naked capitalism

IF says:

Well, what is a social system good for if not to tide over the bad times? Germany had to deal with a depression fairly recently (if only from the East) and Angela Merkel knows very well from her own experience what happens when industries collapse.

1. Germans have a very graduated system of economic safety nets. These are still in place from the “bad” times five to 15 years ago. While the lowest of them is not comfortable at all, the brutal reality of tent cities like in the US is unimaginable.

2. German consumers are by far not as overlevered as their US counterparts. They do have savings, and more importantly, not as many loans to service.

Because of the previous two points there seems to be less of a sudden urge to increase savings. Contrary, people are happy to find bargains. I am not saying everything is rosy and I can only judge from what I read and discuss with family members in Germany, but there is less of an end of the world hysteria.

MyLessThanPrimeBeef says:

I think there are people out there who believe the best thing to do right now is to let the market work its magic, find its own equilibrium as water finds its own level.

In Tao, it’s called wuwei, or non-action, which does not mean we should do nothing, but rather, we should do nothing that interferes with nature or her course.

In our case, it’s best that we allow market forces to play out on their own accord. And if you have ever read books that talk about how men are from Mars and women from Venus, you would know that a woman will listen to your problem and sympathize with you, though she will not necessarily do anything about it, while a man, upon hearing a problem, feels compelled to do something about it even if he has no clue what to do. The books usually go on to chide men to learn how to just listen and refrain from doing something rash or destructive.

With that introduction, I feel we elected the wrong candidate. We really need a woman to lead us in these times of economic peril, a real woman, not a woman who looks like a woman on the outside, but inside she is really a men, in fact, tougher than all men. And if that woman has a history of building bridges to nowhere, so much the better. As contrary as it might sound with regarding to wuwei, she still would be perfect to launch the badly needed infrastructure projects – lots of bridges to nowhere that will provide lots of jobs.

Thomas says:

The US is calling for massive European stimuli because they believe it would reduce the American current account deficit, and thus automatically increase net demand in the US.

However, this is anyway already taking place, with no need for any further stimuli to help it along:

Germany’s export figures for January just came out. Apparently, the trade surplus is nearly 8 bn € lower than in January 2008.

If we extrapolate this monthly drop to the full year, it would mean that the trade surplus goes down by a massive 3.5 % of GDP.

Germany’s current account would still be a bit positive in such a case. But it’s far from clear if the situation doesn’t deteriorate further, as many German companies are still working down their order book. It’s not inconceivable that Germany’s current account will turn negative later in the year.

If so, the Eurozone current account will be substantially negative, as it already was a bit in negative territory in 2008.

Isn’t that enough European “net demand” for the rest of the world?

Jonathan says:

Why Austria is dark but not depressing:

Sure, the right-wing parties are using the “crisis” to whip up support for their jingoistic anti-immigrant policies but then again, our President Heinz Fischer consistently still calls the European Union the “greatest peace process the world has ever known.” Despite the sad background noise, Austria is committed to Europe.

The social compact among Austrians doesn’t place ownership front and center among the virtues of human existence. This was, after all, the first western European city to elect a Socialist government way back when in the 1920s. Around 70 percent of Viennese rent their homes (Me? I got a screaming deal at EU800/month for 150m2, with a 40m2 terrace and garden).

Austrians save and they recognize a bargain. Consumption in Austria rose 0.4 percent in the fourth quarter, compensating for slowing exports. The local electronics retailers are still packed and a new Apple megastore’s doing well on Mariahilferstrasse.

The government, for all its dysfunctional “grand coalition” talk, is boosting the electorate’s spending power with tax breaks (yippee! I gained EU2000 this year) and giveaways (that EU400/month bilingual kindergarten fee was just cut in half).

Sure, the locals are grumpy and there’s always the embedded stereotype of what an Austrian “is” but of course we’ll soon be asking that same question about Americans.

p.s. — my style conscious Austrian friends are always asking when the famous American shoe industry (that apparently made some really kickin’ styles) is going to return. I might add American-made Levis. Gee, guess that means Americans will have to get their monetary house in order so they can finally compete with Italians;-)

Anonymous says:

I’d add that from a demographical perspective it doesn’t sense for Germany and several other European countries to add too much deficit financed stimulus.
The USA is a country with a replacement level birth rate and substantial immigration. Germany’s population is already falling despite positive net immigration.
The amount of debt that is sustainable is very different in a country that will see a comparatively rapidly shrinking work force like Germany and one like the USA.
The difference in median ages is not that large (yet), but asking Germany to go into debt right now to bail out younger countries is sort of like asking the parents of a profligate guy in his thirties to bail him out by spending their retirement savings.
That guy in his thirties will have ample time to rebuild his life savings, but those closer to retirement have a much harder time.

Yes, there’s a mutual dependence here because those retirements will be financed by the younger generations, but in the actual country situation: Do you think that say twenty years from now Americans will say “Sure, these guys in Germany helped us out back then with deficit financed and unsustainable consumption increases, we’ll help them out now?”
Obviously not, it will be seen as their own problem to be solved.

Similarly, is anyone proposing to give those current account deficit financed houses, big screen TVs, etc. back to the countries that financed them and are now suffering due to those customers not able to pay for them (right now)? No.
In good times it’s everyone for themselves, in bad times there’s suddenly this “we’re all in this together” from some people.

In summary, it might make sense for the world economy if some CA surplus countries start to spend, spend, spend. The question is whether that will be recognized by the CA deficit countries when this is over and the formerly surplus countries are having trouble? Somehow I doubt it.

charlie says:

Yves made the point last week that our financial authorities are really treating this like a PR problem: the market has overreacted, once we have leadership things will stabilize in a few months, and our limited stimulus package (plus maybe one more) is all we need.

They have a point: only car sales have cratered, house prices have deflated to the point of affordable, and the rest of the economy is not in the wasteland yet.

Warm, Dry and Well Fed says:

A bit off-topic, but did anyone else note the Monday 3/9 NYT article on B2 entitled “Separation Rule is Not the Answer”?

It claims that a return to Glass-Steagall is not called for because many of the big failures such as Bear Stearns, AIG and Lehman were not commercial banks. Volcker apparently disagrees and my superficial understanding of Glass-Steagall supports Volcker’s position.

What do the experts here think of the Times piece and the issue?

Anonymous says:

@brushes9 said…

“Sorry, but Europe has trillions in outstanding loans to failed states.”

@brushes9, are you talking about trillions in Outstanding loans to the US?

Anonymous says:

In Europe the banks are in deep scheiss but the main-street economy is doing OK. I’m sure the citizenry there objects to bailing out their banks. That seems to be the commonality: everyone’s government is overpaying the banks.

But the difference is, in the USA ordinary people are up to their eyeballs in debt with no way to pay it, and no security if they have their stuff taken away.

We have to think of the banking economy and the real economy separately. Actually the former can get along without the latter, or at least with new banks replacing the old failed ones. Banks are businesses. When they fail, let them fail. That’s the lesson we all know but cannot seem to get out governments to execute.

We all need to throw the bums out and replace them with new bums, who will work for us and not the banks. The next election may be too long to wait.

Anonymous says:

“The mood was very confident, but at the same time I was told order books six-nine months out showed a precipitous fall in activity.”

That is still better than not having your order book full now.

PeeDee says:

I had a long conversation a couple of weeks ago with a senior Japanese banker who basically said the same thing. I was stunned by the IP numbers; no precedent etc. He was much more sanguine about the drop, saying that corporates had recognised a budding inventory problem and in effect everyone downed tools. He was also not worried about the ripple effects. The job security in those heavy industry companies is high, personal savings are high; so the hit is taken at the corporate earnings level rather than by the worker/consumer.

Guthman says:

Much of the stimulus in the US merely counteracts local and state tax increases. In fact, here in NYC the city tax/fee increases are bigger than what I will receive extra from the Feds. The stimulus in
Germany is pretty much net.