If it is not a monetary union, it is a system of fixed exchange rates, and the credibility of this system is based of the willingness of the weaker countries to tolerate austerity and the willingness of the stronger countries to tolerate what some have called “peripheraid”.

Peripheraid is the ongoing cash infusion from the rich countries to the poor countries, which could go on for generations.

REAL ECONOMICS IN VIRTUAL WORLDS:
A MASSIVELY MULTIPLAYER ONLINE GAME CASE STUDY,
RUNESCAPE

A growing band of experts are looking at figures like these and arguing that personal carbon virtue and collective environmentalism are futile as long as our economic system is built on the assumption of growth. The science tells us that if we are serious about saving Earth, we must reshape our economy.

"macro-economics, on which topic Ray Dalio's paper A Template for Understanding What is Going on is an astoundingly good explanation of the current global credit crisis. Dalio explains:

the difference between credit and money: credit is the promise to deliver money, and credit spends just like money. While credit and money spend just as easily, when you pay with money the transaction is settled; but if you pay with credit, the payment has yet to be made.
that while money exists, credit is created and disappears simply by belief: most of what people think is money is really credit, and it does disappear. For example, when you buy something in a store on a credit card, you essentially do so by saying, 'I promise to pay.' Together you created a credit asset and a credit liability. So where did you take the money from? Nowhere. You created credit. It goes away in the same way. Suppose the store owner justifiably believes that you and others might not pay the credit card company and that the credit card company might not pay him if that happens. Then he correctly believes that the 'asset' he has isn't really there. It didn't go somewhere else.
and finally, in two paragraphs so deft that they have to be read to be believed, a description of the game of Monopoly firstly in terms of property vs cash, and secondly a version modified to allow the bank to create credit, in which case the game starts exhibiting the same credit cycles as our actual economy.""I now understand credit as transferring no risk. The bank may front me cash now, but I give them security in the form of my house or something else. I retain all risk, nothing is transferred. There is no risk to the bank in issuing the credit. What I'm paying the bank for is access to their proprietary marketplace to exchange forms of capital - in the case I mentioned, cash and houses - together with a promise that the exchange won't be finalised so long as certain conditions are met. So credit is possible not because the bank is able to absorb risk, but because:

the bank has an internal marketplace in which it is able to hold open many capital exchanges; and,
the bank is able to enforce - using the legal system itself - the fungibility of capital and obligation: if it gives me cash, it can get my house in return.
Yes, the bank does have risk here, but it's not the same risk as my risk. It's new risk.

Interestingly what this leaves available is a system in which risk and cash are exchanged, where risk is transferred. This is what investment is, and this is what Kickstarter does."

how the rich aren't job creators, but are part of a feedback loop ultimately started by the middleclass.

interesting story on how coal mines don't try to minimize impurity. relevant for setting SLAs

So what does ail Europe? The truth is that the story is mostly monetary. By introducing a single currency without the institutions needed to make that currency work, Europe effectively reinvented the defects of the gold standard — defects that played a major role in causing and perpetuating the Great Depression.

More specifically, the creation of the euro fostered a false sense of security among private investors, unleashing huge, unsustainable flows of capital into nations all around Europe’s periphery. As a consequence of these inflows, costs and prices rose, manufacturing became uncompetitive, and nations that had roughly balanced trade in 1999 began running large trade deficits instead. Then the music stopped.

If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don’t, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt.

Now, understanding the nature of Europe’s troubles offers only limited benefits to the Europeans themselves. The afflicted nations, in particular, have nothing but bad choices: either they suffer the pains of deflation or they take the drastic step of leaving the euro, which won’t be politically feasible until or unless all else fails (a point Greece seems to be approaching). Germany could help by reversing its own austerity policies and accepting higher inflation, but it won’t.

For the rest of us, however, getting Europe right makes a huge difference, because false stories about Europe are being used to push policies that would be cruel, destructive, or both. The next time you hear people invoking the European example to demand that we destroy our social safety net or slash spending in the face of a deeply depressed economy, here’s what you need to know: they have no idea what they’re talking about.

You may ask what alternative countries like Greece and Ireland had, and the answer is that they had and have no good alternatives short of leaving the euro, an extreme step that, realistically, their leaders cannot take until all other options have failed — a state of affairs that, if you ask me, Greece is rapidly approaching.

Germany and the European Central Bank could take action to make that extreme step less necessary, both by demanding less austerity and doing more to boost the European economy as a whole. But the main point is that America does have an alternative: we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.

So it is time to stop invoking Greece as a cautionary tale about the dangers of deficits; from an American point of view, Greece should instead be seen as a cautionary tale about the dangers of trying to reduce deficits too quickly, while the economy is still deeply depressed. (And yes, despite some better news lately, our economy is still deeply depressed.)

Niederhoffer Investments became one of the top financial advisers in futures, options and stocks. George Soros said in one of his books that Niederhoffer was the only one of his managers who retired voluntarily from trading for him while still ahead. Niederhoffer Investments returned 35% a year from inception through 1996, when MAR ranked it the No. 1 hedge fund manager in the world. Disaster struck the following year, mainly because of excessive speculations in Thailand. Since that time, Niederhoffer has been crawling back up the stairs, not entirely without success. He began trading for his own account in 1998, after mortgaging his house and selling his collection of antique silver trophies. He began managing money for offshore clients in February 2002, investing his own money pari passu with the fund. The firm employs proprietary programs that predict short-term moves based on the interactions between multivariate time series. From 2000-2003, Niederhoffer wrote a widely read weekly column on the markets with financial journalist Laurel Kenner for CNBC MoneyCentral (www.moneycentral.com). Their book, Practical Speculation (John Wiley & Sons, February 2003), was called “the best trading book of the young millennium" by Active Trader magazine. Niederhoffer’s life story, tips for studying markets and love for his father, Arthur, were detailed in a previous book, the 1997 best-seller Education of a Speculator.

We have created a monster. Financial markets have grown so complex that neither intuition nor standard economic models can get to grips with them. So what's to be done to avoid a repeat of the financial disasters of the past couple of years?

In the following pages, Mark Buchanan looks at some of the creative ideas being explored to tame the markets, not just by economists, but by physicists, engineers, biologists and others. What does science have to say - and will anyone listen?