Payback Time

Once upon a time there was a president named George. He liked to do things his own way, which annoyed some of his “friends” in Europe. But then a new president named Barack was elected, who not only promised to be nicer to his friends, but was actually very popular in most parts of the world. And the people of the world thought we would see a new era of international cooperation, at least between the U.S. and Europe.

Not so much.

On this side of the Atlantic, the Obama administration and the Fed have been working night and day in an attempt to turn around the economy: Fed funds rate reduced to zero, $800 billion stimulus package, new plan to aid struggling homeowners, new plan for buying toxic assets, new budget, decision by the Fed to buy long-term Treasury bonds, new domestic regulatory framework outlined this week, etc. We’ve been plenty critical of various aspects of the U.S. response, but at least they’re trying.

(Continental) Europe, by contrast, has decided they’ve done enough and it’s time to sit back and watch.

First, in an interview for Monday’s Wall Street Journal (no-subscription-required summary here), Jean-Claude Trichet, head of the European Central Bank, said that no new measures are needed to combat the global economic crisis. Then Mirek Topolanek, the prime minister of the Czech Republic and the president (in this rotation) of the European Union called the U.S. emphasis on fiscal stimulus “the way to hell.” And all of this is coming in the week leading up to the next G20 summit. What happened to diplomacy?

While it is relatively easy to write off a prime minister whose government collapsed on Tuesday night, there is a very real divide between the United States and, in particular, Germany, the heavyweight in the European economy. And it’s very clear that the Germans (and the French) do not want to spend more money, increase their budget deficits, or do anything except talk about international financial regulation.

I think there are three possible reasons for this attitude.

  1. The Germans believe that the economy will recover on its own from this point. Given that not even the optimists in the Treasury Department believe this, I don’t see how this could be the case.
  2. They are so afraid of any risk of inflation that they would rather suffer through an extended recession and high unemployment. This could be possible, although misguided, especially since Germany is already in worse shape than the U.S., with its economy expected to shrink by 3.8% this year (vs. 2.5% for the U.S.).
  3. They realize that their economy is driven by exports, and therefore they are planning to free ride off of the U.S. stimulus package. In this scenario, Germany gets to contain its national debt and minimize the risk of inflation, while letting other countries turn the global economy around.

Now, we’re not blameless here, what with our “Buy American” provision in the fiscal stimulus. But at least our government isn’t closing its eyes and assuming the problem will go away.

57 thoughts on “Payback Time

  1. I am not advocating the German position, but you have to take into account that there has been no housing bubble in Germany, and that the average household saving rate in the Eurozone is around 14%. Moreover, while many European banks did buy toxic assets (mainly from the US), their lending practices have been much more cautious.

  2. However, on a per capita basis, US population growth of 0.9% makes our GDP decrease about 3.4% vs. Germany’s 3.8% with zero population growth. Domestic industries still feel the raw numbers, of course. In any case, the German safety net stimulus is all to the good, but still a bit short.

  3. what do you make of the idea of Tyler Cowen:

    He argues that where most Americans have the asian crisis, Europeans compare the curent situation to the German reunification where fiscal stimulus didn’t work too well.

    In my view, they keep shy on fiscal stimuli because they don’t want their neighboors to free ride on them. It might just be too difficult to coordinate a
    paneuropean stimuli.

  4. Germany has a cultural aversion to teven the risk of inflation. Partly I guess due to the hyperinflation of the Weimar years. Significant stimulus is a political non-starter there. Asking them to hit the gas now is like asking a leopard to sing. Ain’t gonna happen, and you can’t really blame the poor leopard for not being able to.

  5. I’m looking for a train wreck at the G20 meeting, covered over only slightly by an utterly amorphous joint statement at the end.

    something along the lines of “exchange of views…work together to make the global economy stronger…unique policies needed to address different conditions in each country…blah, blah, blah…”

  6. @ They are so afraid of any risk of inflation that they would rather suffer through an extended recession and high unemployment.

    I’m afraid of inflation too. Inflation is the most regressive form of taxation known to man, double-taxing our incomes and falling most heavily on the poor and people on fixed incomes. The German approach makes sense to me – spend on a strong social safety net so that unemployment is not ruinous and let the economy run its course.

    The U.S. approach is to bail-out debt-holders no matter what the cost, re-inflate asset prices, and use inflation to “grow” out of the massive debts our zero-savings society has run-up over the past 25 years. We’re the profligate grasshopper criticizing the industrious ant.

  7. What is your position regarding the claim that Europe’s stronger social safety nets provide a built-in stimulus package and the IMF’s calculation that Germany has already provided an immediate stimulus package equal 1.5% of it’s GDP and 37% of total European stimulus?

  8. @Kirk H. “Inflation is the most regressive form of taxation known to man.”

    Yes and no. Inflation caused by growth in the monetary base without a corresponding increase in wages is the great bane of the working class. However, wage inflation caused by pressure from organized labor often results in a net increase in the median income (even while pushing up unemployment).

    Commodity inflation depends on the degree to which the working class is dependent on the commodity rising in price. Inflation spurred by oil price rises can be disastrous in the U.S., but foie gras inflation (caused by a shortage of geese or something) wouldn’t be a problem.

    And, unlike deflation, inflation has the added benefit of making it easier for debtors to claw their way out of debt. If, as in the United States, the working class is highly in debt, inflation can be a very effective method of redistributing wealth from bankers to debtors (in case you’re looking for a nice way to punish the bankers).

  9. Please James, consider the other option.

    You are wrong and so is the rest of the ‘let us stimulus ourselves out of this’ USA.

    Maybe Europeans are willing to bite the bullet and let the market clean itself. We did it in Finland in the 90s – even let A LOT of healthy companies fail. The human costs were horrible. But it *did* clear the crap out of the system and now we have amongst the soundest banks in the OECD world, not to mention lowest CDS spreads and soundest fiscal policies, until the stimulus virus also bit our head of treasury.

    Blaming others because they don’t follow your unilaterally set plan is just what the Bush was criticized for.

    What has change so far with the new CHANGE -administration?

    In my eyes, not much in this regard.

    It’s still the same US policy of: let us spend, let others pay our debts, let’s export inflation and keep on dictating to others how things will be done.

    Don’t come complaining to the rest of the world, if the rest of the world doesn’t roll out the red carpet for you based on your chosen strategy.

    I’m not saying it’s necessarily good/bad, I just call them as I see them.

    In fact, I assume that the alternative multi-polar (economic) world order would not necessarily be much better and certainly not in line with the morals I subscribe to (esp. if Russia/China were to rise to the front and keep doing what they do now).

    However, US administration and capable economists (like the people writing for this blog) should understand some basic game theory basics.

    There is a well known game theory situation in which a player will choose a sub-optimal choice out of the all the optimal options available (i.e. not maximize his utility) just to punish those who in their view are trying to steal too much from everybody else.

    Is it rational? No. Is it (economically) stupid? Yes. But it’s human and wise policy should take this into account.

    I’m not saying this kind of attitude is the reason that explains all of the Europe’s behaviour (and remember, Europe is far from a monolithic actor).

    However, I do want to remind you that that on my side of the pond, the blame is pretty much on you guys (for setting the interest rates too low, for feeding the housing bubble monster, for not investigating ponzi schemes, for destroying Glass-Steagal, for failure of rating agencies, for not regulating OTC derivatives, for the morally distasteful act of selling xMBS and related derivatives all over the world through rating agency lies, etc…)

    And no, I don’t think blaming helps. And no, I don’t think most European nations are blameless in this regard.

    But I’m not 100% sure the let’s inflate the deflating bubble with no holds barred is the right way out of this.

    Thanks for the great blog!

  10. There might be another reason. The Germans might believe that, similar to the aftermath of reunification, they will have to pay the bill through explicit bail-outs of other European countries. There is already an implicit bail-out in that sovereign debt spreads, while large in the context of EMU’s short history, are still modest in comparison with those in the 1980s and early 1990s.

  11. Mr. Kwak, I think you are having us on here – or are you fishing for reactions?

    You know, and failed to mention, that many Europeans see the way forward as being through getting the Financial system under control – i.e., regulation.

    Then we all see Geithners’ bailout and stimulus packages as being excessively wasteful, particularly when they are undertaken in the context of a dysfunctional Financial system, and placing an uneccessarily huge burden on the US taxpayer.

    But the BIG issue at the G20 will be China. Zhou Xiaochuan and Xie Xuren have been unusually outspoken in the last few days. This seems to indicate that China will pursue a firm agenda at the G20, which they would only do if they thought they had the muscle to pull it off.

    Germany and Europe are important, but the differences between the US and Europe may be only a sideshow.

  12. With both the US and the Euro Zone having veto power in the IMF, very little is going to come out of any of these international meetings.

    Germany, in particular, is pushing regulation as way to hobble Wall Street and London finance. They want a piece of that action.

  13. “They realize that their economy is driven by exports, and therefore they are planning to free ride off of the U.S. stimulus package. In this scenario, Germany gets to contain its national debt and minimize the risk of inflation, while letting other countries turn the global economy around.”

    I’ve been assuming that it’s this, but, since they can’t come out and say this, they’re throwing out any other plausible reason that they can. Whether they can resist the pressure to spend a lot more is an open question, but they’re really working at it.

  14. Fiscal stimulus is not the answer to this downturn. We do not have a recession caused by overly tight macroeconomic policy. The fed has not ground the economy to a halt by contracting the money supply.

    The economy is depressed by 2 things: chaos in the financial system caused by erratic government policy responses to insolvent institutions and most importantly a sudden realization by the upper middle class that consumption must be drastically curtailed. Wealth was overstated, asset values have fallen, people must save. The effect of fiscal stimulus – especially the kind of fiscal stimulus Obama is pursuing – is to destroy the economic confidence of the people that have to pull the economy out of recession. Combine that with punitive taxation of high income people, multi-trillion dollar bailouts and Peronist style thuggery and you have a prescription for depression.

  15. Hi Braden,

    @Yes and no. Inflation caused by growth in the monetary base without a corresponding increase in wages is the great bane of the working class.

    My view is colored by the industry I work in – manufacturing tied to building/autos/consumer products. With U6 at 14.8% and demand at such a low level that I expect my company’s revenue to fall well short of 2001-2002 levels even in nominal terms, I don’t see much upside pressure on wages. Nearly 100% of my firms employees are working reduced hours or at reduced wages. The last thing these folks need to see right now is consumer price inflation.

    I fear that the idea that inflation helps debtors is dangerously seductive. I believe we need to encourage more savings/less consumption as a matter of long-term economic stability. Intentionally inflating prices as a means of debt relief will discourage saving/encourage consumption too. The medicine may be worse than the disease.

  16. Could the attitude difference towards inflation vs deflation be caused by the saver vs spender difference? If debt is your problem, inflation makes your fixed & fixed rate debts seem less expensive, but if protecting the purchasing power of your savings, you prefer deflation where your dollar today will buy more in the future.

    The US experienced real inflation in the form of the housing bubble, and is experiencing deflation due to its popping. I don’t think $1T will come close to matching the deflationary effects of the housing/mortgage decline. The net over 2009 will probably still be deflationary. What goods prices are increasing?

  17. Germany seems to want the Euro to be the world’s reserve currency, and they may yet have the privilege of wearing that albatross around their neck.

    (nice discussion, though slighty dated:

    As the dollar deflates and Europe fails to match it with similar fiscal/monetary stimulus, Europe will find itself in a challenging competitive landscape due to the strong Euro. Where will it find the market for its exports?

    US exports, by comparison, will remain relatively inexpensive – perhaps get more inexpensive. In the meantime, domestic European markets such as Spain, Eastern Europe, will shrink. The German govt. is already under extreme pressure from pro-business groups (BDI) to respond more aggressively. It will be interesting to watch the internal politics inside Germany as this thing progresses.

    The question for the US is whether a continuing drop in the dollar will result in reduction of imports and replacement with domestic production (questionable, since we still see outsourcing even as US wages come under pressure – witness IBM), and how long this will take.

    For decades, economists discounted the notion that human capital can create sunk costs. Yet now we have a lot of our smartest people trained in finance because the market price signalled (through wages, per James’ post above) that finance was productive. How many of these people can we retrain to other lines of work? And how fast? And what fields (nursing? medicine? green tech?) And will there be a market for these fields in 5 years anyway? And how will they pay their mortgages while they retrain (it’s not like they’re 18 years old anymore)?

    And is it even possible to train employees, when so much learning is now on-the-job (“learning by doing”), and we have so few companies left that actually do anything in the US? And what does it even mean to “do something” when an increasing number of tasks are automated? And what is “high value labor” when tasks such as computer systems integration and software coding can be easily trained in India and China on cheap laptop systems?

    But these are small questions – some of the big questions are:

    Should economic policy continue to focus so much on short-term system efficiency instead of robustness and long term efficiency (and what, if anything, can our current economic models tell us about robustness in dynamic systems)?

    Is globalized hypercompetition a good thing (and what do we mean by “good”), and might we be better off (in the long term, NOT in a comparative statics model) by treating domestic production as if it really mattered and was not simply a side-show to the monetary economy?

    At least we must be grateful that most of our US debt is denominated in dollars… Unlike, for example, Seychelles.

    I am certain the residents in Seychelles all pursued individually rational behavior, and that Seychelles had less govt. regulation than the US. By all accounts, it should be a free market paradise.

  18. Americans are good at disparaging Europeans for their socialist ways, but the chickens are coming home to roost. The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate. While we’re pouring money down a rat hole rescuing failed banks and mortgaging our children’s future, they’re riding it out on their social safety net. For the details visit this link:

  19. Which well-known game theory results are you referrign to?

    In a repeated game situation, we can show that in some circumstances it is rational and optimal for participants to accept harm to induce other players to play cooperatively in the future. (Although the success of this strategy depends on our ability to commit to inflicting some harm on ourselves in order to punish uncooperative players).

    I presume what you are referring to are the non-repeated game or limited repeat situations where punishment is non-optimal (even if commitment can be established), but people do it anyone to be spiteful.

    This is a behavioral result, not an optimality result, right?

    So are you arguing that the European response (do nothing) is rational (and optimal), or that it’s non-optimal but in human nature?

    Separately, on inflation:

    It would be a great thing if other countries would slowly taper down their habit of buying US debt. Let the dollar deflate and adjust, so that the US can slow down importants and rebuild its current account deficit.

    Unfortunately, accelerated adjustment could be so destructive that it would wipe out the financial system as we know it.

    As to the difference between Finland and the US engaging in fiscal austerity, it’s quite simple. Finland is small enough so that if it radically cuts imports, it does not materially affect (lower) demand for its exports – therefore, export led growth is a viable option.

    The US is a little different. If US contracts too rapidly, it poses grave systemic risks to the rest of the world. Sadly, the rest of the world is (for the short term) better off if the US inflates since it helps prevent a demand crisis. The problem is that countries with dollarized economies pay an inflation tax to subsidize US consumption (don’t think I like this either, since this allows the dollar to remain overvalued and destroys jobs).

    Sometime last year, it seemed plausible that the European response (do nothing) might be enough; European leaders eagerly observed the US imploding, and believed the crisis could be contained (e.g. there would be no contagion).

    It seems they either still believe that (impossible though it seems), or they have some other motive to their actions.

  20. your analysis leaves out one idea: that those opposed to these schemes are the ones who are correct…

  21. While I understand the German position, and appreciate that it follows their decisions during good times, it nevertheless would give them a free ride off our decisions in the good and bad times if we do not limit the reach of our stimulus efforts.

  22. If only that were true…

    The Fed has not contracted the money supply because the sad truth is the Fed no longer controls it. Most – indeed, the vast majority – of money in the system exists in the form of credit. When economic activity slows rapidly, this induces an endogenous contraction in the money supply. Expectations of rapid contraction alone can create this contraction.

    Since so much money exists as credit, and the existence of credit is contingent on (at least modest) stability in income flows on assets (like CDOs), demand destruction and job loss can induce bankruptcies that choke off these flows, and create a vicious cycle of asset devaluation and money destruction that does not stabilize until the money supply has reduced all the way to base money (e.g. cash), and the massive bankruptcies would take MANY YEARS to resolve in bankruptcy court even if we could keep the economy on life support in that time. (Imagine Lehman on a scale 100-fold larger, all hitting the courts at the same time.)

    And, in the meantime, the reduction in tax revenues would drive the US economy bankrupt – so even those in cash would ultimately suffer.

    When money exists as credit (due to leverage), and credit is linked to asset values (due to the risk of bankruptcy and default), then for all intents and purposes a drop in asset values can cause a drop in money supply. That is what happened, and it can become self-sustaining.

    We see things haven’t imploded (though things aren’t great), but we don’t know the counterfactual – what would have happened if the US had been even more stringent.

    As to “punitive” taxation of the wealthy, recognize that the wealthy pay much less than they have paid throughout most of the post-war period. Interestingly, the Great Depression also occurred during a time of very low marginal tax rates on the wealthy, extreme leverage, and high income inequality.

    Note the interesting band of stability between 1942 and 1980. Compare this with other data that shows the extreme increase in Debt to GDP ratio that began around 1980. Again, note the stable (and low) Debt to GDP ratio from 1950s to 1980.

  23. 4. They’re no longer willing to go along with uncontrolled financial-sector peculation. They want strong multilateral rules.

  24. I get the impression that the Germans don’t trust their fellow EU states, and if the Maastricht limit on debt (3% of GDP) were lifted, even once, the imprudential floodgates would be open forever. It seems clear from the historical record that Germany only accepted the Euro under a promise of strict adherence to that sovereign debt limit; and self-evidently their opinion on this issue hasn’t changed.

  25. The obvious answer: adopt European-style safety nets with just a FEW tweaks to allow flexibility. Reduce (slightly) their drag during good times but be able to quickly (and even automatically) bring it all on during downturns.

    Also: MUCH more progressive tax system that taxes ALL income regardless of source (and go after tax haven (neo-criminal) countries as aiding and abetting criminal acts).

  26. “Given that not even the optimists in the Treasury Department believe this, I don’t see how this could be the case.”

    Now, that’s funny-
    Judging economic reality by the opinions of people who had no clue we were headed for this panic.
    Why give credibility now to somebody who just proved they deserve none???

  27. A very simplistic “model” that depicts why agreeing a common European economic response to the crisis is a complex affair, rather than an attempt to free ride on the US fiscal stimulus:

    The model consists of two countries, all references to real European states are purely accidental:

    -Ireland, a low tax economy, just suffered a huge real estate bust, has a banking system on the verge of collapse, shares a currency with Germany, and has vetoed a Lisbon treaty which the Germans want adopted.

    -Germany, a high tax economy, with a historical preference for a hard currency, because the previous bout of hyperinflation led to some unwanted visitors showing up in Berlin with their tanks and their guns.

    Ireland: shit, our construction sector has gone down the toilet, our banks are not only too big to fail, but also too big to be rescued, shit, shit, shit what do we do? Let’s call the Germans to bailout us out — a conference call follows. Hans? This is Dublin we’ve a tiny problem over here, but we do share a currency with you – you just can’t let us go bust.

    Meanwhile in Germany: Sorry Paddy das ist impozzible. The Irish firzt zteal our jobz with low taxes, and veto the Lizbon Treaty which vill make all tiny European statez irrelevant, as they zhould be, sorry I meant to zay enhance European cooperation, and now you’ve the temerity to azk fur our Deutsche Marks, sorry Euros, this is nicht going to happen!

    Irish response: Pretty please. We will let Berlin and Paris set our tax rates. We will gang up with you on the Limies to regulate finance business out of London back to Frankfurt. And we will vote again to pass the Lisbon Treaty.

    From the Furher bunker, sorry the Finanz Ministerium: Das is gut we will think about it, but we need to figure out how to make thiz bail out a one off, not to be repeated.

    Meanwhile in another European country: shit, shit, shit our capitalist pig banks have made too many dubious loans to silly foreigners and are in trouble. We need to call Berlin…

  28. I am certain that Obama will explain to the German and French representatives that the USA is perfectly willing to let the AIG generated swaps get paid off by the assets of AIGFP without involvement of the US government and the frugal, sensible, europeans can bail out SG and DB on their own.

  29. Scenario 1: not credible.

    Scenario 2: there is no inflation. contracting credit and falling asset prices mean deflation. consider also that the sale of Bunds so far has been weak. practically every western country needs to issue way more obligations, to finance bailouts, not to mention “floating” pension systems.

    Scenario 3: dumbest of all three, with more or less the first GLOBAL downturn ever.

    The real reason? I think they can’t. Consider (can’t find the stat) that large external debts must be refinanced either this year or next. This involves the usual suspects (american banks), but more so commerzbank, deutsche bank and very troubled hypo real estate. So if Berlin had to bailout Ireland, Iceland, Club Med and Eastern Europe, it would have to take over Brussels and the ECB, which it is unwilling to do.

  30. I’m a Nordic social democrat, and as such haven’t really cared nor liked mrs. Merkel or her politics previously.

    However, she has really shined as only sensible leader of a major nation during this crisis. I hope she continues to keep euro-zone out of this american nonsense of more debt as a solution for too much debt, or the even crazier solution of printing money. It has never worked and never will.

  31. There is a difference between wage-led inflation and scarcity-led inflation.

    The risk with achieving inflation by deflating the currency is that, if we are overly dependent on imports, this will run up the prices of imported goods and harm wage earners.

    This begs a few key questions:

    1) When the monetary base expands, where will the printed money go?

    2) Was our current standard of living sustainable anyway? (probably not, since it’s debt financed, so to a degree there _needs_ to be a reduction in consumption).

    3) How will the currency adjustment affect US industry – which as an employee of a US manufacturing firm should be of keen interest?

  32. James,

    maybe the Europeans (and the Germans particularly) do not believe Obama on promises of regulation any more than they would have believed Bush? I certainly do not believe that the “cognitive regulatory capture” of the current administration will lead to captivating cognition of regulation.

    In other words, the Europeans might think that they can survive the current shitstorm long enough to pressure the US into substantial regulatory changes that, in their expectation, are unlikely to materialize if they aid and abet the US’ desparate focus on bailout as opposed to restructuring. As a corollary, they might agree with you that regulation proposals that do not force restructuring (esp. size reduction) are not adequate at this point.

    Caveat: Having suffered German politics for 30+ years, more than half of which spent under the corrupt and incompetent stagnation of Kohl, I have little confidence in or respect for his designated heir, Merkel (by their sponsor know them). Hence I am far from suggesting that this is a well-thought out, or even thought-about plot, in fact I would readily concede the possibility that conscious thought is not involved at all.

  33. What the Germans are perhaps thinking is what everyone else outside the U.S. is thinking: the american plan is probably NOT going to work. So, why buy into it? Let the idiot taxpayers in the U.S. fall for this current scam being offered up by the U.S government, and wait for this plan to fail, which it will, then decide what to do for Germany. Who can blame them? This plan being served up by Geithner & Bernenke, Inc is simply another plan to get all the investors paid in full. Socialize the losses. They just did exactly that with the AIG mess. They used AIG as a conduit to pay off Wall Street for their bad plays on the MBS’s. The usual theft by the American government. Those of us outside the U.S. a really starting to wonder about the american people, exactly how long are you idiots going to allow your government to steal your kids futures? We kind of all knew you Americans were idiots, but we had NO idea you were this gullible. You deserve what you are soon to get.

  34. When it comes to correcting the current economic crisis from a “world view” perspective, I have what I like to call the “Commercial flight” analogy. When you are sitting on the tarmac and listening to the flight attendant gives the “in flight” instructions, she says something along the lines of, “in case of cabin depressurization, oxygen mask will drop from the ceiling. it is important that you get your mask securely in place before trying to help those in the seats next to you.” This is to ensure that you don’t pass out while trying to help somebody else. This is especially good advice for the captain.

    The Global economy just lost “pressure”. We need to get ourselves breathing safely before we can worry about the others. Especially since it seems we are piloting this mess.

  35. When it comes to correcting the current economic crisis from a “world view” perspective, I have what I like to call the “Commercial flight” analogy. When you are sitting on the tarmac and listening to the flight attendant gives the “in flight” instructions, she says something along the lines of, “in case of cabin depressurization, oxygen mask will drop from the ceiling. it is important that you get your mask securely in place before trying to help those in the seats next to you.” This is to ensure that you don’t pass out while trying to help somebody else. This is especially good advice for the captain.

    The Global economy just lost “pressure”. We need to get ourselves breathing safely before we can worry about the others. Especially since it seems we are piloting this mess.

  36. Dwight,
    Yeah, that’s great. I LOVED the whole airplane story. Here’s a little reality check for you, Dwight From Cleveland: can you fly the plane without borrowing any more money from us? Cause, we’re DONE buying your bullshit, toxic investments. Your nonsense has bankrupted us. GET IT DWIGHT?

  37. simmer down adios. the lions (wantabe) of the jungle are still trying to wish away the problems of the past 30 years. or trying to find some reasoning that something worked. let them live in a world of delusion a little while longer. then the work shall start. obama’s team. your afgan strategy will fail if you move forward with your agenda. faulty advice must stop.

  38. OK, it’s official: I have now once and for all had it up to bleeping HERE with every country in the world depending on the US middle and working class to be the purchaser of last resort. Us importing all of their excess manufacturing capacity while our wages are going down and down and down is just flatly not sustainable. It’s not good for us, and it’s not good for them. If that’s the attitude they’re going to cling to, then forget free trade: there is no point in importing goods from countries that insist on only exporting, whether those countries are European or Asian. Maybe if we weren’t their dumping ground for goods their economy can’t absorb, they wouldn’t have ended up being our dumping ground for fraudulent investment schemes.

  39. brad,,,,other countries have not liked us for a while. can you blame them? some of these us companies blame labor unions and such. but they are quick to buy up other companies to expand. when this happens usually fails and have to dump for little or nothing…ohhh but the synergies involved with the new purchase. why don’t they take that money and take care of thier existing employees. i’m telling ya,,,the past 30 years has killed us. we have some serious work to do. please no more cowboy hardball.

  40. I don’t know, but look at the DAX monthly chart at least 10 years. It is so much stronger and healthier than Dow Jones and the SnP to the present. History of their economy is reflected on their stock market charts.

    Is’nt it the stock market the barometer of a nation’s economic health?

    Now, look at China Shanghai Index. It has been in rally mode since OCT 2008 while the US, Germany, France and England have been digging lower and lower toward an undefined abyss specially the Dow Jones.

    India, Hongkong, Taiwan, Korea, and even the Philippines are following the lead by China since Oct 2008 by not going down lower.

    Japan Nikkei succeeded in not making a lower low and is now in a holding pattern.

    It feels like the decoupling theory have just blasted off the launchpad.


    or rather…. CHINA, WE HAVE A SUCCESFUL LIFT-OFF. Decoupling now in progress!

    America WAKE UP!

  41. Found many of the comments interesting….

    Unfortunately we have already lost the ability to lead; many of our solutions lack any merit and are based mostly upon political considerations.

    There is also a high probability that the bulk of the funds provided will have little effect other than to greatly increase our debts.

    Why would any country besides the U.K. (in worse shape than most) want to follow our lead?

    We keep demanding but where are they following..financially, politically or militarily?

    We need to realize that for the most part we are on our own……and stop asking others to bail us out.

    We caused most of the problems and now have to come through this as best we can; perhaps to be a better nation for it afterwards….

    China and Europe need to look to their own to find solutions to get through this.

    We are not all in the same boat so let’s stop baling….

  42. This is the way Europe HAS contributed, IS contributing, and WILL always contribute. America pulled France’s rear out of the frying pan after World War 2 (not to mention pulling Germany’s economy out of ruins) and our “thank you” has been cultural snobbery ever since. And by the way if we make the HUGE MISTAKE of creating a “new international currency” which country is going to support that currency and prop it up when it has problems (AND IT WILL HAVE PROBLEMS)??? China?? France??? The odds on that are about the same as Rwanda and Darfur being self-reliant in 10 years.

  43. Ah, but we do have a social safety net here – middle aged unemployed living in tent cities are taking elderly homeless into their tents. Saw that on NBC news last night.

    When the BLS is engineered by Congress into understating CPI, then the Fed can understate inflation. And Social Security is pulled off its feet like Alice was by the Red Queen.

  44. Ted,
    Defaulting to the WWII history again? Tell me, were YOU there? That was 65 YEARS ago. What have you done lately? Yes, two generations ago, America was a very respectable country. Thats over. What has the current generation done, besides live their lives on borrowed money that now can’t be repaid, and you have now engineered the largest financial fraud in the history of man? I would suggest that you all stop borrowing dollars that you KNOW you can NEVER repay, and start living within your means. PS: congratulations, you have successfully engineered the biggest Ponzi scheme in the history of man, and it’s called your economy. You build a house for $200,000 dollars. Suddenly it’s appreciating by 20% per year…..just “because”. Here’s a reality check for you: your homes and assets cannot appreciate at 20% annually if your economy is actually flat, or growing at 3-4%. THATS NOT REALITY. Thanks again for selling us (outside the US) all of your BS toxic mortgages…..our pension funds have now collapsed. WE WILL NEVER TRUST YOU AGAIN…..NEVER.

  45. Brad,
    Yes! You “get it”. Next time you feel the need to go out and purchase a new Chia Pet…..DON’T. Send my pension fund the money instead. We bought your toxic debt portfolios, and now my retirement savings are gone. Also, call your Congressman. Tell him to NOT borrow any more money to build yet another aircraft carrier, so you can borrow more money to take that carrier out for a drive and KILL more civilians that did NOTHING to America. Can you take care of that for us Brad? The other 95% of the global population that don’t live in the U.S. would REALLY appreciate that. Thanks again for bankrupting us with your bullshit securities. Good job America.

  46. There’s also a political side to it. Every financial and budget discussion in Germany in the last decade has been absolutely dominated by the Maastricht criteria on debt.

    Lowering our debt and balancing the budget has been the one and only term in which finance is being discussed to the point where just about every politically interested German can tell you our current deficit and it took massive contortions to get our first stimulus package through.

    Trying to sell stimulus spending to Germans is a surefire way to lose the election this year.

  47. Anas,
    Good for Germany! Deficit spending by ANY government is simply generational theft, plain and simple. NO government should EVER spend any more than 25% of GDP….never. What, exactly do governments produce anyway? Wars, etc. And we’re going to borrow our childrens financial future for that? Huh? I believe we ALL need to examine exactly how effective ALL of our governments are globally. Have they outlived their usefulness in their current form? Perhaps. Corruption in government? RAMPANT. The problem, or call it a challenge, is that they no longer fear us. The only thing they may fear is probably an armed uprising by the majority of “the ruled”. That may happen someday, and perhaps soon. If the Americans were smart (they clearly are not, complete idiots) they would march on Washington en masse. But they’re too stupid and pathetic to do that. Losers.

  48. I get it, and I am fine with it. The whole thing could collapse for all I care. I can grow the food I need, build the house I want, and barter for the cloths I need.

    I really wish you hadn’t bought them in the first place. It only increased the demand and made the prices inflate to irrational levels. You see, your “loaning” that stuff only helped the first class passengers and did nothing to help those of us who were actually keeping the thing aloft. I not only “GET IT” but completely understand how healthy the economy will be once it happens.

  49. adios amigos, here’s a reality check for YOU, this is a blog and you’re yelling at a guy named dwight from cleveland…relax, have a valium or a beer, the sun will rise tomorrow, earth will still spin, all is good…breath man, breath…

  50. im from germany, and even though theres probably a lot of things u can criticize about the german reactions to the crisis, i certainly dont like the way many comments r doing so. cause a) germany did put a big bailout plan in action, n the ones that say its too small, like the FDP (liberal parties), r the ones that were defending deregulation all along, which we see where it got us now; and b) many of the people in charge for US-solution strategies, r part of the problem, cause they benefited from the system that collapsed now for far too long, n now r trying to rescue as much of it as they can.

    now the question is: r those people (parties) to be trusted? or shouldnt we rather act more responsibly, do what we think is absolutely unavoidable, but nothing more? spending, spending and spending more and more money doesnt always help, i think thats a lesson we should have learned by now.

  51. The fantasy of “decoupling” was just that, a fantasy (from the US standpoint at least). It fails to take into account something bloody obvious: for a poorly developed nation like China, there is practically only one direction it CAN go and that is up. Same for India and most of the rest of the SE Asia basin – and it has been fed by exporting to the US and saving LOTS of the money.

    China has LOTS of room to “grow” (develop) using their huge savings while the US and W. Europe are all developed out. All we can do is rearrange the bricks and roads via LOANS while China and India are building them fresh and new, using the latest available technologies (in many cases), with direct cash payments. Thus, OUR societies are crumbling and look dank and grey compared to China’s, which is flash and new.

    And more with decoupling: China is hurting but not anywhere near what the West is simply because while they built up a LOT of wealth on our backs (massive exports to the US) the US, on the other hand, has ONLY been importing AND borrowing to fire up of all the rest of the world. The US goes down and that automatically means all countries that were exporting to the US as a major basis of “growth” are screwed, unless they are like China with HUGE cash reserves of cash that can be spent down developing their own countries.

    India is similarly situated.

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