Laszló Náray, István Zsadányi

Published: 03.12. 2015. (Napi Gazdaság printed, online)

German Finance Minister Wolfgang Schäuble said: "Sustainable economic growth cannot be built on debt piles". Every neat, puritan housewife in the microeconomic level would agree with this, but unfortunately, it is injurious demagogy. Although we can imagine a growing economy on barter trade (without the use of money), the expanding world economy does require increasing debt, if the players love to save money.  

It is an accounting fact that the creation of a money unit in the system means even the creation of an equivalent unit of debt-entry. The things which seem to be separated, are interconnected in reality.

If saving money is good merit (instead of consuming), then the mountains of debts should be considered as a natural part of the development - concerning the macroeconomic level.

László Náray, István Zsadányi

Published: 03.04. 2015. (Napi Gazdaság printed, online)

“What is the source of all this trouble? … Yet it looks as if the thing we use to solve our problems (thought) which is the source of our problems.” (David Bohm)

We are now showing that between 1999 and 2007, the market mechanisms of cost-efficiency have resulted in faster inflation in less developed countries than the EU average, this being a natural side effect of development.

While the same spontaneous market process improved the fiscal indicators, it created those private debt mounds in the EU, which triggered self-fulfilling pessimism of neoclassical thinking since 2008.

Laszlo Naray, Istvan Zsadanyi:

Published: 02.23. 2015. (Napi Gazdaság printed, online)

...there is no such thing as philosophy-free science; there is only science whose philosophical baggage is taken on board without examination." (Daniel C. Dennett)

Let us now check the philosophical baggage we took on board ( without prior examination in 1992) when we all agreed to use the same inflation target numbers, as decreed by the Maastricht Criteria.

In our first article, we called Maastricht criteria (MC) " The tyranny of numbers".  International institutions built on these criteria (i.e. coerced fiscal convergence, excessive deficit procedure  and the adapted market and credit rating rituals) are forcing states to raise taxes and reduce expenditure in order to reduce their GDP-proportionate deficit exactly within  those given time-lines ,  when the spontaneous market mechanisms alone are unable to generate sufficient incomes - although the IMF itself showed in a comprehensive study in 2012 that 1 % austerity on average resulted in a 1,3 % decrease in the GDP.

What could be the reason why the budget balance is considered to be a vital issue in spite of the proven fact that the austerity logic has created a great deal of insufficient damage? Why are the central banks not allowed to give money to those governments in need? And why is it bad if public debt exceeds 60 % of GDP, while private debt is over 200 % of GDP in more developed, well-functioning countries? Didn't we mix the tool with the goal? What is the goal at all?

László Náray, Istvan Zsadanyi:

Published: 02.16. 2015. (Napi Gazdaság printed, online)

 “Ignorance is a necessary condition for many excellent things. The childish joy of seeing what Santa Claus brought for Christmas is a species of joy that must soon be extinguished in each child by the loss of ignorance. When that child grows up, she can transmit that joy to her own children, but she must also recognize a time when it has outlived its value.” (Daniel C.  Dennett)

 Is it a conscious, deliberate decision that governments want to cut budget deficits and public debt proportional to GDP or is it a kind of ignorance? Is there any sense to reach the budgetary equilibrium or is it like a rituality, when we try to make painful sacrifices in order to get some chocolate from Santa Claus?

This entry describes the mathematical derivation of the Maastricht criteria (hereinafter: Mc) ratios and it reveals that the initial economic assumptions - which were the basis for the ratio calculations - were completely wrong and uncertain.

In the following only elementary, secondary school level mathematics is used and thus is tractable with an equivalent degree. Alternatively, it can be omitted if one does not desire to follow through the derivations.

The mathematical derivation of the Mc targets shows that the 3% deficit ratio criterion was based on the following three wrong or insecure assumptions:

1. GDP grows with a rate of 5% (2% inflation + 3% growth).
2. Only the 60% public debt / GDP ratio (public debt ratio) is able to ensure economic convergence and price stability in the Member States.
3. MC focuses solely on the relationship between credit money (with other words, fiat money) creation by public debt and GDP (we will see in this paper later that the amount of fiat money = the amount of debt) and does not take into account the role of the financial intermediary system in creating money (= debt) and supporting the GDP.

Without the above mentioned 3 assumptions, the Maastricht criteria do not make any sense whatsoever. However, these 3 assumptions are wrong and unrealistic.