Lisa Cook should not become a member of the Federal Reserve Board of Governors

Lisa Cook has been nominated to the Federal Reserve Board of Governors.  I believe her appointment would be a mistake.  I have provided my key arguments in this Wall Street Journal op-ed.  There originally was a lot more here in this blog (and there is a lot more to be said), but it all has led to more distraction than necessary or desirable, certainly for me.  I will thus simply leave it at what I wrote in the WSJ at this point.

My interview with the New York Times

My tweets and the controversy have received some attention in the press.  There is an article in the NY Times https://www.nytimes.com/2020/06/10/business/economy/white-economists-black-lives-matter.html written by Jim Tankersley @jimtankersley and Ben Casselman @bencasselman. Here is the full and unedited interview, which was conducted per e-mail.

On 6/9/2020 8:01 PM, Harald Uhlig wrote:

Dear Ben!

Thank you for your e-mail!  I appreciate the opportunity.  Also, while more difficult, I am glad we can do this by e-mail.  it surely is important to avoid misunderstandings.  I just returned from dinner, and we have a tornado warning now.  Let me try my best.

Let's see:

- Earlier today, you said on Twitter that you did not choose your words wisely, and that you apologized for that. What were you apologizing for? What do you believe you did wrong in your tweets and blog posts?

I do not wish to pour more oil into the flames by compiling a list.  One example: my comparison of those advocating extreme defunding of the police with "flat earthers and creationists" appears to have caused irritation, and I talk about that at some length in my recent blog post in particular. 

- In one of the blog posts that surfaced last week, you compared football players' protests over police violence to someone wearing a KKK hood. Do you believe that comparison was fair? 

The blog post was meant to ask for introspection and examination as to how far you would go to defend free speech, and whether the debate about kneeling is truly a debate about free speech.  I chose an extreme example on purpose, where most of us, me included, would find exercising such free speech repugnant.  It is easy to defend someones stand as free speech, when you agree with that person.  It is hard, when you passionately disagree.  You surely know the Voltaire quote, “I wholly disapprove of what you say and will defend to the death your right to say it.”  I am actually genuinely curious, what you would do in that hypothetical situation.  Would you mind telling me?

I, of course, sympathize with the concerns about police brutality, which kneeling football players refer to.  I find the KKK repugnant. So, in terms of sympathy, there is no "comparison" here.    

In retrospect, the chosen example was too extreme, in order to get people to think through the issues at hand, and I surely regret that: it seems to unnecessarily have aggravated some.  Out of curiosity, again: what would you have chosen as an illuminating example? 

- Taken together, the tweets, blog posts and NYTimes letter that have been circulated on Twitter in the past few days appear to show that you have a history of dismissing or downplaying Black American's concerns about discrimination and violence. Why is that? 

Can you give me a specific example? 

- In a public letter calling for your resignation, some of your peers in the profession have said that your comments "hurt and marginalize people of color and their allies in the economics profession; call into question his impartiality in assessing academic work on this and related topics; and damage the standing of the economics discipline in society." Do you agree that your comments did these things?  

No.   

- Some of your colleagues in the profession have called for you to step down from your position as editor of JPE. Do you plan to do so?

I would have to see their reasoning.

- In their recent letter to members, the leadership of the AEA said they had "learned that our professional climate is a hostile one for Black economists." Do you agree? Do you believe that the economics field has a problem with race and racism?

That message and the website of the AEA points to the "AEA Professional Climate Survey: Final Report", issued in September 2019.  This is an excellent step forward.  Statements like "Nearly half (47%) of Black economists report being discriminated against or treated unfairly in the profession based on their race, in comparison to 24% of Asians, 16% of Latinx, and 4% of White survey respondents" raise grave concerns.  Discrimination and racism is wrong.  

Knowing these numbers is good, but a lot more needs to happen.  Specifics would help.  Where and how?  What measures would help those on the receiving end to get themselves heard?  Investigating this hopefully will be an ongoing matter for the AEA, for example.

- Do you believe it is a problem that there are so few Black and Hispanic economists, particularly in senior positions in the profession?

I would love to have more black economists (or is it "Afro-American economists"?) among our undergraduate students, PhD students and faculty.  It is my impression that the good ones are highly sought after.  We also have very few American Indians among our colleagues.  We need to find good way to change these numbers.

- Do you believe that your position as editor of one of the field's most prominent journals gives you any added responsibility to ensure that the field is welcoming to Black economists and other underrepresented minorities?

Black economists and underrepresented minorities are encouraged to submit their best work to the JPE, and I hope they do.  I have never checked the color of the skin of an author submitting to the JPE, and it should not matter.

- In your time as editor of JPE, how many articles have you solicited or accepted on issues related to racial discrimination? 

I would have to go through my list of all papers handled as an editor, but I do not recall having received papers on issues related to racial discrimination for me to edit.  I have solicited very few papers.

I hope this helps,

Harald Uhlig

 

The Avengers need a new team member: Professor Econom!

Ok, I admit it.  I love to watch movies, in particular the popcorn and superhero variety.  Yes, I did watch “Avengers Infinity War”.  [ Spoiler Alerts! ]  Smash-bam-pow!!  What’s not to like?  Well, the end apparently left a bunch of (young) fans weeping: “Mom, the big bad Thanos guy won, how come?!  Why are so many of my favorite superheroes dead now?”.  Well, why indeed?!  We do not know what the sequel has in store, but judging by the post-credit scene (wait, you didn’t see it?  Keep seated to the very end!), it looks like Captain Marvel will come in to somehow save the day, reverse history, bring back beloved Spider-Man  and beat up Thanos, before he can do all those things he did.  Perhaps.  Perhaps not.

But here is truly the biggest challenge in crafting that sequel and resolution.  Thanos is pretty satisfied with himself at the end of the “Avengers Infinity War”, isn’t he?  And he as well should be!  After all, he set out to  solve the biggest problem of the Universe (according to Thanos): overpopulation.  His logic is to randomly kill half of all beings (I presume, only the sentinent ones), so that the rest can have a better life.  If you buy into that Thanos argument, you have to hand it to him.  He did make half of the population of the Universe better off!  And the other half died a very quick and painless death!  Well done, Thanos!  You should cheer for him, right?  What’s a little Spidey death, by comparison?  So, if Captain Marvel somehow waltzes into that sequel, reverts time and stops Thanos from doing all that, isn’t she then really imposing back all that pain and suffering?  How can that conflict possibly be resolved?  Is duking it out with Thanos really the right answer to the core of the question that Thanos has raised? Obviously not.

Let me offer a suggestion, then.  The Avengers are a pretty cool team and all.  They even have some brainy types among them.  But they made a big and glaring mistake.  They never engaged with the fallacy in Thanos’ argument.  Not once did it occur to them in the “Avengers Infinity War” movie to go to him and say, “Hi there, big fella!  I understand you want to help the universe population to a better life. What a noble cause!  But there is a better way to do that than to kill off half of them. Let me guide you how!”.

Finding a better way is a matter of economics. Let’s examine the facts.  For example: the world population has grown massively over the last 200 years or so.  Are we worse off for it?  Not so!  Average world income and average life expectancy has risen.  We are seeing progress even in the poorest of nations (not everywhere, but still).  Markets have provided answers to the incentives of providing the goods that people need and love.  Supply rises to meet demand.  Technological progress has been directed to enable that supply, in order to earn the profits that can be earned that way.  We know how to contain environmental externalities with proper economic incentives. Humans are now by and large far away from rummaging through the forests and living off the berries they can find (which seems to be a version of the Thanos view).  Yes, the details are important.  They deserve attention!  And they are receiving attention. There are large groups of development economists, growth economists, macroeconomists, environmental economists and of other fields, figuring out, how to make the growing world a better place.  They are good at it.  I doubt that any of my colleagues would recommend killing off half the population to solve the Thanos problem.  I bet nearly all of them have better suggestions.  So there.

Now, you might argue that Thanos witnessed immiseration on his home planet Titan.  He has one data point, showing that not killing off half of the population led to decline and starvation!  He also has another data point of a field experiment, where killing half of the population did make things better for the rest on the home planet of Gamora.  Well, any econometrician worth her salt would gently pat Thanos on his back and say, “Well there.  Two data points isn’t a lot of evidence.  Standard errors are huge.  You shouldn’t yet conclude that it is time to kill off half of the population of the universe.  Let’s collect some more data first, shall we?”.  Indeed, in the Thanos mode, how about running some more field experiments on some of the many planets out there, to see what works and what doesn’t?  And for that, don’t use the gruesome course of action chosen by thick-skulled non-economist Thanos, but rather base it on the best research and far more gentle and promising approaches that those other aforementioned specialty economists would be suggesting.   Further, mechanism design theorists could investigate exactly what went wrong on Titan in the first place, and how to improve on it based on first principles.  That already would be much better, wouldn’t it?

So, why did the Avengers not pursue that route?  Simple.  They didn’t have an economist on the team!  If Captain Marvel somehow gets around to do something about that “Avengers Infinity War” ending in the sequel, that should be her first act of heroism: find a new avenger!  Captain Marvel: you don’t need a Doctor Strange!  You need Professor Econom! Forget Spidey, Iron Man, Thor.   Professor Econom is the one with the true superpower to solve the biggest problems of the universe!  Send Professor Econom back in time to have a nice, long chat with Thanos, and convince him that he was wrong all along, and to show him a better way.  Really: it wouldn’t be all that hard. 

Ok, after that’s done in the first 15 minutes of the sequel, what do we do with the rest of the movie?  Oh, I don’t know.  More Smash-bam-pow, perhaps!!  Pass the popcorn, please.

How to Predict a Solar Eclipse: a Guide for Ancient Egyptians --- and what it has to do with good economic analysis.

I had the fortune of watching the solar eclipse on August 21^st 2017, slightly north of Bloomfield, Johnson County, Illinois.  No cloud disruptions, just two-plus minutes of total-eclipse gazing and an awe-inspiring event.  Magnificent!

Returning back to Chicago, I had to wonder whether ancient cultures, like the ancient Egyptians, the ancient Babylonians or the ancient Chinese, could predict solar eclipses, and how.  I searched the Internet, and I found http://www.haaretz.com/archaeology/1.808116 , which says, that they did, but not, how.   And I found https://image.gsfc.nasa.gov/poetry/ask/a11846.html by the NASA, no less, which suggests that those folks tried to find a discernible pattern in the recurrence.  The readings, in any case, made me feel that predicting a solar eclipse was rather impossible for these ancient people, or a somehow really amazing and hard-to-explain feat.  And they also make you feel, that those astro-observers back then had better try hard: if they missed one, their heads would be chopped off!  That’s a huge penalty for a type-1 error of rejecting a truthfully occurring eclipse.  I imagine that type-2 errors (“hmmh, there could be one”, and then there isn’t one) probably were ok for those guys, by comparison.  What an interesting problem in decision theory!

Having some leisure time in my car trip going back (which I should have spent thinking about more serious matters, probably), it then occurred to me that it really can’t have been all that hard to predict the few critical-solar-eclipse-times, within limits.  And I have to believe that these ancient observers indeed did.  Here is how.

Clearly, trying to extract some pattern from their occurrence will go nowhere. That method seems doomed from the get-go, right?  We get the next total solar eclipse in the US in 2024, then in 2045: where is the pattern in that?  I mean, fine, some surely tried.  And given enough data, one could learn some pattern in some mechanical fashion, it is bound to succeed.  The problem is: this takes lots of data, many tens of thousands of years: not wise. 

Instead those ancient astro-observers could have figured out and probably did figure out, that some structural modelling will go a long way.  First, it does not take a genius to figure out that the solar eclipse involves the moon and the sun.  Back then, the smartest scientist probably spend a large portion of their time observing the celestial bodies.  They knew about the cycle of the moon and the sun.  They knew about the new moon: there are days when you can see it faintly up in the sky.  They surely kept track roughly how high the moon would rise and how high the sun was.  The latter is known to practically all young kids today: the sun is high in the summer and low in the winter.  It is how you keep track of the year.  With the moon, I believe it always rises to the same height, but I might be wrong: in any case, surely, the ancients knew.  And surely, the ancients tried to measure these with some precision (How?  Not that hard either, but that could be a topic for another day). 

Armed with these two pieces of information, one now gets two intersecting patterns.  One is the up and down of the sun, due to the annual cycle.  The other is the lunar phase, changing from full moon to new moon and back.  If the new moon is too much below or too much above the sun, no solar eclipse.  It has to be close.  The “misconceptions” piece on https://en.wikipedia.org/wiki/Lunar_phase lays it out quite nicely, actually.  One probably needs a bit more: where the new moon rises that day and where the sun, and think about where their paths might cross.  Give an ancient astro-observer a few extra days of thinking about it, and they could probably figure that in as well.

Some rough measurement should then have been enough to predict when these close encounters might happen.  Would they be close enough for a solar eclipse?  If the measurement is too rough, then most of the times, an upcoming close encounter will not result in an eclipse.  So, the rougher the measurement, the more type-2 errors.  If those astro-observers warned of a potential eclipse, and it then didn’t happen, they can always tell the king that the gods were looking upon him kindly.  Who knows, perhaps they even got a raise that way!  But at least, they could avoid the type-1 error of not knowing of their possible occurrence. 

It really does not seem all that hard, right?  It would be nice to hear from a physicist, how precise the measurement needs to be to predict a solar eclipse correctly this way in, say, one of ten cases and have a warning in vain in the other nine.  Pretty precise, probably, and that may have been the main technical challenge then.  “When you cannot measure, your knowledge is meager and unsatisfactory” (Lord Kelvin, see https://bfi.uchicago.edu/news/mfm-feature/challenges-identifying-and-measuring-systemic-risk ).  So, precise measurement surely would have been important.  But the conceptual challenge, at least, seems reasonably simple, and certainly within the grasp of astro-observers back then, allowing them to make some reasonable predictions, even without the precise measurement equipment available today.

What does this have to do with good economic analysis?  Economists, too, need to predict events and need to discern effects from causes.  These days, machine-learning is all the rage for doing so.  Just takes lots of data, shove it into a computer, and it will detect any and all patterns, see e.g. https://scholar.harvard.edu/sendhil/publications/machine-learning-applied-econometric-approach and the work by Mullainathan at Harvard for econometric approaches, but also by many others.  One has to concede: remarkable achievements have been and are still being made, using that approach.

But the world is amazingly complicated.  Patterns are probably ultimately very tough to discern, unless they are guided by some theorizing.  So, structural modeling can go a long way.  The danger?  The theory and the structure might be wrong.  That can be a problem, sure.  But for those ancient astro-observers, that surely must have been well worth the risk, compared to the machine-learning approach of pattern detection and head-off-chopping.  And regardless of how little theory we pretend to us: we all use it anyway and all the time.  Perhaps that is a good thing, for the astro-observers back then and for economic analysts today just the same.  But it surely would be good to be explicit about it, when we do. 

IThat's it!  If you enjoyed this, I might tell you some other time how to calculate the diameter of the Earth, standing on the beach.  All that you need is your thumb, some waves, some plausible guesses and high school geometry.  Intrigued?

Roots of the next financial crisis

Lawrence Hsieh just posted an article on the "Roots of the next financial crisis", where "the last one’s veterans give views".  The link to the complete article is here http://blogs.reuters.com/financial-regulatory-forum/2016/04/19/column-roots-of-the-next-financial-crisis-the-last-ones-veterans-give-views/ and the whole article is well worth reading!


One portion of the article quotes me (which I restate here).  Your thoughts?


"A financial crisis is never off the table: the question is, is it more likely now than at other times (except, perhaps, for 2007)? I think it is, for a variety of reasons. First, central banks world-wide now seem to be stuck at or near the zero lower bound, with little maneuvering room. The time-honored recipe of quickly cutting rates, when a recession looms, is off the table. Even more dangerously perhaps, the central banks may have lost control over inflation. Inflation is stable, good, but nobody quite knows why, and that is scary.


Second, Asia was the anchor during the 2008 crisis, now it may become the problem. We see it clearly in China now, with a variety of indicators. But more broadly, we have witnessed spectacular real estate booms in a number of Asian countries: partly for the sound reasons of their spectacular economic development, sure, but one cannot shake the feeling that there might be another real estate crash cum financial crash in the making. It should be a concern, if now parents in some of these Asian countries put their life-savings together, so that their offspring can afford the down-payment on condos that would be considered expensive even in large U.S. cities.


Third, the sovereign debt situation in Europe is far from resolved. Debt-to-GDP ratios are higher now than they were, when the European crisis started in 2010, yields on Greek debts have started to climb again. And, finally and with the low rates on sovereign debt, pension systems and financial investors are desperately searching for higher yields. What makes us so confident that the alchemists of financial engineering will not once again concoct another toxic brew, and sell it as snake oil? Vigilance is called for."

What Grexit? Just keep calm and carry on ... and keep Greece in the Eurozone.

Remember the battle cries before the Greek referendum?  The Greek government has let the last opportunity for a final deal go by, and a “no” on Sunday, July 5^th, will invariably mean a “Grexit”, an exit of Greece from the Euro currency zone.  It will mean that the world for Greece will come crashing down and that excruciating disaster will strike.  

Well, the Greeks voted “no” anyhow.  Now, there is yet another deadline on Sunday, July 12^th, for a final, final deal, or else a “Grexit” will invariably follow.  Or perhaps the endgame truly arrives on July 20^th, when Greece has to repay 3.5 billion Euros to the ECB. Yes, this is getting tiresome.  

Now, granted, it is possible that the exit scenario will finally come to pass on July 21st, if no deal is struck on Sunday, July 12 and Greece then defaults on the ECB on July 20th.  This is what most observers predict, this is what the threatening voices from the ECB suggest.  So let me raise another possibility.  I will argue that there may be no Grexit at all.  Yes, there will be haggling.  Yes, there will be chaos in Greece (no kidding, things haven’t been great there as of late).  Eventually, in a few years, everything will be humming along ok. Indeed, if the cooler heads prevail, on both sides and in particular at the ECB, this scenario looks to me more likely.  How so?

Let me start with a hypothetical scenario.  Suppose, Merkel and Co. would have offered in June that all Greek sovereign debt is going to be wiped out and forgiven, at the price of no further lending to Greece by other governments or European funds in the future.  No other conditions: no “austerity”, no demands of cuts in pension, nothing else.  What would Tsipras have done?  He would have driven home to a victory parade.  He and his government would have been celebrated through the night by huge cheering crowds for this major triumph.  They would have considered building him a huge statue on the Parthenon.  And all talk of a Grexit would have stopped.

Take the current situation.  And suppose, the Greek government simply does not make any further payments on its old debt.  Suppose that otherwise, everybody carries on with whatever they would have done in that hypothetical scenario above.  Sure: the IMF, the ECB and the other European governments will not be happy.  But if they, essentially, act rather similarly as if the debt had been forgiven in that scenario above, the difference to that scenario will be small indeed.  And: no Grexit. 

But, you may say, why should the IMF, the ECB, the other European governments act the same way?   So, let’s ask, what can they do about the Greek default?  What are they prepared to do?  And: what is it, that they really want? 

There is a lot of noise by many that Greece should be punished for its intransigence by kicking it out of the Eurozone.  But there really is no procedure for doing that.  The Maastricht treaty does not say, that the ECB and the other European governments can liberally bail out each other, against the promise of debt repayment and the threat of having to leave the Eurozone otherwise. On the contrary: the whole legal framework had been designed explicitly with the stipulation of “no bailout” and no financing of governments by the ECB.  It takes two to Tango.  You lent money to Greece?  You shouldn’t have.  You are mad that you are not getting your money back?  I get that.  But, unfortunately, there is no legal basis for you to somehow now punish Greece by kicking it out of the Eurozone.  Sorry.

The somewhat more elegant version is the argument that Greece should finally, really decide whether they want to be part of the European Monetary Union and play by its rules, or not.  The mischievous hope here somehow seems to be that Greece throws in the towel on its own.  It probably could indeed somehow exit the European Union, and thereby exit the EMU as well.  And there are even a number of economists who argue, that the introduction of a Drachma and a subsequent devaluation would revive the situation in Greece and restore order to its banking system.  But guess what!  The Greeks like the Euro.  So far, they have no intention of leaving the EMU on their own.  They probably think that a Grexit and the reintroduction of a Drachma would do more harm than good: incidentally, so do I.  It seems unlikely, therefore, that the Greeks will leave on their own: certainly, for a while.

The key issue to all this is the ECB and the Greek banks.  We have all seen the dramatic pictures of people in Greece lining up at banks, trying to withdraw cash, of which the Greek banks now have very little.  But as in any bank run, banks run out of liquidity pretty quickly.  It is then the task of the lender of last resort to step in and lend to solvent, but illiquid banks against good collateral at penalty rates, as Bagehot has taught us.  And that is exactly what the ECB claims it has done.  It has provided emergency liquidity assistance or ELA, via the Bank of Greece to Greek banks to the tune of nearly 90 billion Euro, vastly exceeding the --- by comparison --- rather minor amounts that were the subject of negotiation between the Greek government and the other European countries in June. 

What happened to those 90 billion?   They are no longer in the banks.  If they are not abroad, they are now in circulation in Greece.  They are under mattresses.  They are in envelopes and suitcases, which get handed over, whenever a large transaction needs to take place.  The next plot by Barclay’s research puts it into a nice perspective: Greece is increasingly becoming a cash economy. For every Euro withdrawn from Greek banks, about 40 cent increase domestic cash circulating.

 

(Source: http://www.financialsense.com/contributors/sober-look/managing-greek-risks )

 

How much, really, could the Greek depositors still withdraw, if the ECB would be so generous and lift the limit entirely?  It turns out: a lot less than it used to be.  Check the plot of the private sector deposits in Greece.  They once stood at 240 billion Euro at the end of 2009.  They fell dramatically: the latest number from the Bank of Greece for May states it as 130 billion.  Surely, it is even lower now.  So, one half or more of what has been on the bank accounts has been withdrawn already.  There is lots of cash in Greece.  It just isn’t in the cash machines or at the banks.  Good luck with converting all that cash into Drachma.

 

The ECB has felt increasingly uncomfortable with extending so much ELA.  There are increasingly stronger voices which argue that the ECB has gone too far already and should withdraw this support.  ELA was meant for the plain-vanilla bank-run: for solvent, but illiquid banks, the national central bank provides cash against collateral, at a haircut, unless the ECB vetoes that.  Should any losses occur, the national government will have to pony up.  But this here is a system-wide run on the Greek banks.  And the Greek government does not seem inclined to pay for any losses to any non-Greek entity.  With the deep recession in Greece, the ECB may finally judge that the collateral isn’t worth the cash lent against it and may judge the banks to be insolvent, rather than illiquid, and stop the ELA entirely, rather than just keeping it at the current 90 billion Euros.  Many think that a default by Greece on the ECB on July 20^th will trigger that, though there is really no logical reason to link the two.  This is all about a judgement call, how much the collateral is worth, how solvent the banks are, and how much one should value the fiscal backstop for those losses that result.

So let us examine the scenario of ELA withdrawal.  At that point, the ECB could ask for the ELA to be repaid --- an impossibility at this point --- or seize the collateral, pushing the banks into bankruptcy.  Does that now automatically mean a Grexit, because somehow the Greek government would be pushed into printing Drachma to repay the remaining depositors?  There are lots of other possibilities.  One is: split the banks into a part that has liabilities vis-a-vis the Bank of Greece and the other parts, which have a viable network of branches, cash machines and customer base.  Sell the latter to the foreign banks: they will be valuable; they will be open for business as soon as the deal gets done.  What about the former?  For that, gradually sell the assets that have been pledged as collateral: perhaps, they were really worth as much as has been claimed all along and the banks were really solvent, in which case these parts will be profitable too and the remaining deposits can be paid off.  Or perhaps losses occur, which need to be covered somehow, perhaps with a mix of haircuts on the remaining deposits, government IOUs and a reinjection of capital by the Greek government.  The Syriza government, after all, is not averse against making payments to its own citizens, and there would be considerable national pressure to solve this issue.  Does it beat receiving Drachmas instead?  I think so.  It probably beats it by a mile.  Moreover, a number of Greek banks are already part of the single resolution mechanism of the European Monetary Union, which guarantees European funds as a backstop, should national backstops fail.  It is entirely possible that the end of ELA and an inability or unwillingness by the Greek government to pay triggers European clauses, providing considerable payouts and deposit guarantees to Greek depositors.  That will be fascinating to watch.

Finally, it is interesting, what Merkel, what Hollande, what Draghi are saying.  They claim that their objective is to keep Greece in the Eurozone.  They really do not hope for a Grexit.  Not only would it be a huge black spot on their record, it also would make any repayment of existing Greek debt even less likely.  The Greeks do not want out either.  So, the wisest course of action may be for the ECB to simply sit really still on its ELA claim on the Greek national bank.  Some of the Greek banks will have to be broken up, as described above, to get the functionality of the financial system back on track.  The Greek government will need to make sure to keep collecting taxes from the now somewhat further reduced activity at home.  It is close to a zero primary deficit, and should be able to keep making payments at home with the taxes it collects.  There will be occasional financial flow mismatches or perhaps there will be a bit of a primary deficit: perhaps then, the Greek government will pay a small portion of its salaries, pensions or obligations with IOUs.  These may then circulate: perhaps at a discount or perhaps not (for example, if they can be used for paying taxes). Is this a Grexit?  If the majority of the transactions happen in Euros, if all the accounting is still done in Euros, we shouldn’t call it that.  IOUs are used elsewhere too. 

So, perhaps the best thing for everyone is to table the whole issue of debt repayments for now.  We really do not need more final, final, final, final deadlines and hectic negotiations.  There are more important things to do.  Let’s put these issues and the outstanding ELA amounts on ice for a while, and let the Greeks struggle along, on their own.  In a year or two, let’s calmly restart the discussion on what to do about it all.  With that, things may turn out to be much more benign, than the doomsday sayers have been preaching.  Indeed, this may not be a disastrous “Grimbo”, as some have argued, but a new beginning.  After a somewhat painful adjustment phase, which Greece is in the middle of already, there will be a return to some reasonable normality.  Things will be ok. And Greece may even be willing to repay a good portion of its debt, at that point.

So, just keep calm and carry on and keep Greece in the Eurozone.