland, Slovakia, Czech republic). Serbia is normally referred to as Southern Europe, and although it shares a lot of culture, ethnicity and language with strictly eastern european countries (a lot more than Baltic States), its ties with the Balkans are much stronger, so most of the time people call it a Balkan country. Hungary is a central European country - sometimes recently classified as Eastern Europe - and is very markedly distinct culturally and ethnically from almost all european countries. In fact, Hungary is an island with no similarities to its neighbors whatsoever, having historic ties to Finland only (although currently quite integrated politically and culturally with its neighbors; in fact, Hungarians are probably the least conflicted people in Europe, having extremely good relations with most of the EU). Talking about CEE intricaties.

  Published: September 4, 2009 8:34 AM

• Nick

  Did anyone see this interview with Jim Grant (embedded in the page linked below)? I was surprised to see it on CNBC.

  http://www.cnbc.com/id/31204170/site/14081545

  Published: September 4, 2009 5:37 PM

• mpolzkill

  Thanks for the link Nick, good stuff.

  Published: September 4, 2009 5:50 PM

• Ned Netterville

  Excellent article, Mr. Howden, with insight into another tripwire of central banking I had not considered. One small point of contention, however...

  "People tend to view the economists and politicians at these institutions as demigods..."

  Most Americans undoubtedly fawn over politicians and high-ranking bureaucritters, treating them in public and in private with great deference. But that is so because the pols and crits can serve their interests by delivering real or perceived state benefits through their use of OPM (sounds like opium, is equally addicting, stands for other peoples' money).

  A better analogy than demigods is high priests of their omnipotent god, for the state has usurped the role of God in the lives of many Americans--atheists, Christians, Jews, Muslims, Hindus, and Buddhists alike. For Christians it used to be that when they wanted or needed a material good they would ask God for it as instructed by Jesus in his Sermon on the Mount: "So do not worry, saying, 'What shall we eat?' or 'What shall we drink?' or 'What shall we wear?' For the pagans run after all of these things, and your heavenly Father knows that you need them. But seek first his kingdom and his righteousness, and all these things will be given to you as well." Then, if their needs or wants were not met miraculously by God directly, they would roll up their sleeves and go to work to obtain them from God indirectly through the God-given free market. Today, however, most Americans perceive the state as able to provide virtually any need or want, even good health and automobiles, through its miraculous powers (aka, OPM).

  Actually, and more accurately, it isn't the state per se that is worshiped, but rather its unique ability to resort with seeming impunity to the use of force, coercion and violence in order to obtain OPM, which is the source of all government benefits. At least to me such obeisance to violence is more akin to devil worship than any orthodox religiosity.

  Published: September 5, 2009 10:28 AM

• Paul Vahur

  Mr. Howden, thank you for very interesting article.

  As an resident of Estonia, I must point out few peculiarities of our local banking system. At least in theory Eesti Pank (our central bank, http://www.eestipank.info) which is currency board should not be able to expand monetary base because of the rules (monetary base should be backed fully by reserves).

  Also, they probably need not to save the banks either as the 4 biggest banks are all foreign owned, the 2 biggest by Swedish banks. So it would be the problem of Swedish central bank.

  The currency in Estonia is kroon (EEK) which is pegged to euro (EUR). The peg has holded steady for 17 years (prior to EUR it was pegged to deutchmark). Most loans are in EUR (as is my mortage). If the banks will run into problems they must be bailed out by Swedish Central Bank (which issues not EUR but SEK). So it is an complicated system and it is hard to tell what exactly would happen if there is serious liquidity trouble.

  
  panika2008,

  I think there is rough notion that Eastern Europe is everything that is to the east (and northeast and southeast) of Germany-Austria. Usually Baltics is in Eastern Europe as is Balkans (less often so). It makes sense as all of them are post-communist (this term is somewhat degratory and less preferred).

  Little correction - Baltics as a geographical region includes Estonia, Latvia, Lithuania. But language-wise only the latter two are Baltics, Estonians are Fenno-Ugrians along with Finnish and Hungarians. But culturally we are similar to Latvians and also to Finnish, at least if you look from far enough.

  Published: September 30, 2009 2:35 PM