AMERICAblog: How Germany could add significantly to the severity of the global downturn
mike
· 11 months ago
I don't know. Steinbrueck makes a lot more sense to me than Krugman. Krugman's talk about running trillion dollar deficits for the next several years scares the living hell out of me. It's bad now, but if we start taking measures that irresponsible, these could soon look like the good old days. There are plenty of solutions to these problems besides stealing from future generations, which isn't a solution at all. I just don't understand Krugman. He understands the need for stimulus but can't grasp that it has to be paid for. Why isn't he constantly pushing for cuts in the military budget and the rest of the totally absurd federal budget? Why doesn't he ever even mention methods of paying for the stimulus? At least make it a part of the discussion. Just don't get it. Do people realize that we're getting to the point where we'll soon be paying over a TRILLION dollars a year just in interest on the national debt? Just the interest alone. Is that really where everyone wants their taxes to go for? Doesn't seem smart to me. But what do I know?
Older_Wiser
· 11 months ago
Wasn't it the monetarists, like Greenspan, who propped up the American economy until the inevitable happened? Has there been very much of real value produced while the money presses have been at full steam? What kind of false economy is it that allows its currency to fall so badly that even billionaires can take a hit of a 50% loss and still retain their fortunes while the ordinary person cannot afford to lose $100 a week in income, or the loss of a job or an increase in living costs can put a person on the street?
Hasn't Mr. Steinbrueck studied the economic history of his own country or does he want the Euro to go the way of the German Mark in the 1920s and have to endure the political climate it produced?
smiling_dog
· 11 months ago
The train is off the rails. Nothing Germany or Bush or Obama can do until it crashes at the bottom of the cliff.
vkobaya
· 11 months ago
It may very well be that nothing can stop the crash. Doesn't mean you don't try. Got to try to throw on the brakes, hunker down and other things to try to prevent the crash or at try to protect yourself. Doesn't make sense to just give up even if the results are inevitable, nearly everyone killed in the train wreck. You just don't give up, not even in an airliner nosediving from 30,000 feet.
1970cs
· 11 months ago
How much of Chyslers problems are due to the fact that they are owned by Cerebus and GM's tied to GMAC? How much of their problems are tied to credit drivitaves, we don't know because they won't open the books .
There is more deriviative debt than the world has currency, yet hedge funds don't have to show their books. The systemic failure requires a global re-working of monetatary policy, a new Bretton Woods, not band aids.
Older_Wiser
· 11 months ago
John, you had a good post on insurance last night...and I know this might not seem very relevant, but think about it since all insurance companies have their fingers in a lot of pies and it brings up a question of how much in taxes those who have already received aid (including AIG) have paid:
(Via Bloomberg.com):
Several of the biggest U.S. life-insurance companies are seeking a piece of the taxpayer-funded $700 billion federal bailout program, but pay little in income taxes themselves, securities filings show.
Consider Prudential Financial Inc., which last week announced that it is seeking an unspecified amount of aid through the federal Troubled Asset Relief Program, or TARP.
Despite reporting pretax profits to shareholders of nearly $25 billion over the past decade, Prudential has paid just $1.3 billion in taxes to federal, state and foreign governments in that period, filings show, for an effective tax rate of 5.1%. (WSJ article continues)
Doug
· 11 months ago
I'd trust Steinbrueck any day of the week compared to the others. Germany has operated budget surpluses, trade surpluses, avoided the housing bubble and its banking system is much better shape than elsewhere. And they managed magnificently the inflationary aftermath of reunification. Don't forget Steinbrueck is a socialist and not part of the majority conservative CDU (Merkel) coalition government. Why should Germany have to bear the brunt of the rest of Europe's economic mismanagement (especially the UK's dire situation)? Germany is the largest contributor to the EU and is pretty much the only net contributor while the rest all rely on German financed subsidies. Only Germany has got to grips with its spending before thinking about anything else. It is over-stretched budgets (government and personal) that has got us into this mess. Governments need to tighten their belt first. Even FDR massively slashed veterans benefits to get on top of the US budget in the '30s.
TomJoad
· 11 months ago
John, I don't know where you noticed this, but here in Norway that has not been the case. Of course, fund companies held seminarts and tried to assuage fears, telling investors "America is no longer the only drivine economic force as it once was. It may not influence other markets as much...becauase of Asia, india, etc." but that was expected. In real terms property values have been tanking, house sales down, stock market has been extremely volatile, but trends have all been down as it swings, and people have been very critical of the US as for the greed and naked stupidity that is dragging the world down with it.
Not that there are no greedheads here....there are plenty, but there is also (I think) more regulation and that helps.
This last year people here have come to the opposite conclusion. What HELPS and what the US ought to do (I heard they were going to, then nothing more) here in Norway their version of the FDIC plan secures up to 2 million kroner (roughly just under 300,000 dollars) which in a country that has much more middle class than the US, subverts panic.
This crisis is hitting the poorest countries worst. The countries that we have all but robbed of any self-sufficiency ( they cannot anymore grow their own food, since Europe and the US dump food at below prices they can meet because of subsidies, low import duties, etc. forced on them) and often this is the excess food....when things get tight, they will be WORSE off than they had been before "Globalization".
MAYBE it is time to rethink the whole damned thing. Is fiscal expansion the ONLY way to go? The short sightedness, the constant draining of resources (and the dumping that follows) the need for ever more people to buy ever more products, must have a finite point no?
Some well known ( and earlier firm expansionists) economists I have seen interviewed are asking these things now, and saying that with global warming and all, that there may be a better way.
vkobaya
· 11 months ago
What's the point in blaming Germany. The real villains are here at home, the traitors who voted against the auto bailouts and who should be marched outside and executed by firing squad.
TomJoad
· 11 months ago
Other interesting comments below also...
The US more than any country I know, has the highest consumption of "self-help" books, and (if my relatives are any indication) the highest number of "know-it-all" folks who are always asking telling what the solution is. As if it were a hollywood movie that just must have a happy ending. Sometimes you box yourself into a corner and there IS NO good solution. Assuming there is a "way out" that is not painful may actually be prolonging the problem. These bailouts may end up having made things worse down the line....
"But we havet to do something".... It's been looking for a LONG time now that the world needs a wealth reset button, and a new start. We're like in the final stages of a monopoly game where one player has all the cash, all the hotels, all the properties, and we are all just the bored players wishing it would just end so we could go home. That stage of the game is just never fun for the rest of the players, only the grinning winner "hey, you landed on Park Place, where I just happen to have erected high rises....lets see, that'll be....hmm...EVERYTHING!".
As someone pointed out, morally it is way worse that they came to the aid of the greediest, dumbest, most corrupt banks and mortgage firms, but won't help the auto industry, but the auto industry (which actually makes things) seems to have gotten "to big to let fail" too, except it is just workers that will suffer the most, BUT those same companies spent their resources fighting REASONABLE and DOABLE environmental laws designed to reduce our dependance on foreign oil, help not do as much damage to the environment, etc., THESE idiots spent their money and time fighting those things, buying our politicians, instead of listening to the consumer, making more fuel efficient and better constructed autos.
If anyone deserves to go down it would be them.
Here's an idea, how about instead of helping them out of their own mess, that they didn't correct in years, how about using the same money to retrain and help the workers that will lose their jobs when the big 3 collapse.
C'mon, EVEN if they finally listen and make the cars they should have been for the last 15 years, WHO IS GOING TO BUY THEM? This environment is not consusive to buying new cars. Folks are going to be holding on to theirs, doing more repairs, buying used.
For a good long while I think.
Apphouse50
· 11 months ago
Yeah, plus they've been making noises in recent years about how much the healthcare system is draining the economy. I wonder what we'll see them do with that.
Indigo
· 11 months ago
Good old Germany where altruism means taking care of your mother. End of story.
Older_Wiser
· 11 months ago
Even socialist Sweden, as reported on NPR yesterday, is giving $3-4 billion to Volvo and Saab.
There is going to be a backlash to the failure to bailout the Big 3 among consumers, as well. Watch foreign vehicles sales fall off, too. They're practically giving away Toyotas and Nissans in Charlotte--0% interest, $3-5M cashbacks, etc. (to their "best" credit customers, of course), but still, no one is biting. One dealership bravely stated: "We purchased 500 Toyotas from the factory and are going to sell them in 5 days!" Sure you are.
P.S. Asian markets are down 5% + this am on the bailout news...and European markets as well as the Dow futures.
High Crimes & Misdemeanors
· 11 months ago
and to add this to mix of news:
-------------------
Printing Presses
The holders of these worthless instruments, however, are not going quietly to meet their fate. Instead, they have demanded, and received, huge bailouts from the governments, and the people. It is the largest transfer of wealth in history, the biggest swindle ever—but still they want more.
The British are leading the charge, calling for the central banks to "print" as much money as required to cover the losses. They know full well that such actions would create a hyperinflationary explosion, but they don't care. They want their money, and they want it now. The good folks at HSBC, the bank that says we need a new Hjalmar Schacht, is openly demanding that the presses be fired up, and that the Fed begin buying corporate bonds, in addition to mortgage-backed and asset-backed securities. The London Economist has demanded an end to the supposed "cautious incrementalism" of the bailout, as if $8 trillion in one year was not wildly insane already.
In the United States, the Democrats are discussing a new stimulus in the $500 billion range, with some economists calling for $1 trillion or more. Federal Reserve chairman Ben Bernanke, long a believer in the printing press approach, gave a speech Nov. 21, 2002, to the National Economists Club in Washington, in which he noted that "the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost," and can always defeat deflation by creating money. "Injections of money," he said, "will ultimately always reverse a deflation."
Under the Emergency Economic Stabilization Act, Treasury has created a "Systemically Significant Failing Institutions Program," in the hopes of stopping the failure of any single institution from triggering a chain reaction collapse.
At this point, the Fed and the Treasury are keeping parts of the system functioning on life-support, but they are losing ground, as the damage spreads far beyond their ability to contain it.
Indigo
· 11 months ago
The conditions for a bona fide socialist uprising are improving.
medium lebowski
· 11 months ago
China and Germany willing to supply, but not buy? Doesn't sound like good neighbor trade to me.
Dan the Man
· 11 months ago
I know, it's unfair!! Why won't the Germans and Chinese buy the crappy American made cars that Americans are increasingly refusing to buy!? It makes me so xenophobic I can't see straight! Lebowski=Moron
Dan the Man
· 11 months ago
Here are some facts, John:
Germany has a HUGE trade surplus with the world. The US has an historically massive trade deficit./// Germany has a savings rate of almost 9%. The US has a NEGATIVE savings rate --yes, on average, Americans are spending more than they earn.//// Germany has VERY restricted and tight regulations on banks and savings & loans The US had effectively no regulations on banking under the Bush administration/// Most Germans do not have credit cards and pay for things on a pay-as-you-go basis. Americans are drownin in credit card debt.//// John, really this is primarily an American crisis because Americans are saturated with debt. We've hit a tipping point. Even if credit were to "un-seize" tomorrow, it will make no difference because Americans are already paying out their entire earnings to cover the debt they currently have. Not so in Germany. Of course, the American crisis will have reverberations all over the world simply because Americans will not consume as much as they have in the past, which means less manufacturing in places like Germany, Japan and China. They will suffer an increase in unemployment, but they are not likely to suffer the range of economic collapse that is occurring in the US. In addition, all those European banks you see getting burned, well, they're getting burned because they were playing in the US market. They're all big players in the US markets. With the exception of a few regional European banks, most banks that limit their business to Europe are doing absolutely fine.... in fact, even better, because many depositor with Deutsche Bank, and CreditSuisse, etc. are moving their savings to regional European banks.
All Comments
Hasn't Mr. Steinbrueck studied the economic history of his own country or does he want the Euro to go the way of the German Mark in the 1920s and have to endure the political climate it produced?
There is more deriviative debt than the world has currency, yet hedge funds don't have to show their books. The systemic failure requires a global re-working of monetatary policy, a new Bretton Woods, not band aids.
(Via Bloomberg.com):
Several of the biggest U.S. life-insurance companies are seeking a piece of the taxpayer-funded $700 billion federal bailout program, but pay little in income taxes themselves, securities filings show.
Consider Prudential Financial Inc., which last week announced that it is seeking an unspecified amount of aid through the federal Troubled Asset Relief Program, or TARP.
Despite reporting pretax profits to shareholders of nearly $25 billion over the past decade, Prudential has paid just $1.3 billion in taxes to federal, state and foreign governments in that period, filings show, for an effective tax rate of 5.1%. (WSJ article continues)
Not that there are no greedheads here....there are plenty, but there is also (I think) more regulation and that helps.
This last year people here have come to the opposite conclusion. What HELPS and what the US ought to do (I heard they were going to, then nothing more) here in Norway their version of the FDIC plan secures up to 2 million kroner (roughly just under 300,000 dollars) which in a country that has much more middle class than the US, subverts panic.
This crisis is hitting the poorest countries worst. The countries that we have all but robbed of any self-sufficiency ( they cannot anymore grow their own food, since Europe and the US dump food at below prices they can meet because of subsidies, low import duties, etc. forced on them) and often this is the excess food....when things get tight, they will be WORSE off than they had been before "Globalization".
MAYBE it is time to rethink the whole damned thing. Is fiscal expansion the ONLY way to go? The short sightedness, the constant draining of resources (and the dumping that follows) the need for ever more people to buy ever more products, must have a finite point no?
Some well known ( and earlier firm expansionists) economists I have seen interviewed are asking these things now, and saying that with global warming and all, that there may be a better way.
The US more than any country I know, has the highest consumption of "self-help" books, and (if my relatives are any indication) the highest number of "know-it-all" folks who are always asking telling what the solution is. As if it were a hollywood movie that just must have a happy ending. Sometimes you box yourself into a corner and there IS NO good solution. Assuming there is a "way out" that is not painful may actually be prolonging the problem. These bailouts may end up having made things worse down the line....
"But we havet to do something".... It's been looking for a LONG time now that the world needs a wealth reset button, and a new start. We're like in the final stages of a monopoly game where one player has all the cash, all the hotels, all the properties, and we are all just the bored players wishing it would just end so we could go home. That stage of the game is just never fun for the rest of the players, only the grinning winner "hey, you landed on Park Place, where I just happen to have erected high rises....lets see, that'll be....hmm...EVERYTHING!".
As someone pointed out, morally it is way worse that they came to the aid of the greediest, dumbest, most corrupt banks and mortgage firms, but won't help the auto industry, but the auto industry (which actually makes things) seems to have gotten "to big to let fail" too, except it is just workers that will suffer the most, BUT those same companies spent their resources fighting REASONABLE and DOABLE environmental laws designed to reduce our dependance on foreign oil, help not do as much damage to the environment, etc., THESE idiots spent their money and time fighting those things, buying our politicians, instead of listening to the consumer, making more fuel efficient and better constructed autos.
If anyone deserves to go down it would be them.
Here's an idea, how about instead of helping them out of their own mess, that they didn't correct in years, how about using the same money to retrain and help the workers that will lose their jobs when the big 3 collapse.
C'mon, EVEN if they finally listen and make the cars they should have been for the last 15 years, WHO IS GOING TO BUY THEM? This environment is not consusive to buying new cars. Folks are going to be holding on to theirs, doing more repairs, buying used.
For a good long while I think.
There is going to be a backlash to the failure to bailout the Big 3 among consumers, as well. Watch foreign vehicles sales fall off, too. They're practically giving away Toyotas and Nissans in Charlotte--0% interest, $3-5M cashbacks, etc. (to their "best" credit customers, of course), but still, no one is biting. One dealership bravely stated: "We purchased 500 Toyotas from the factory and are going to sell them in 5 days!" Sure you are.
P.S. Asian markets are down 5% + this am on the bailout news...and European markets as well as the Dow futures.
-------------------
Printing Presses
The holders of these worthless instruments, however, are not going quietly to meet their fate. Instead, they have demanded, and received, huge bailouts from the governments, and the people. It is the largest transfer of wealth in history, the biggest swindle ever—but still they want more.
The British are leading the charge, calling for the central banks to "print" as much money as required to cover the losses. They know full well that such actions would create a hyperinflationary explosion, but they don't care. They want their money, and they want it now. The good folks at HSBC, the bank that says we need a new Hjalmar Schacht, is openly demanding that the presses be fired up, and that the Fed begin buying corporate bonds, in addition to mortgage-backed and asset-backed securities. The London Economist has demanded an end to the supposed "cautious incrementalism" of the bailout, as if $8 trillion in one year was not wildly insane already.
In the United States, the Democrats are discussing a new stimulus in the $500 billion range, with some economists calling for $1 trillion or more. Federal Reserve chairman Ben Bernanke, long a believer in the printing press approach, gave a speech Nov. 21, 2002, to the National Economists Club in Washington, in which he noted that "the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost," and can always defeat deflation by creating money. "Injections of money," he said, "will ultimately always reverse a deflation."
Under the Emergency Economic Stabilization Act, Treasury has created a "Systemically Significant Failing Institutions Program," in the hopes of stopping the failure of any single institution from triggering a chain reaction collapse.
At this point, the Fed and the Treasury are keeping parts of the system functioning on life-support, but they are losing ground, as the damage spreads far beyond their ability to contain it.
Germany has a HUGE trade surplus with the world.
The US has an historically massive trade deficit.///
Germany has a savings rate of almost 9%.
The US has a NEGATIVE savings rate --yes, on average, Americans are spending more than they earn.////
Germany has VERY restricted and tight regulations on banks and savings & loans
The US had effectively no regulations on banking under the Bush administration///
Most Germans do not have credit cards and pay for things on a pay-as-you-go basis.
Americans are drownin in credit card debt.////
John, really this is primarily an American crisis because Americans are saturated with debt. We've hit a tipping point. Even if credit were to "un-seize" tomorrow, it will make no difference because Americans are already paying out their entire earnings to cover the debt they currently have. Not so in Germany. Of course, the American crisis will have reverberations all over the world simply because Americans will not consume as much as they have in the past, which means less manufacturing in places like Germany, Japan and China. They will suffer an increase in unemployment, but they are not likely to suffer the range of economic collapse that is occurring in the US. In addition, all those European banks you see getting burned, well, they're getting burned because they were playing in the US market. They're all big players in the US markets. With the exception of a few regional European banks, most banks that limit their business to Europe are doing absolutely fine.... in fact, even better, because many depositor with Deutsche Bank, and CreditSuisse, etc. are moving their savings to regional European banks.