Auerback: How Do You Say “Hypocrite” in German?

By Marshall Auerback, a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator; first posted at New Deal 2.0.

Before throwing rocks at the U.S. for its spending, Germany should take a look at its own crumbling glass house.

Okay, I did a few years of German language study, so I know that the real word for hypocrite is “Heuchler”. But when I read the latest guff from Germany’s Finance Minister criticizing America’s economic policies, I’m afraid that Wolfgang Schauble’s name immediately sprung to mind for a substitute. In an unusually undiplomatic manner, German Finance Minister Schauble criticized the U.S. Federal Reserve’s recent decision to undertake another round of quantitative easing, arguing that it wouldn’t help the U.S. economy or its global partners.

He could well be right. We’ve argued much the same against “QE2″. Where we draw the line is Schauble’s subsequent comments from the same article:

Germany’s exporting success is based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand. The American growth model, by comparison, is stuck in a deep crisis… The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base. There are many reasons for America’s problems-German export surpluses aren’t one of them.

No crisis in Europe? The threat to the euro, the establishment of a bailout facility, the involvement of the IMF, these were all figments of the market’s collective imagination? Even Goethe is unworthy of such flights of imagination!

One thing is clear from the remarks that continue to emanate from Germany’s policy makers, including the latest from Schauble. They do not understand basic accounting identities. They fail to see any kind of relationship between their own export model and their trading partners.

It is ironic (and more than a touch hypocritical) that Germany chastises its neighbors, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits.

It’s even more extreme within the euro zone proper. The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbor. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”. It is hardly worth pointing out that these stringent conditions were largely the creation of former German Finance Minister, Theo Waigel, or that Germany itself was a serial violator of the so-called “Stability and Growth Pact” throughout much of the 1990s and early 2000s.

That history aside, the dirty little secret of the European Monetary Union is that it locked Germany’s main export competitors into the monetary union at hopelessly uncompetitive exchange rates, thereby entrenching Germany’s export dominance, and its selfish, mercantilist model.

Germany’s policy-making elites are unprepared to acknowledge any of this. Symptomatic of the current government’s blindness is its agreement to extend the temporary bailout arrangements with the euro zone and make them permanent as a quid pro quo for the EMU nations achieving “fiscal discipline … to bring deficit and debt onto a more sustainable path.”

It is more than stating the obvious to note that the only reason the euro has not blown apart in the past few months is because the European Central Bank, contrary to the wishes of Germany’s policy-making elites, has continued to backstop the PIIGS‘ debt, thereby preventing an even broader economic/financial calamity within the European Monetary Union. How else does a fundamentally insolvent nation like Ireland survive with a budget deficit to GDP ratio of 32%?It could abandon the current system or put the capacity in place to deal with asymmetric demand shocks (that is, a unified fiscal authority) the European Council. But at the behest of Mr Schauble’s German government, it has instead just introduced measures which will make the situation worse both in the short-run and in the medium-term, when the next negative demand shock arrives.

The entire European Monetary Union structure is a mess. The euro zone members are all trapped within this monetary monstrosity, Germany included. Germany might occupy the penthouse suite, but it’s the penthouse suite of a roach motel. The EMU was conceived under profoundly anti-democratic circumstances (the German voters never had a chance to vote by referendum on whether to abandon the Deutschemark in favor of the euro), so it isn’t fair to extend the charge of hypocrisy to the nation as a whole. But the German people have been significantly ill-served by elitist technocrats such as Wolfgang Schauble. As one of the architects of European Monetary Union during his time under the Kohl Administration, he at least bears some responsibility for this abominable fiscal/monetary halfway house, which serves nobody’s interests, Germany included. Herr Schauble would be on much stronger grounds to critique U.S. policy making if he had the guts to acknowledge this and try to sort out what he helped to create before hypocritically lecturing Americans on their profligate ways. Our “sins” enable them to sustain their export juggernaut.

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  1. Scott

    Dear Mr. Schauble,

    I have $9000 in student loans and $6000 left on my (German) car loan. Obviously Europeland’s problems are all my fault. I’ll be waiting for Interpol at the condo I rent.


  2. Leif

    Trade is supposed to be a two-way deal: I give you some of my stuff, you give me some of yours. It is in no way China or Germany’s fault that the US has only IOUs and BS to trade. US can’t compete against either low labour low currency China or high labour high currency Germany. Who’s fault is that?

    And how does Auerback jump from Scahauble’s statement to ‘No crisis in Europe’ rhetoric? Schauble among many Europeans are in a tizzy over Euroland troubles, however small they may seem in comparison to those of the US.

    And yeah, the Euro countries that followed the US model are in deep. They will have to be fixed. And it will be Germany that pays for it in the end.

    1. charles 2

      Germany and China cannot trade “BS” against goods and then complain that “BS” has no value. If they don’t like “BS” and think that the terms of the trade are not favorable, they should just stop trading. Nobody forces then, they are not an american colony.

      1. Leif

        OK the ‘BS’ was a cheap shot. I admit as a German born Canadian that America still has a gigantic appeal across he globe, all it would take is a spark of compelling ideas and products to draw the world back into the American sphere. It is just not happening right now.

        When a conservative German minister feels compelled to slam US policy, that’s a bad sign for the US. German conservatives (CDU/CSU and especially FDP) used to consider the US economic stance the answer to everything that ails Germany.

    2. Scott

      So don’t bail the PIIGS out.

      Of course, then everyone will be broke, and no one can afford fancy German imports.

      Of course, the PIIGS bailouts are an indirect way to save the German and French banks who made absurd loans to all us stupid borrowers.

      So again, don’t bail the PIIGS out, and see how that goes.

      Germany and China have EVERYTHING to lose. What are they going to do, stop selling us stuff we don’t want? Stop exporting to everywhere else and allow some local businesses to return?

      The average person in USA/PIIGS-land has already hit rock-bottom. We’ll save a place for you in the soup line.

    1. anon

      US spent more than 2 thrillions on military and wars in the last 3 years. One defence official testified in congress that 2/3 of war budgets(more than a thrillion) for Iraq/Afghan were spent on foreign ‘security contractors’. It is this type of overconsumptions that contributed a great deal to US trade deficit and thus forcing trade surplus on others. The US should just cut this type of overconsumption deficits and move on instead of harrassing the whole world.

  3. Jim Haygood

    ‘Imagine’ … as John Lennon used to say. Imagine a world of no nation-states, with all trade settled in a universally accepted unit of account (say, gold or silver coins).

    Presumably some regions such as Germany would still export manufactured goods, embodying their particular skills. Others would sell natural resources and agricultural produce, as well as license intellectual property (e.g., the U.S.). Still others, relatively uncompetitive in anything, would turn autarkic (e.g. Cuba, North Korea).

    An artificial regime of chronically misaligned fiat currencies makes it difficult to discern where mutually-profitable trade opportunities actually exist.

    All claims by fiat currency issuers that their irredeemable paper is misvalued are inherently hypocritical. Legal tender currencies derive their value at government gunpoint.

    ‘How many legions has the pope?’ as the old saying goes. Bobby Zoellick admitted today that Bretton Woods III needs a gold anchor. He’s right. All else is idle chatter.

    1. Daniel de Paris


      Agree 100%. Could not say in better words. Currency matters are such a serious one that they can not let to public authorities.

      Markets, the real ones, and net savers, the real ones, will arbitrate the last word as Robert Zoellick has indeed courageously prognosticated. A bit ahead of the crowd.

      1. Jeff65

        A hard money standard is not the answer.

        Any government that has to ask permission of a minority group in order to implement public policy is not a democracy.

        I’m a net saver but can see further than my own interests. A lot of changes need making but this is not one. Governments needs to retain monetary sovereignty.

      2. frances snoot

        Is everyone really going to ignore central bank liquidity as represented by the sdr-synthetic? The barnacles on the ship aren’t the problem seeing as most will be scrapped off.

        1. frances snoot

          Whoops: that would be scraped; like the nation/state ideal and domestic bank liquidity.

          All these little problematics just lead to the conclusion already seeded for us by men like Robert Mundell.

          1. Jason Rines

            I understand the wise owl icon. The problem with SDR is going to be a new currency issued by decree. This works as Alexander the Great demonstrated (and others) but it is a matter of timing.

            When trust is at an all time low, governments must increase the vocal participation rate of the citizenship first, in other words democracy or otherwise the fiat by decree is met with complete revulsion. The forced supply chain participation will work only for a couple of years before it plummets and the mule of production wanders off into the desert.

            The real global debate should involve the citizenship that at this point is ready to take matters into their own hands.

            Debate is a feature of democracy. Start there with conceptual level thinkers about such ideologies as abundance over scarcity, carrots to incent supply chain participation over fear, the stick and gimmicks.

            The world needs a value proposition. That means the innovators package and sell micro-caps to the Golden Calf crowd and the Golden Calf crowd avoids the physical pain of decentralization the hard way. That at least must happen in the West.

            The East is evolving their banking system and the West should get a clue that the rope sold to them was back-up contingency planning, a plan B now being executed. Evolve forward to create the global opportunity to benefit and decentralize in a healthy fashion for growth! But I am a dreamer so I wager we get a mixed bag even with the best intent and efforts.

            The alternative of not doing this democratic function with the public is to have global fireball party and creative destruction dwarfing everything else. Choose wisely Kingmakers, you can’t take that money with you and a lot of you gents are in your eighties. I am not familiar with moon bases or permanent underwater cities, your children just might want to experience a non-glowing global playground.

          2. frances snoot

            Owls may be wise or they may be fooled. It depends on the mousie’s point of view and power subordination. The world we greet each day is controlled by narrative, but the world of nature is not so easily maintained by words alone. It may feel like mice being played with by a very large cat, but the odds are oftenchance in the mouse’s favor. For nature sees to both interests, the mice and the owls.

  4. alek_a

    Germany is moving more towards the austrian money system while the monetarists, like the above author, demand they get back in line.

  5. JD

    Really gold? In Which Bob Zoellick Makes His Play for the Stupidest Man Alive Crown

    The last thing that the world economy needs right now is another source of deflation in a financial crisis. And attaching the world economy’s price level to an anchor that central banks cannot augment at need is another source of deflation–we learned that in the fifteen years after World War I.

    Which is why Bob Zoellick says that we need it.

    Alan Beattie watches the intellectual train wreck:

    Zoellick seeks gold standard debate: Leading economies should consider readopting a modified global gold standard to guide currency movements, argues the president of the World Bank. Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says a successor is needed to what he calls the “Bretton Woods II” system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971. Mr Zoellick, a former US Treasury official, calls for a system that:

    is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account…. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values…. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

    They do not. They simply do not. That is not true. Markets are using gold as a speculative asset and a hedge. They are not using it is a medium of exchange, a unit of account, or a safe store of nominal value.

    He really may be the Stupidest Man Alive.

    Alan Beattie politely says:

    Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks…

    1. i on the ball patriot

      The real anchor for monetary policy that is lacking is integrity. The usurious central banks and the deep senior capital pool scum that own and control them are loving all of this dip shit divisiveness that their Mr. Global Propaganda creates and promotes and the profit so handsomely from.

      Out of the boxes now kids, smash the molds, and kill the mold makers …


      “This is why the country list above doesn’t mean what some may think. The institutions aren’t national. The list only indicates that the banking establishment has a permanent parasitic stake in those countries to churn their populations under the Fed’s debt system. All of the listed institutions are global in nature. Together with hedge funds and their other buy-side buddies, they have power over nations. Like any corporate institution, banks drive earnings per share (EPS) by expanding and leveraging their balance sheets, which for banks means putting everything else in more debt. So these cartel banks work to expand their territorial control beyond their national borders to put other populations in debt. This is a mathematical requirement of exponential growth enforced by the private capital system. The eventual end state of this dynamic is one integrated, global banking empire. It’s only a matter of time before their collective balance sheets (plus the large Chinese banks now that the cartel is colluding with them) control the rest of the world if people don’t awaken and choose to put a stop to it.”

      Stop the intentionally promoted bickering now dear suckers, and focus.

      Deception is the strongest political force on the planet.

      1. i on the ball patriot

        “and the profit so handsomely from.”

        CORRECTION: “and that they profit so handsomely from.”

    2. DownSouth

      “Bob Zoellick Makes His Play for the Stupidest Man Alive Crown”

      First the World Bank, in conjunction with the IMF, cooked up the Washington Concensus. Then it named Paul Wolfowitz, preeminent neo-con and principal architect of the Iraq War, as its president.

      So when it comes to the World Bank, Zoellick’s got some pretty stiff competition for “Stupidest Man Alive Crown”

    3. attempter

      It’s certainly a stupid idea unless you’re a bankster or a bank flunkey, as Zoellick is.

      The basic MMT idea (which is just the old greenbacker idea, and just as correct today as it was in the 1870s):

      1. Direct government issuance,

      2. toward economically productive goals;

      is going to get more and more traction. So bankster-commanded goldbuggery will have to enter the fray.

      That, I suppose, is the role Zoellick is playing here.

      1. DownSouth


        I’m about 100 pages into The Populist Moment.

        It’s a fascinating read, and eminently germane to what’s going on in the world today.

        I stumbled onto this in Milton Friedman’s Capitalism and Freedom yesterday:

        In retrospect, the system (gold standard) may seem to us to have worked reasonably well. To Americans of the time, it clearly did not. The agitation over silver in the 1880’s, culminating in Bryant’s Cross of Gold speech which set the tone for the 1896 election, was one sign of dissatisfaction. In turn, the agitation was largely responsible for the severely depressed years in the early 1890’s. The agitation led to widespread fears that the United States would go off gold and that hence the dollar would lose value in terms of foreign currencies. This led to a flight from the dollar and a capital outflow that forced deflation at home.

        It’s funny how in Friedman’s delusional world, everything can be construed to be the fault of the under classes. The political and economic overlords are always as pure as the driven snow.

        Friedman fails to mention that this agitation happened during the first Gilded Age, when, as Bill Moyers put it, “Big Money bought the government right out from under the voters:”

        In their magisterial work on “The Growth of the American Republic,” the historians Morrison, Commager, and Leuchtenberg describe how in that era “privilege controlled politics,” and “the purchase of votes, the corruption of election officials, the bribing of legislatures, the lobbying of special bills, and the flagrant disregard of laws” threatened the very foundations of the country.

        “Great wealth was to be gained through monopoly, through using the State for private ends,” said Mark Hanna. “It was axiomatic therefore that businessmen should run the government and run it for personal profit.”

        Seeing the world through such a lens is the only way one can explain Friedman’s statement. And it is an unspeakable American tragedy that this world view has once again come to dominate both the Republican and Democratic Parties.

        1. DownSouth

          I’d add that Europe’s financial and economic overlords, along with their mouthpieces like Wolfgang Schauble, also look at the world through the same lens as Milton Friedman and Mark Hanna.

        2. SidFinster

          I am just a housecat, but I am not sure the evils you rightly assign to the Gilded Age are unique to (or even correlated to) gold-based systems.

          Otherwise, we would have gone deaf from the sound of our overlords clamoring for a hard money standard.

          1. Toby

            I know Six Dinners Sid, a very famous house cat, but have never heard of SidFinster. However, SidFinster is a cool name for a cat.

            Since this is Learn a German Word Day, for those who don’t know, Finster means darkness, or darksome, and other such moody blacks.

          2. Leviathan

            Bugs Bunny: Oh, Finster! Oh, Finster, baby!
            [Sees Finster trying to get the money]
            Bugs Bunny: Oh, there you are, you naughty baby.
            [Shakes Finster]
            Bugs Bunny: How many times I have told you not to play with that dirty money? We’ll just have to get hims all tidied up.
            [Puts Finster in the washing machine and turns it on; takes him out, covered in suds]

          3. DownSouth


            Money is one of those perennial problems that plague mankind.

            It is entirely political, and that’s why the same problems that plague politics plague money.

            Placing the institution of a gold standard into the realm of the sacrosanct is a utopian solution, as is amply demonstrated in The Populist Moment. Friedman realized this, but in its place proposed another utopian solution, monetarism.

            There are really no simplistic solutions to resolve the conflict between the various interests in society. Previous utopian solutions, such as capitalism and Marxism, and the gold standard, have only ended in tears.

            Perhaps Reinhold Niebuhr said it best: “Any modern community which establishes a tolerable justice is the beneficiary of the ironic triumph the wisdom of common sense over the foolishness of its wise men.”

            “In fairly honest democracies,” Niebuhr continues, the under classes see “the possibility of organizing both economic and political power to match that of the more privileged classes” to achieve some equitable distribution of resources.

            Friedman would rob the under classes of even that. There’s nothing new or innovative in Friedman’s thought, only reactionary. Friedman’s statement harkens back to this statement the Spanish conquistadores read the Indians:

            So their Highnesses are kings and lords of these islands and land of Tierra-firme by virtue of this donation: and some islands, and indeed almost all those to whom this has been notified, have received and served their Highnesses, as lords and kings, in the way that subjects ought to do, with good will, without any resistance, immediately, without delay, when they were informed of the aforesaid facts….

            If you do so, you will do well…

            But, if you do not do this, and maliciously make delay in it, I certify to you that, with the help of God, we shall powerfully enter into your country, and shall make war against you in all ways and manners that we can, and shall subject you to the yoke and obedience of the Church and of their Highnesses; we shall take you and your wives and your children, and shall make slaves of them, and as such shall sell and dispose of them as their Highnesses may command; and we shall take away your goods, and shall do you all the mischief and damage that we can, as to vassals who do not obey, and refuse to receive their lord, and resist and contradict him; and we protest that the deaths and losses which shall accrue from this are your fault, and not that of their Highnesses, or ours, nor of these cavaliers who come with us.
            Requerimiento, written in 1513 by jurist Juan López de Palacios Rubios of the Council of Castile

        3. attempter

          It’s a great book, ain’t it?

          It not only gives a good, readable history of the movement, but is by intention trying to give a generic template for movement-building and building an alternate political party.

          The two basic premises:

          1. The movement has to be built first, and the party can only be built on that foundation.

          2. The movement has to center on a constructive, preferably economically constructive, action. This characteristic action is then the basis of the politics, the soil out of which that plant grows.

          My ideas center on decentralized food production (and economic relocalization in general) as this action.

        4. Siggy

          “In retrospect, the system (gold standard) may seem to us to have worked reasonably well. To Americans of the time, it clearly did not. The agitation over silver in the 1880’s, culminating in Bryant’s Cross of Gold speech which set the tone for the 1896 election, was one sign of dissatisfaction. In turn, the agitation was largely responsible for the severely depressed years in the early 1890’s. The agitation led to widespread fears that the United States would go off gold and that hence the dollar would lose value in terms of foreign currencies. This led to a flight from the dollar and a capital outflow that forced deflation at home.

          It’s funny how in Friedman’s delusional world, everything can be construed to be the fault of the under classes. The political and economic overlords are always as pure as the driven snow.”

          Hey Down South, where’s the underclass in that little blurb?

          Strikes me that you’re just hell bent to kick on Milton Friedman’s dog. Why for?

          As to Herr Schauble, he shouldn’t be throwing rocks, but then, aspersions aside, there is a bit of biting truth in his comment.

          Now Mr. Zoellick is floating a ballon, testing the windage if you wish. Something needs to done about the international wage rate differentials and the fact that several nations can’t pay on their external debt. All the while we have a remarkable bull run in gold and other precious metals. Commodities are heating up and there is the early warning of devaluation for the dollar.

          What’s the common factor/s here? Fiat currency, fractional reserve banking, rampant unprosecuted fraud and a lot of dithering about what should be done to recreate king dollar. There are such delights as; ‘this is a democracy, you don’t do such things in a democarcy.’ Well Well, that contract for government that we call our Constitution calls for a Federal Republic. One man one vote isn’t in that little beauty, what is in there is the recognition that there needs to be equity between the interests of the rentier and landlord classes. A bicameral legislature, an admnistration and a judiciary. Moralisms and religion are set aside and a rule of law is established. You gotta love it. It’s simple it will and for the most part has stood the test of time.

          But then we have all this new stuff that is really old stuff that now holds sway. There was a time when we were a nation of 150 millions, today we are 300 millions plus. We were more a republic when we were 150 millions than we are today. Today we are a veritable banana republic.

          Reinhart and Rogoff make a very cogent case that it is unsupportable debt that brings about financial crises. We are threshold to a level that has generally proved to be a tipping point, a point of inflection from which there is no return. On the other hand, time is a one way road, we’ve not yet figured out how to go back. It’s a lot like you can’t go back home, because it isn’t there any more.

          QE is printing money, helicopter Ben says so! Print money and you devalue it, that’s what helicopter Ben wants to do! Why, it’ll eventually create jobs by making our wage rates more competitive. But then will it? There’s always a work around. And the competition will find a way to maintain their edge.

          So, to whom shall we award the hegemony empty bag?

          And please stop kicking on Milton’s dog, he didn’t champion profligate money creation and unprosecuted fraud. Even libertarians require that there be laws and that they be rigorously enforced. But then we seem to be agreeing to disagree.

          1. DownSouth

            Siggy said: “Hey Down South, where’s the underclass in that little blurb?”

            I very much recommend reading The Populist Moment, and then I think you might understand “where’s the underclass in that little blurb.”

            Perhaps this little snippet will provide a glimpse of insight:

            It was in such a non-ideological milieu that the nation first encountered the political issue that was to transform public dialogue in the 1890’s—-the “financial question.” The importance of the issue can scarcely be exaggerated. How money was created, and on what basis it circulated, defined in critical ways the relationships of farmers, urban workers, and commercial participants in the emerging industrial state. The answers would go a long way toward determining who controlled the rules of credit and commerce, who shared in the fruits of increasing American production, and, ultimately, how many Americans obtained that minimum of income necessary to ensure that they lived lives of some dignity. With the stakes so high, all questions about the currency were clearly not of equal weight. One of the weightiest concerned the origin of money. Whether the government issued money, or whether private bankers did, shaped the precise forms of finance capitalism to a telling degree. The resolution of this issue might well determine which occupational groups had a measure of influence over their own economic future and which did not. How much money circulated also was important—-in terms of price and debtor classes. Central to the whole issue, of course, was a clear definition of money itself. Was it gold? Gold exclusively? Silver and gold? Did currency include paper money?

            These matters tended to be discussed by monetary conservatives in rigid, moral terms. Their answers were short and clear, if often inane. It was an article of faith for them that a proper monetary system had to be based on the gold standard. Yet simple faith was not enough to win the day for hard money; the debate never seemed to go away. The currency question erupted in each decade and often reached levels that soared beyond simple morality into new and surprising realms of social, economic, and political philosophy. The stakes were high because ultimate answers, if ever obtained, would define the basic economic ground rules for American society.
            –Lawrence Goodwyn, The Populist Moment

          2. DownSouth

            • Siggy said: “And please stop kicking on Milton’s dog, he didn’t champion profligate money creation and unprosecuted fraud…”

            That simply is not true. As I pointed out to you yesterday, Friedman championed “profligate money creation,” certainly not to throw a lifeline to the little people, but most definitely to bailout imprudent and insolvent banks:

            Prior to October, 1930, there had been no sign of a liquidity crisis, or any loss of confidence in the banks. From this time on, the economy was plagued by recurrent liquidity crises.


            As we have seen, one of the major reasons for establishing the Federal Reserve System was to deal with such a situation. It was given power to create more cash if a widespread demand should arise on the part of the public for currency instead of deposits, and was given the means to make the cash available to banks on the security of the bank’s assets…

            The first need for these powers and hence the first test of their efficacy came in November and December of 1930 as a result of the string of bank closings already described. The Reserve System failed the test miserably. It did little or nothing to provide the banking system with liquidity, apparently regarding the bank closings as calling for no special action. It is worth emphasizing, however, that the System’s failure was a failure of will, not of power. On this occasion, as on the later ones that followed, the System had ample power to provide the banks with the cash their depositors were demanding. Had this been done, the bank closings would have been cut short and the monetary debacle averted.
            –Milton Friedman, Capitalism and Freedom

            • Siggy said: “And please stop kicking on Milton’s dog, he didn’t champion…unprosecuted fraud.”

            You’re right there. It wasn’t until the next generation of the Chicago School—–Gary Becker and Richard Posner—-that they got around to that.

            But we’ve also had this conversation once before on this thread.

            There was also a superb, and quite heated, debate between Richard Kline and john c. halasz regarding the law, its interpretation and enforcement on that thread that goes well beyond your legalistic point of view. You might want to give that a look.

    4. Jason Rines

      Not Stupidest Man Alive but certainly he is leaving out something important about going one step back and that is the evolving two steps forward simultaneously.

      Since PM’s are being used as a hedge, the problem with EFT’s is now trust. To restore it, the PM’s should be stored at local banks (28 day bonds too) that the investor can see to believe. That confidence measure is needed but only in the short to medium term.

      But don’t stop there because the liquidity from the bankers is important. So launch a Peer-to-Peer network of individual bankers that compete at the national and local level. This network would also prevent surplus funds leaking overseas and tech can dual as a mechanism to speedily detect underutilized value. The individual bankers have an itch for growth and the easy money is heading out the window, so they would fund something that gets them returns (little is better than nothing) as long as B teams do the fiscal policy work. Bankers are bankers. Let’s not attempt to make them politicians.

      The West has a low capital base to start with to reseed so let’s accept that reality, make the cuts to the non-productive, determine underutilized value and increase the labor participation rate. The motivated will take a hand up from the producers and the rest can eat wheat pasta and yellow cheese rations, stay warm but little else. Vote buying and selling are like loans. Nobody puts a gun to the head. But a true value proposition that measures value does need some work.

  6. One Salient Oversight

    I have to disagree with Auerback regarding the issues of Ireland and Greece. While it is true that neither nation can devalue its currency, this is no more problematic than the inability of California to devalue its currency.

    The logical assumptions behind the Euro are that each member nation is like a US state. Auerback and other critics of the Euro may disagree that this should be the case, but certainly the Europeans and especially the Germans understand it this way.

    Ireland and Greece may not be able to devalue their currency, but they are link to a large free trade area. Any increase in Eurozone or EU GDP will help Ireland and Greece to recover. Increased demand in Germany, France, Spain and other EU nations will increase the demand for Greek and Irish goods.

    Thus overall EU growth is the ultimate answer to individual EU nations.

    1. Yves Smith Post author

      The comparison between nations in the Eurozone and states in the US is overdone. It is accurate from a currency perspective, by you are implying far more in your usage above.

      The US has a taxing and spending authority. The Eurozone does not. Federal government spending is also far greater than state spending. I’m in high-tax New York, and my Federal income taxes are more than double my state and city taxes combined (and city income taxes are rare in the US, save real estate taxes). If you throw in payroll taxes, the level of Federal taxes is even higher. (Admittedly, states levy sales taxes, but many exempt essentials like food and medicine).

      The point is that the large federal tax and spending structure buffers local economies to a great degree.

      You don’t see the disparities between growth in US states that you do in Europe, and you don’t see states that are exporters criticizing states that are importers. The internal dynamics are very different. And the US does not require states to limit their deficit spending either, or impose austerity programs.

      You similarly do not have banks regulated solely on a state level, and looking to, say, California, for a bailout. And in the Eurozone, you observe the further complication that many nations, starting with Germany, have banking sectors that are too large relative to the economy for them to be credibly backstopped.

      1. i on the ball patriot

        What they all do have in common, regardless of their internal dynamics, is overwhelming debt servitude to the global central banking cartel that has corrupted and co-opted their governments.

        Deception is the strongest political force on the planet.

      2. a

        “The Eurozone does not [have taxing and spending authority].” The EU does (taxes are levies on the national government), and since there is a 90% overlap between the two, that’s not so bad.

      3. Ignim Brites

        “The point is that the large federal tax and spending structure buffers local economies to a great degree.” This is the crux of the argument because otherwise one would say that high Federal taxes make the US currency zone less optimal than the European currency zone. And frankly if the relative level of state and federal taxation were reversed would that really be harmful for the individual states. Seems like that would provide them with more opportunity to use government spending to prop up or advance their economies. One only has to look at the relative prosperity of the DC area vs the devastating unemployment in the interior CA cities now to doubt that the federal government buffers local economies.

        “You don’t see the disparities between growth in US states that you do in Europe”. Is this really true? Seems like states like Florida, Texas, California, Arizona, Nevada have grown spectacularly over the last few decades. Michigan, Ohio, Indiana?? And in the current downturn seems like CA, Florida, Arizona, Nevada are suffering much worse.

        “US does not require states to limit their deficit spending either, or impose austerity programs.” Certainly you remember Gerald Ford’s response to New York City’s request for Federal assistance. Do you think CA or NY will easily get a bailout from the new Republican congress? Will the Treasury and the FED be able to backdoor a bailout with Ron (Start a Revolution) Paul looking over the FED’s shoulder. New York and CA are quite likely going to come to conclusion that secession and currency sovereignty is better course for them.

        1. Yves Smith Post author

          NYC was asking for assistance over and above normal countercyclical spending. He was denied a SPECIAL request, not ut off from ordinary funding.

          Remember, there are quite a few social welfare programs (think of food stamps) where payments automatically increase in time of stress because more people sign up for them.

      4. pebird

        Also, language, family and culture acts like a natural internal emigration constraint in Europe, whereas in the US there is higher labor mobility across states.

    2. Marshall Auerback

      Overall EU growth is the answer, but how do you achieve that given the current institutional constraints embodied in the EMU, which the Germans in particular continue to champion. The analogy with US states is valid. The nations of the EMU are USERS of currency, like an American state, not issuers. The difference, if anything, works to the advantage of the US because the latter has a federal fiscal authority which could (in theory) alleviate the states’ fiscal crises via revenue sharing proposals. The EMU nations seem to be moving toward something like that via the ECB’s decision to backstop the national bonds, but the quid pro quo is continued fiscal austerity. It’s sort of like keeping a perpetually ill person alive on a drip. Overall EU growth, given the existing institutional constraints, largely can come through trade (not through fiscal policy, due to the SGP restrictions). The currency, however, is currently insufficiently low to generate a significant current account surplus with the rest of the world, which would enable countries like Ireland and Greece to pay down external debt. So the objective is clearly to enforce an internal devaluation in these countries, which effectively destroys income and reduces internal demand. It’s highly deflationary and unlikely to solve the PIIGS crisis (and besides, given the fallacy of composition arguments), it would be impossible for the entire euro zone to “internally deflate”).
      When some analyst says that a country like Greece or Ireland needs to lower its budget deficit to 3% of GDP, then looking at the sectoral balances one must ask, what will need to happen to the balances of the other sectors for this to take place? For example, in 2009, the Greek current account deficit was about -10% of GDP. The budget deficit including swaps was about -13% of GDP allowing the private sector to save at 3% of GDP. By adopting the euro the Greeks have given up their ability to allow their currency to depreciate to improve their current account stance. Without the option of depreciation it is hard to imagine that Greece can boost its exports (and/or reduce imports) to the point of a balanced or surplus trade account—a swing of 10% of GDP. If the Greeks are to lower their budget deficit to 3% of GDP to comply with the SGP limit, the private sector (firms and households) will need to run a deficit of -7% if there is no change to the current account balance.

      In other words, without a massive adjustment of its current account balance, the austerity plan can succeed only if the Greeks replace public deficits with private deficits, and private debt buildup at this rate would certainly be unsustainable. It looks like Germany’s highly extolled disciplined fiscal policy has been able to accomplish precisely this The low levels of German government debt have been offset by high levels of private debt which is (arguably) more unsustainable than public debt. Ireland, Spain and Portugal are in a similar situation. Greece, on the other hand, has allowed its private sector to operate with somewhat lower levels of debt as the government’s deficit has risen relatively more. Indeed, the “profligate” Greeks have less private debt than their neighbors have—which could place them in a better situation to withstand this crisis.

      1. i on the ball patriot

        Given the debt servitude to the global central banking cartel that has corrupted and co-opted their governments, overall EU growth in this parasitic and cancerous environment is not the answer.

        Deception is the strongest political force on the planet.

        1. jake chase

          IBall, Are you suggesting that M.A. is full of s**t? That crossed my mind as well. All this Modern Monetary Hocus Pocus is sustained by a new religion in which “growth” plays the role of the afterlife. Trickle down, extend and pretend, jam tomorrow never jam today. I cannot prove he is full of s**t but I feel it in my bones.

          1. Toby

            MMT has a lot going for it IMO, but on the ‘Growth Growth Growth!’ side I take issue too. However, if, alongside a move to a MMT definition of money and the government’s role in its creation, as well as a redefining of what 100% employment should mean (e.g. shorter working weeks), plus a deep revolution in education and a couple of other things too, we also manage to define a more reasonable arena for ‘growth’ — say environmental and societal health rather than ‘value free’ economic transactions — MMT is an important plank towards a different way of doing business.

            I’m very for it, those other points considered.

          2. i on the ball patriot

            In this present environment I would say that everyone’s motives should be examined carefully, especially as skewed to paycheck and institutions. There are a lot of good folks who bought the Profit Driven Vanilla Greed fantasy of the past forty plus years (an unsustainable usury fantasy that is long overdue its jubilee) and are still stuck in that ‘I want to believe zone’, and so want a return to the good old fashioned Profit Driven Vanilla Greed days.

            I believe they fail to see the depth of the tightening fascist stranglehold of the newer global central bank orchestrated Control Driven Pernicious Greed which papers over the need for a jubilee with the soothingly seductive bullshit of Mr. Global Propaganda. In many ways the old fashioned, wealth adoring, growth adoring, Profit Driven Vanilla Greed folks are now the biggest impediment to positive change, regardless of motive they keep alive an over layer of false hope. There are also a lot of pretenders mixed in that intentionally keep that false hope alive.

            Scamerican government is tanked, the global system is in the hands of the global central banking cartel and there is no way in hell that they will allow change from within though they will support keeping that dream alive. “Overall EU growth” in this environment with out regaining control is not the answer, it is folly.

            Read the Damon Vrabel Survey in my comment to Doug Terpstra below and realize that going with your instincts is going with your perceptions and there are a whole raft of co-opted institutions in scamerica that work to make you deny those instincts.

            Deception is the strongest political force on the planet.

          3. DownSouth


            I wholeheartedly agree with your critique of the ‘Growth Growth Growth!’ side of MMT. Being a witness to how consumerism swept Mexico, and what Mexico gave up in the transition, the closest analogy I can come up with is to compare consumerism to some powerful drug like cocaine.

            But is the religion of ‘Growth Growth Growth’ about to come face to face with reality? One of the principal congregations of the ‘Growth Growth Growth’ church, the International Energy Agency, released its latest report today. Oil demand is forecast to rise to 99 million barrels per day in 2035, compared to 84 million barrels per day in 2009, the report said. As a result, the price of oil is expected to increase to $113 per barrel in 2035 from about $87 currently. Can such sublime prognostications come true? I think not.

            But despite its obvious flaws, I also share your hope that “MMT is an important plank towards a different way of doing business.” The other main contender, Austerianism, is just as much if not more detached from reality as MMT, and amounts to little more than an exercise in self flagellation. Here’s a concise explanation of the competing creed, and I think you can easily see there’s only a slight connection to any this-world reality:

            The material means of production and the labor available have not increased; all that has increased is the quantity of the fiduciary media which can play the same role as money in the circulation of goods. The means of production and labor which have been diverted to the new enterprises have had to be taken away from other enterprises. Society is not sufficiently rich to permit the creation of new enterprises without taking anything away from other enterprises.
            –Ludwig von Mises, The ‘Austrian’ Theory of the Trade Cycle

            Just imagine, Mises wrote that in 1936, soon after the discovery of the East Texas Field when the nation was drowning in a sea of oil, official unemployment was 25% and a large percentage of the nation’s factories were shuttered. Go figure.

          4. Toby


            I’ve seen some ripe von Mises quotes in my time, but that one really curdles the innards!

            The problem with these silver bullets touted by all and sundry is they tend to be neither broad nor deep enough. Many people call for radical change, but only a very few promote a genuinely radical agenda. The AMI (American Monetary Institute) are very close to a programme that could, properly implemented, do a lot of good. We might then, across the planet I believe, address the ‘where now, what next?’ despondency that pervades most discussions I follow here, and elsewhere. There is so much to do.

      2. Greg

        Private debt? In Germany? Not consumer debt right? Effective corporate debt is also comparably low. I guess you mean the Landesbanken? That is a strange beast indeed. And they have been moribund for 20 years already. But it is not really private debt.

        Just as a side comment, I am not sure if everyone in this conversation actually grasps what the term accounting identity actually means. It is an identity. That means it just means the numbers will necessarily add up. It does not tell you ANYTHING about what causes the direction of the flows involved.

  7. Bernard

    what does Greece and Ireland make that other countries want? Being stuck under Germany’s rules for the EU is what got the PIIGS into this mess. as long as they are in the EU/the Euro as currency. How can anyone afford Germany’s exports anyway. No matter how much good stuff China and Germany make, who can buy if they are broke?

    This austerity will only screw the working classes while the Banksters will collect until there is no more. Seems to me that the rules are written to keep Germany happy at everyone else’s expense. Germany’s power to set the rules may be unquestionable, but eventually it seems to me they will force the PIIGS to go bankrupt just to stay in the same currency union with Germany.

    Germany appears to be the winner in this hold-up. Forcing Ireland and the rest of the “weaker” economies/countries to sustain German models that only work for the German way. Pay up or die, seems to be what i gather from the “We have ways of making you pay” dictum the German banks are enforcing with these iron clad rules which looked good in theory, but are destroying the PIIGS in reality as long as they stay with the Euro as there currency.

    holding someone to a “deal” which screws them over doesn’t sound like a good deal in the long run. it looks like Ireland will be destroyed for decades if it has to stay in the Euro and be as “German as the Germans.”

    Getting out of the Euro and back to their own currency seems to me as the only sane economic course. of course the Banksters would lose their part in the Ponzi scheme is Ireland were to leave the Euro. Germany makes out like the bandit here if Ireland has to continue to be the “sucker” as the rules of this play out. The only growth here is in Germany for German Banks by other countries using German bank rules. yuck!! another German takeover, this time by economic means.

    chasing money around in a circle so the German banks can take as much as they can before the Euro crashes and the cards fall where they will.

    so much for the European Community plans for a “Greater Europe free of German domination.” this is still a war by the German Banks, just not using regular guns and cannons like WW2.

    1. Maju

      “what does Greece and Ireland make that other countries want?”

      Before the 2007-08 crash, Ireland was big in the services sector, benefiting a lot from relatively low wages and English language fluency. People across Europe emigrated to Ireland for work. The Irish crisis can be explained by the global bubble burst to a large extent.

      Greece has not the advantage of language but has among the lowest wages (if not the lowest) of the Eurozone. Companies should be flowing there en masse to benefit of cheap labor, which is much more hardworking that the German slurs claim. A disadvantage may be its relative distance to the European center (transport costs) and, certainly, a culture of tax evasion (by the wealthy) that is not being addressed at all in the IMF-EU draconian adjustment package, which emphasizes budget cuts mostly almost exclusively against the working class but not increasing revenue by effectively taxing all those wealthy cheaters.

      “No matter how much good stuff China and Germany make, who can buy if they are broke?”

      Excellent point. Last year I argued: “Mr. Volksvagen, how are we going to buy your cars if we cannot pay the rent?” A problem in many peripheral EU countries is the high cost of housing, which has barely (if at all) decreased with the real state bubble burst and is not being corrected by any meaningful policy of public housing. Something that does happen in Germany in and other North European countries, which that way subsidize their working class, allowing not just for a more realistic and stable housing market, but also for somewhat lower salaries and increased internal demand. Budget cuts obviously do not help solving this problem at all.

      1. Leviathan

        “Ireland was big in the services sector, benefiting a lot from relatively low wages and English language fluency”

        You forgot the main driver of the Irish economy: it was a tax haven for British and American corporations who offshored their valuable assets and screwed taxpayers in their home countries.

    2. Jason Rines

      I couldn’t reply directly to you Frances Snoot, but correct in your general conclusions of cyclical human behavior. The mice are better negotiating but that comes after the pain reaches the inner sanctum first. “Those that do not learn from history are doomed to repeat it.”

      In-between the mice must learn to hedge for sucessful partial negotiations with some and complete failure with others, such is the way of things in a decentralization cycle. For while evolution is guaranteed, the level of pain to get there can only be mitigated, not fully prevented. That is what those in power do yet fully understand.

      The barber comes one way or the other, so our job as mice is to best pursue growth and a level playing field so ALL once again grow. That is a simultaneous loss mitigation and growth strategy, not ONE or the OTHER. Invest a couple zero’s out of seven or eight. Much better to let the young bucks have it restoring growth than other passionate endeavors to restore that equation.

  8. Doug Terpstra

    Now what are the odds of that: rigged trade degenerating into currency wars—or worse. It kinda reminds me of Greenspan’s Homer Simpson moment:

    “I found a flaw in the model that I perceived as the critical functioning structure that defines how the world works, so to speak … I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.” (Well yeah, working quite well for anyone that mattered until now. Now we need a new paradigm—bailouts.)

    Imagine that; greed does exist, and regulation could serve as a useful bridle in keeping a powerful economy out of the ditch. Hey, I just had another wiley thought: maybe industrial, trade, currency and labor policies could also serve some useful social purpose after all. We might be on to something here.

    1. i on the ball patriot

      Doug, your comment reminds me of a Damon Vrabel survey;

      “The Ben Bernanke Survey

      I’m curious for your opinion about why Ben is doing this. Reply in the comments below with your answer to this multiple choice question: Who is Ben Bernanke?

      1. Honest – he actually believes what he says. He’s still a Harvard kid getting gold stars on his homework as he repeats the fraudulent load of crap known as neoclassical economics.
      2. Dishonest – he knows he’s just protecting the powers behind the Fed system and furthering their global restructuring plan by threatening the politicians with more boom-busts if they try to serve the people.
      3. Insane – he’s not in touch with reality.

      Folks like Jim Rogers, Marc Faber, and Peter Schiff promote #1, the idea that he’s a clueless theoretician repeatedly making mistakes. No doubt there was a time when he was just a bright-eyed overachiever being pumped full of theory disconnected from reality. But these guys ignore Ben’s comments in Japan. He makes it clear that he knows exaggerated low interest rate policies cause major problems, i.e. he’s not ignorant, but he engages in them anyway! So again I ask what’s really going on?”

      More here …

      Doug, check out Damon Vrabel’s columns and videos if you have not already seen them, he is an awakened insider seeking redemption with excellent communications skills and has done a lot of great work (articles and videos) in explaining the machinations and dynamics of the global banking cartel and what we are all up against.

      I believe getting him some exposure if you can find the time is worthwhile.

      Deception is the strongest political force on the planet.

      1. Jason Rines

        I am pleased you posted this I On The Ball. Each Kingmaker will make individual decisions that will affect broad swaths of people. Those seeking redemption should have it, better to reseed than to burn the village entirely down to bring full justice to the perps. I may not like the way the world operates but I am a realist.

      2. Doug Terpstra

        i on the ball, so much Bernanke doubletalk in those links, I’d have to vote for #2: he’s fundamentally dishonest and not as verbose and practiced an obfuscator as Greenspan.

        Oh, wait; OTOH, (an economist weasel qualifier) I’d have to say 2 ‘and’ 3: he’s consciously dishonest but of course for noble reasons. He is a megalomaniacal messiah, the class that Chris Hedges calls “utopian ideologues”

        “These elite interpreters of globalism are the vanguard, the elect, the prophets, who alone grasp a great absolute truth and have the right to impose this truth on a captive people no matter what the cost. Human suffering [fraud, war crimes and genocide] is dismissed as the price to be paid for the coming paradise. The response of these propagandists to the death rattles around them is to continue to speak in globalization’s empty rhetoric and use state resources to service a dead system. They lack the vision to offer any alternative. They can function only as systems managers. They will hollow out the state to sustain a casino capitalism that is doomed to fail. And what they offer as a solution is as irrational as the visions of a Christian America harbored by many within the tea party.”

        So they know they are killing people but such things are necessary in the march of humna “progress”

        Here’s an interesting clip of Greenspan speaking frankly of crimes and fraud, as Bernanke squirms a bit in the adjacent chair:

        Any bets on forthcoming (backward-looking) investigations and prosecutions? Yeah, I thought not.

  9. Hugh

    All the world’s elites are incompetent. Most are criminal. The world economy is a tottering house of cards. They can’t fix it. They are too busy looting it. So when it collapses again, they will already have their stories rehearsed about hoocoudanode. But we see this crisis in the US over foreclosuregate. Then a week or two later another of the PIIGS stumbles toward the brink. After that, it’s the umpteenth bubble in China, and on and on. But at some point, someone won’t be fast enough, someone will make a mistake, more than one crisis may happen and play off of each other, and then everything falls. It is not if. It is when.

  10. mitchw

    If I had been able to forget about how Siemens wins contracts through bribery, or that Helmut Kohl still stays stumm, or about the massive bailouts of state banks in Germany, then I wouldn’t have instantly started laughing at Schauble.

  11. Leif

    What is astonishing in this whole debate is that German industry is heavily dependent on union and labour acquiescence, provides half-decent wages, vacations, 13 months salary, Kur (I’m certain you have no idea what that means) for anyone mildly stressed, and whatnot, socialism so to speak, but still manages to out-compete US in sales to China. And Euro is more overvalued relative to Renminbi than US dollar.

  12. Martin

    I strongly disagree with most of what the article says.

    First the claim, that the US CA deficit makes possible a German CA surplus is non-sense. As you point out yourself, the Eurozone as a whole has a roughly balanced CA. The mechanism, by which CA imbalances are supposed to vanish in the market based system is by movement of currencies. Obviously for the Euro overall this has worked.
    Another indication of that is, that in the 90s Germany was running CA deficits in most years, and only when the exchange rates were fixed, Germany started to run a CA surplus.
    So most likely the reality is, that Eurozone partner countries deficits’ made German CA surpluses possible, not US deficits.

    Then you make it sound, as if the Germans forced other countries to adopt the Euro. This is not the case. It is not quite clear for the historic accuracy, but a couple of months ago, again a French(!) bureaucrat came out and told, the Euro was a demand of Mitterand to accept the German unification. The Bundesbank was always against the Euro, as for the majority of voters. But if really the choice was Euro and unification or nothing, I think a majority would have voted for the former.

    And are the CA surpluses the result of predatory policy? Most likely not. (Apart from that, I still think it is more predatory to sell worthless paper for real goods than working for a low wage.)
    The introduction of the Euro meant, that suddenly all over Europe except for Germany interest rates went down a lot. This of course means, it is more attractive to invest in these other countries, and assets like houses, that are paid mostly on credit, increased a lot in value. As rising asset prices can develop an own dynamic easily, there is no wonder, that the introduction of the Euro produced bubbles in the former high interest countries.
    Unlike in China, in Germany (and Japan), the savings rates are not very high. For relatively to their peers fast aging societies, the savings rates are actually quite moderate. But in the case of Germany of course the fact, that neighbouring countries became more competitive due to their lower interest rates meant, that investment in Germany became temporary less competitive. This means, there is less investment in Germany. The CA surplus is the result of directing investments out of Germany into those countries, that only recently got low interest rates. There was no way other than capital controls inside the Eurozone to prevent what happened from happening.
    So don’t expect, that it will help countries, that are now in trouble a lot, if, lets say Germany, the Netherlands, and Austria leave the Euro blog. This will trigger a capital flight, just as the Euroentry provoked a capital infusion.

    The case of China is completely different. China (the state) bought Dollars without consultation with the US and the US didn’t get a lot from it at all. The US is anyhow the bigger country with the deeper capital markets. If you put the Eurozone and Chimerica into one bag, you are for sure not advancing your cause, because the German gov’t doesn’t have a reason to feel guilty on this issue at all.

    As for letting Greece et al. go bankrupt, the German gov’t was making the case the strongest, that one should allow them to go to bankrupt. But it was called unsolidaric, and the Greece demonstrated violently on the street for the right to pay their interest to the banks. Indeed even on this blog people claimed it racist to have the bankers and hedge fond managers take a cut on their underpriced Greek debt.

    1. Maju

      You are maybe correct in throwing some of the guilt of the problem onto France: France and Germany co-rule or at least co-lead EU in practical terms and the largest share of Greek and other Mediterranean debt is owned by French banks (with also important British and German shares too), so France financial sector would be worst hit by a chain bankruptcy in Southern Europe.

      However the euro monetary union clearly benefits Germany (and other NW countries such as the Netherlands) the most, and has caused massive hidden inflation in Southern Europe, reducing its competitive edge, which was largely based on low costs. In this sense Yves is correct, very much so.

      “… just as the Euroentry provoked a capital infusion”.

      I do not think there was any capital infusion with the euro. As I say it caused much hidden inflation. Most foreign investments in Spain for instance are pre-euro in fact (and some are leaving now). While Spain and Spaniards were surely for the monetary union (exchanging currencies is such a nuisance and Spaniards are blind Europeists), Spain was best before the euro in fact.

      “China (the state) bought Dollars without consultation with the US and the US didn’t get a lot from it at all”.

      China bought US debt… China is, at least to some extent, impeding this way US bankruptcy, which is what happens when nobody buys your bonds or buys them at a reduced price. Nowadays however China seems more interested in saving the EU than the USA (EU is a big market for China), and the EU, specially Germany, recognize in Beijing therefore a more sympathetic power (at least right now).

      I don’t think it’s a matter of blame games but if someone sells it is because someone buys, inside the EU and inside the world economy that the USA (and others) has so much favored, maybe somewhat thoughtlessly. A trade surplus always means a trade deficit somewhere else: it can’t be otherwise. So now everybody seems determined to expand their trade surplus with any tricks at hand, fair or dirty (or ambiguous). The US (and others’) credit bubble financed these inconsistencies but could not last forever, now it’s open financial war to see who can grab the greatest surplus.

      “… and the Greece demonstrated violently on the street for the right to pay their interest to the banks”.

      This is where I think you are totally misrepresenting the facts. Greeks have gone (are still going) to the streets to try to make the wealthy pay for a crisis that they understand they and not the Greek working class has created. The central issue, within the system’s parameters, in Greece is where should budget cuts be allocated and why is not effective greater taxation being imposed (if you lack money, you need to get it from somewhere, and the rich have already got away without paying for too long – in Greece specially).

      Of course, there’s also an outside-the-system part of these protests. More than 60% of Greeks long for a “genuine socialist party” which could put the country’s economy straight via state intervention, which is not (mostly) legal under current EU rules. That’s probably why they voted PASOK, who betrayed them as soon they got to power, and that’s why voters are sliding now to far-left parties, which are relatively strong in Greece: they basically seem to realize that there’s no hope under the EU-IMF rules and that something else (socialism) must be done instead. Of course, Greece is a too small country to survive on its own – that’s an unavoidable obstacle but maybe the only real obstacle now for a socialist revolution in Greece (it has to be a pan-European socialist revolution in order to work, and the situation is not ripe yet elsewhere).

      1. a

        “However the euro monetary union clearly benefits Germany (and other NW countries such as the Netherlands) the most, and has caused massive hidden inflation in Southern Europe, reducing its competitive edge, which was largely based on low costs.”

        Look, if the Greeks (or the Italians or the rest of the South) didn’t want to be part of the Euro, all they had to do was not lie about the magnitude of their deficits, and they couldn’t have joined, because they wouldn’t have qualified. Why is it so difficult for Anglo-Saxons to understand that the Greeks (and the rest) not only *voluntarily* joined the euro, they actively *cheated* to join the euro, by cooking their books, to the utter disgust of the Germans? The Germans *wanted* a small eurozone, with the worst performing member to be the French.

        1. DownSouth


          Could you really be so totally naïve as to where the real battle lines are drawn, and the reality of what is going on here? Or are you just a corporate shill?

          The financial and economic overlords of Europe, both German and Greek, are working hand in glove with each other to impose neoliberalism upon their respective countries, and upon Europe:

          The neoliberal model represents a globalization of class alliances. The wealthiest 5 or 10% on both sides of the border, those who control the economies and political systems, have more in common with each other than they do with their fellow citizens, and the resulting neoliberal policies reflect their interests. The elites enjoy increasingly strong institutional links, while the rest of us are left with less democracy, fewer economic options, more repression, increased poverty and less sovereignty.

        2. Maju

          The tolerance levels for deficits when joining the euro were set in Brussels (that is with full German, French and others’ acquiescence). Lenience towards Italy was openly acknowledged, I am unsure about Greece but the other GIPSI countries (better than PIIGS, right) were totally transparent and within the defined parameters. In fact, even today, Spanish deficit is better than most other European countries’ (its problem is brutal unemployment and relative lack of a solid productive economy not just based on tourism, real state speculation and such – related to a weak capitalist class in comparison to other EU countries) and in all local opinions it is being quite unfairly targeted by global speculators for artificial crisis generation.

          BBC ranked Spain as middle risk… but they did the same with Ireland. Instead Italy is high risk and is being mostly ignored, because they are a larger country in terms of population (votes) and GDP. And probably also because it’s being ruled by the conservatives (tending to fascist), as happens in all large European states these days. In fact some Spanish tories are bitching about Spanish economy in a very unpatriotic manner and without good justification just because they want to use the crisis to reach government again, no matter the cost for the country.

          In general entrance in the euro was largely “imposed” by the EU core (even if there was also support in most countries) and is being openly imposed on Central-East new EU members as part of their EU-adjustment package. However, due to real-life constraints most of them have no scheduled date for entrance into the Eurozone.

          Also remember that France and Germany were the first countries to cross the red line of 3% GDP deficit. They should have been fined but Brussels forgave them, setting an awful precedent for the lack of budgetary we observe more recently in time (but now justified because of the need for the states to invest in order to offset the crisis).

          The real problem is that all the Eurozone agreements were made in a fantasy world where Capitalist markets worked perfectly and states should stay apart from the economy. This we know is not a realistic approach but a totally failed model. States must at least on occasion intervene in the economy, and if member states can’t manouver anymore as they used to, it is responsibility of EU as a whole, specially the ECB to do so, devaluating the euro in order to compete internationally.

          EU gets no advantage whatsoever from having its currency as reserve reference in the international markets. It should not be too weak but certainly not as excessively strong as it is now. The euro must be devalued and mechanisms for state (or direct EU) intervention in the economy must be created. This is impossible with right wing governments everywhere, so we will have to wait to the next political cycle (starting in the next German and French elections surely)… however we can also have an European “Obama deception”: I do not trust that social-democrats are sufficiently lefty anymore but at least they are more pragmatic and less ideological, what is something.

      2. SidFinster

        The wealthy *should* pay more, granted. But how does one make them do so without capital controls?

        I think that is one reason why governments resort to soaking the middle classes; the middle classes have enough money to be worth taking, but not so much that they have offshore trust accounts and an army of attorneys and accountants to defend themselves and their piles.

        1. Toby

          Priority 1 in that noble pursuit should be to de-privatize money creation. That would be a good start; the government would be far less vulnerable to finance lobbyists.

        2. Jason Rines

          Amen. Finally down to the brass tacks SedFinster. The bigger and faster the empirical ambitions, the bigger the tax drain on the middle class. The seed corn was eaten up too by buying votes that are protracting the class warfare.

  13. Leif

    Isn’t it surprising how virulent the reaction is to any criticism from Europe to US economic policy, even more so than from China criticism. Europe’s strength seems to be the diversity of perspectives and potential solutions, and the global perspective. What happened to US as being in that role. Countries are trying to distance themselves from US the sooner the better.

    And internally, Europeans still will hit the streets to fight, nothing like that in US. There is just no fight left in ordinary America. The world moves on, America sits. There is higher immigration to Europe than to US.

    1. Hugh

      You are whistling past the graveyard. European elites are just as failed as American, Chinese, or Japanese ones. All that diversity of perspectives and potential solutions, and global perspective is just BS. How has that helped you with the euro, the French and German banks, the PIIGS, the UK, Eastern Europe? How did street demonstations work in France with the social security changes? How did they help in Athens with austerity?

      Many of us each know how rotten and dysfunctional our system is. You apparently are still clinging to your illusions that Europe somehow isn’t. Unfortunately, the same kinds of analyses that we apply to the US are also applicable to Europe. Sorry about that, but reality can be a bitch.

      1. Maju

        Believe or not going to the streets does help: it prevents the big bosses from getting too arrogant. Also, if everything fails (and IMO it will), it should set up the foundations of a new system, hopefully better, by revolutionary means.

        A people which does not fight is doomed. The USA did not achieve its independence by sending mails to the King, US African-Americans did not achieve civil rights bowing their heads like Uncle Tom. That way the only thing you can get is some crumbs… if master feels like.

        1. Hugh

          “Believe or not going to the streets does help: it prevents the big bosses from getting too arrogant”

          We need to be evidence based to understand what is happening and what is likely to happen. The big bosses, as you term them, are already terminally arrogant. You have only to look at current world economy and financial system to see that. As for street action, well, someday maybe, but these same arrogant bosses whose arrogance you seem to think has been somehow curbed still put over their policies despite street actions in both France and Greece.

          1. Maju

            I do not expect miracles from street protests and half-witted general strikes. All this is just part of a mid-term evolution. What I say is that, if Sarkozy is about to fall, is because he is going against the people. In the mid-run this can cause further revolutionary processes not just in France but elsewhere in Europe (Germany itself, where the communists are marching strong, is another reference to watch).

            But I do not expect the rulers, specially not right-wing ones with enough parliamentary support to bend to street pressure overnight. I expect them to be bent, starting with these protests and following with the next ones soon, etc. What I expect is resistance stands and organization to accumulate until eventual break point.

            Uncle Tom attitudes are useless, fight is the only way ahead.

          2. Jason Rines

            Hugh, you get it. At least from watching the riots in France, the protesters are steered to blame the current conservative in office Sarkozy that has the job of executing reality from a bankrupt system. No, no mention of 40 years of socialism and now the money has run out. Same as America which was operating as a social democracy run by a plutocracy.

            So much for making the big bosses feel uncomfortable Hugh, at least in France they were steered like cattle.

            Tea Party here had the right intent at first, but was steered into the GOP. No independent media backing means co-opt quickly, same as the Libertarian Party of the 1970’s. The only thing making the elites feel uncomfortable is the flow of information from the Internet. Unlike the 1930’s tens of millions of people now see the Wizard Behind the Curtain, that should tell the collective lot it is time to evolve into global democracy and bigger supply chain using carrots instead of the stick or face evolutions tidal wave. What it looks like to me is a kid putting up a trash can of a shield to stop it and it is just WASTING TIME.

            Being impetuous in these times will get you killed, Leif just hasn’t figured that out yet and nor has some others on this board. Seek the middle road and if it comes to down to basic survival (which I do hope it doesnt), learn the famous slogan of Bunker Hill.

      2. Toby

        Yes, elites of this rapidly crumbling system, even in Europe, are clueless robbers as you say, who cannot help but watch their baby die, but the story does not end there.

        I live in Germany where an interesting movement towards a citizen’s income (Grundeinkommen) has just begun to gain traction. A Kindergarten worker by the name of Susanne Wiest ‘handed in,’ via an Internet site, a suggestion for the government to consider. It received the ‘accepted’ stamp, and is now under consideration. It has since become the most supported internet-based petition/suggestion thus far of this programme. The green party have signed up to it, I believe. The petition was handed in yesterday, and the received a hearing in the Bundestag.

        (The blog, for German readers, is here: )

        In short they argue that paid employment is dead for an unacceptable proportion of the population, hence the call for establishing a base income, €1000 for kids, €1500 for adults. There is a report in PDF format written by a professor of economics laying out objections and their counterarguments.

        This idea dovetails nicely with MMT in my opinion, and has the appeal of pushing human dignity to the forefront, rather than money-as-wealth as a goal in and of itself, with the invisible hand sorting out all problems somehow. There is much more to this than I can possibly explain here, nor do I mean to claim this will ‘go all the way.’ I just wanted to point out that there is more to Europe, and Germany in particular, than the stale noises belched by the elites.

        1. Maju

          That’s great. However I must add that the typical Greek worker has to survive on half that amount (as salary) while the cost of life is not much lower than in Germany (“thanks” to the euro).

          In the Western Basque Country we have a similar system (impelled by the neo-communist left) but the amount given for adults is a mere 650 euros (per family, not individual) and almost nothing extra for children. It was established as social salary but now is again a mere undefined unemployment subsidy (i.e. not anymore a general right but a “privilege” whose need you have to justify). Anyhow, 650 euros is barely enough to pay for a modest apartment’s rent, so extra aid is often needed.

          In other parts of the state of Spain they have nothing like that: long-term unemployed (a lot and growing) are totally defenseless after their unemployment insurance is over (two years at best).

          All this, what you say about anything close to full employment being dead, which is true, clearly indicates that we need to change the productive system overall, in order to share both jobs and profits among all in an egalitarian manner that should see more leisure time for workers and nobody able without a job.

          This is nothing but what Paul Lafargue (founder of both Spanish and French Socialist parties) defended in his “The Right to Laziness”: an average working journey or five hours (or less, as mechanization has improved a lot since he wrote that) in order to produce all we need. Sadly his political heirs have forgotten his lessons and now social-democrat parties are nothing but liberal ones.

        2. Jason Rines

          Careful Toby, the model you describe is what is called Communism. The debates and political conflicts in Germany of the late 1920’s and early 1930’s were between Social Democracy and Communism. Social Democracy becomes Fascism. This is the model the U.S. is at now and was at in the 1930’s. The Communist Party had an office in NYC and a big listening audience.

          The solution is to stop taxing productivity and tax consumption. The oldest debate on earth surely must have been who or whom has the right to the fruits of production, the individual or the community.

          1. Toby

            Hi Jason,

            what is bubbling up in Germany along these lines (and probably elsewhere in Europe) has similarities with communism, but is not communism. The citizens income idea emphasizes dignity over and above money, and that aspect of it is something I wholeheartedly agree with. But I am also for a minimal state apparatus, a cultural focus on environmental carrying capacity, and a recognition that a very different wealth-distribution mechanism to wage-for-labour is needed going forward, where “wealth” itself needs an international debate. There are other changes I desire–e.g. in education–which I believe are also essential components of a transition to an improvement over the broken system poisoning us today. Looking only at economics or socioeconomics does not suffice.

            There are lots of ideas out there, not one of which is enough on its own: when I highlight one, there are many others in my head that must buttress it, reshape it, etc., for it to be helpful. But I try to keep my posts short…

    2. Jason Rines

      Read the Declaration of Independence. The first instructions from the Founders when tyranny emerged once again was to alter the government toward “a more perfect union”.

      The second set of instructions is to abolish. The revolutionaries were called “Abolishionists”.

      The American people are an armed society which means we are also far more polite as a citizenship than what DC may project in foreign policy (paying tax dollars to protect insiders overseas investments).

      While the schools history that glorify our history to the nth, the side benefit of that is Americans know they can fire the boss and will accept whatever losses are necessary to do so. That is why there is still a semblence of freedom but nihlism as well (which I believe Down South pointed out).

      But I hope it never comes down to the abolish phase. That will unfortunately be bad for the entire globe. View American citizens as slowly boiled rape victims as the wealth was mandraked East since Kissinger/Nixon forty years ago but certainly not hapless, just following our instructions in the hope that altering our government avoids bloodshed and that is exactly what the Founding Fathers attempted to do pre-1776.

      The attempt to alter just might be successful and mitigate losses and I am not merely talking about dollars and cents.

      Europe is in the worst position on the globe in regards to the game within the game geopolitically. I would recommend hedging physically away from the population centers or moving to Switzerland. You’ll have about five years to view the events unfolding but such a time period goes fast. Benjamin Franklin once wrote that “It is better to have it and not need it than need it and not have it.” Good words of wisdom from a solid international diplomat and Founding Father.

      History rythmes, so Germany is the new boogie-man eh? Unlike my descendents don’t expect mine to go on a killing spree so a a few hundred global bondholders avoid the haircut. This time, the world will glow if it does not find a healthy compromise so I work toward that end of loss mitigation. Let’s play fill in the blanks for a moment. Ready? BLANK global wars always global trade wars.

  14. Maju

    Yves: now I think you are addressing the real matter: Germany mostly “exports” (EU trade is exporting or rather internal trade?) to other Eurozone (and EU) countries, which are therefore in some cases bound to get into deficits. By demanding draconian fiscal responsibility and to keep the euro “strong” (high in comparison to other currencies), Germany is shooting its own foot because it’s destroying its own markets.

    Anyhow nothing of this was part of the public debate when the euro was implemented in 1999. Back then the economy was buoyant in all EU and, as there was already a well-established currency parity system, the euro looked a natural next step. Immediately after it caused (unreported) serious inflation in the weakest economies (inflation that did not benefit the local states in any way, unlike what may happen when you control the printing machine) and that’s a reason why some East European EU members are reluctant to adopt the euro now.

    Whatever the case it is not a matter of merely blaming Greece and to so-insultingly-called PIIGS: it’s a pan-European problem and the central countries (founder EU members minus Italy, plus maybe Sweden and Finland) are not blameless at all: monetary and market union has not been consolidated by a democratic confederal government which could maybe rule over all this chaos nor has been equalized by any sort of EU social policy. The main reason why many European citizens rejected the constitution (later imposed anyhow as Treaty of Lisbon) was because there was no bill or rights, including the much neglected social rights, in it nor sufficient democracy at EU-decission structures (nationalist feelings also played a role but the main reasons from the left were these).

    As I have said sometimes, different welfare policies have an economic impact by lowering the cost of labor where they are stronger and increasing it where weaker. If you have to pay a lot for everything (housing, healthcare, etc.), you also need to earn a lot. If these items are covered by the state to some extent, then you can sell your labor comparatively cheaper because you do not need so much money after all.

  15. Paul Repstock

    At this point the discussion, infact most of what we have been discussing on this blog, appears to be moot anyway. Or at bet a theoretical discussion. The Central European Banks flush from their windfall recovery from Ireland appear to have promtly shorted the Euro in large amounts..Take the money and run!!!

    As to JD’s incredulity about the World Bank’s statement re: Partial Gold Standard, and the warnings voiced by Mr. Beatie–Alan Beattie politely says:

    Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks…—-

    Do not expect that such concerns would alter their plans on bit. Such a maneuver at this time might solve Central Bank’s problems quite nicely..Gold ofcourse would need to be above $20,000 per ounce and totally illegal for private ownership. Then A would pay it’s soveriegn debts to B and on to C..etc..Greece and Ireland would as usual be left in the dust–Sooo??

    John Q. Public around the world would be shat upon..Sooo??

    All they really care about is maintaining stability///Status Quo

  16. Swedish Lex

    The interesting news point in Schäuble’s recent statements is the choice of languge and timing. A complete trashing of U.S. policy (whether you agree or not) plus right after QE II and right before G 20.

    Perhaps Schäuble has looked into his crystal ball and has seen not only 600 bn in QE II, but a lot more than that with the consequence that would imply across the globe, and, also, gridlock in U.S. politics until January 2013 that would leave the world’s leading power without leadership.

    Yes, the Germans are completely tone deaf on this issue and are not likely to change. So, therefore, the question arises what the Americans would be prepared to offer in return for the Germans finding trade balance religion (plus the Chinese)? And even there was something the U.S. could offer in return, would the U.S. political system be able to deliver on such a commitment. The new Congress looks like a place where things could get stuck eternally.

    1. purple

      The new Congress will find agreement in militarism and China tariffs. L Graham – Republican ‘moderate’ – spelled it out.

  17. DB Smith

    Mr. Auerbach’s screed is obviously biased and the fact that he offers no solutions to the problem he so venomously decries makes the entire post little more than an offensive rant.

    IMHO, based on having lived in Germany for nearly 15 years, America would be a better place for ordinary Americans if it was more like Germany.

  18. sean

    If the euro breaks up the new German Deutch Mark will appreciate substantially against the dollar while Irelands new currency will depreciate by around 40%.

    The economic demise of the EU peripheral countries is in fact depressing the euro versus the dollar.Whats complicating things for Germany is QE2 in the US and this appears to be the Germans short term focus.

    As I have said on another thread the Euro has no taxing powers and is dependent on intergovernment transfers executed by corrupt and undemocratic governments such as the one in power here in Ireland.
    So what rational entity would purchase euro bonds backstopping the ESF fund when the guarantee of capital and interest repayments is dependent on such governments?

    What may escape notice in disussion here and elsewhere is the palpable fear and growing anger in Ireland.There is now a hatred of politicians and bankers which is visceral and personal unlike the usual throwaway responses one hears concerning incompentent politicians.

  19. Jose

    America, for better or for worse, used to be a champion of free trade and laissez faire economics. In fact, it made good use of its growing economic advantage during some of the most crucial periods of modern world history, resulting then in healthy trade account surpluses.

    However, since 1975, it has run a trade deficit with the rest of the world without so much of a care. That is until now, when we have 1) a deep recession that is perceived to be hitting the USA harder than the rest of its trading partners and 2) a left leaning goverment.

    Thus, now it is the right time for cap and trade and “from each according to his ability, to each according to his need” rhetoric.

    How conveniently opportunistic. Nice try Americobama!

        1. DownSouth

          It comes as no surprise at all that you should cite Richard Bernstein to bolster your case. Richard Bernstein! Of all people! Bernstein, the quintessential neocon—-extremely bright, extremely articulate—-with extremely beguiling arguments expressly crafted to appeal to Americans’ sense of national pride and ego.

          Obama is getting hammered from both directions, from the right and the left. But the critiques coming from opposing directions are very different. Your critique is pure right-wing.

          Bernstein’s The Coming Conflict with China peddles his “China Threat” pop theory and “inexcusably advocates and rationalizes a kind of Pan-Americanism…”

          Bernstein’s Out of the blue: The story of September 11, 2001, from Jihad to Ground Zero “presents the facts and shows how the terrorists set out to attack America, the bastion for freedom and liberty for the world.”

          I’ve got one of Bernstein’s books, Dictatorship of Virtue: Multiculturalism and the Battle for America’s Future, sitting here on my bookshelf. So I’ll just cite a couple of quotes so people can make up their own minds about where he’s coming from:

          • The plain and inescapable fact is that the derived Western European culture of American life produced the highest degree of prosperity in the conditions of the greatest freedom ever known on planet Earth. The rich and the advantaged of our society will survive even if they are taught to believe something different. But to teach the poor and the disadvantaged that they can ignore the standards and modes of behavior that have always made for success in American life is more than a silliness. It is a lie.

          • It is time to reaffirm the greatest engine of genuine diversity that the world has ever known, which is the liberal-democratic society sustained by a set of concepts now dismissed as the narratives of the people in charge.


          The multiculturalist fortress is empty. We should not flee. The battle is ours.

    1. Hugh

      A left leaning government???? Where have you been the last two years? George Bush was the most conservative President we ever had. Then Obama and the Democrats came in and embraced virtually all of his policy positions, and even expanded on many of them. Yet there are still people out there who think he is a socialist! If so, does that make Bush a socialist too? We really need to stick to the facts, the actual records, and not go wandering off repeating whatever fact-free, ideologically-based, intellectually empty lines our elites have scripted for us. Republicans and Democrats are both corporatists. The Obama Administration is a continuation, not a rejection, of the Bush Presidency. The processes that have destroyed our economy have been going on for more than 30 years and have been championed by both parties. Buying into the lies our elites tell us is not going to help us see past them.

      1. Jose

        I didn’t say the current government caused the deficit. I said the anti free market rhetoric started conveniently now. Bush, for all his ills, was a true free market preponent and a “friend” from Europe.

      2. Jason Rines

        Correct, simply call it Mussolini Corporatism or Fascism. Grand military misadventure tends to follow and that is what is worth it for ALL parties rich and poor to consider. It is the age of some very powerful weapons.

        The creative destruction if it were to be unleashed in a new world war will have no true victorious winners this time. All lose. A nasty ending to the 300 year game of loaded Monopoly. Let’s evolve instead.

  20. /L

    Germany wouldn’t have single Euro in surplus if no one was willing to have a deficit.

    The basic firmament of EU is the free flow of gods and capital, there is not much the deficit countries in EU can do about German and others banks flooding them whit cheep capital to borrow so they will be able to buy German exports. And ECB rather set the interest rates suited for Germany than say Ireland.

    German Finance Minister Schauble is beyond imagination simple-minded.

    Over the last decades the prime positive figures from the developing world have been almost entirely by China, how would China have achieved that without the American deficit?

  21. Alex

    It seems like a round-robin of hypocrisy. Just a month ago, the U.S. was grandstanding about China starting a trade war through the devaluing of the Yen.

  22. charles

    Dear Marshall,

    Your post is interesting but omits the iritation of the
    Germans at previous ( as previous to this week’s events 0
    by the United States’s Treasury secretary ) to ploy them
    to the same effect as he has been trying repeatedly against
    the Chinese
    I think a few issues should be factored in:
    1) The full interview itself:
    Interview With German Finance Minister Schäuble
    ‘The US Has Lived on Borrowed Money for Too Long’,1518,727801,00.html

    2) The ‘double put’by Mrs Merkel after M Schäuble’extra-ordinary assault on the current American economic policy/ ies ?

    3) The highly instability and unpopularity of the ruling coalition in power right now in Germany. So no wonder
    they resort to the whipping hand

    4) The mainstream domestic perception of the United States’decline. Cover story of last week’s Der Spiegel last
    week. “Is the American Dream Over?”,1518,726447,00.html

    5) The governing in absentia over the Eurozone. Had the
    Germans not intervened in the Greek bail-out and the setting
    -up of the EFSF, which understandably they want to get rid
    of, even before 2013, to get the German taxpayer off the hook, words you can find repeteadly in the statements of Herr Schäuble and Frau Merkel these days
    6) The austerity vs stimulus debate is in full force now in Europe also, rightly analyzed by Irwin Stelzer in yesterday’s WSJ. Both Germany and the ECB are batting together, and it will bite Germany’s European trade partners
    and probably take down the Euro-zone

    As Yves rightly points out, trade disputes are seldom within the euro-zone although Germany got the same kind of bashing from France’s minister of Economy. Overall, Germany has the hand, their EU-trade surplus curently representing
    50% of their overall trade surpluses, a figure likely to decline given the German efforts to diversify their trading partners
    But one should never forget an important, and little-debunked part of the German background, i.e see ‘A Keynesian Success Story:
    Germany’s New Economic Miracle’,1518,707231,00.html

  23. Bank exposure ?????

    Which banks have the most exposure to the Greek, Italian, Portugese ,Irish and Spanish failures … why German banks of course

    Goodbye Deutsche Bank and Commerzbank and DZ Bank and Dresdner and the Landesbanks !!!!!

    1. Maju

      Not really. German banks are exposed but French banks are much more. Also Italian banks in the Greek case and British banks in general ans specially the Irish case.

  24. John S.

    I’m still not sure why Yves features socialist Auerback’s writing, although it is useful for me to take the opposite side of whatever point he is arguing. My takeaway today is that Germany is a good, capitalist, frugal country.

  25. Bernard

    i am always amazed at the right continuing to throw out the meme that it was the “left” and socialist policies that caused America to crash as it is now. i can’t speak much about Europe’s demise financially.

    the real gist of the last 40 years is to throw mud at the “left” for all the policies of the right that have screwed American and “capitalism”, and see how much sticks. that is the genius of the Right. for most of my life i have seen the Right move further right and the Democrats move right with them. that is the success of the Right and the failure of America. Fascism- the union of Corporations and Government has now taken over America. Europe knows what this looks like, but Americans haven’t a clue. So the selling of America to the Corporations/Fascist Right was a superb marketing job.

    and America is the perfect marketers. We sold Americans on how to destroy their own country. Case in point is Obama. he is a protege of Reagan and his far right destructive policies that will finish American Capitalism off. Capitalism as it was is almost finished.

    still to see the “sold” Americans buying into the Right’s spiel is the mark of a master craftsman. I mean, even in their total destruction of America and the American middle class society, the way the Right destroyed the Left, with the Left’s own acquiescence, is a sign of the genius that the Right is.

    and now the house of cards is finally coming down. to watch the Right still blame the Left and have Obama sell it to America is just awesome in its’ brilliance.

    being outside of the mainstream and never buying the BS of the Right for various reasons, i have seen the fallacies that the Americans bought in the illusions that the Right sold since Nixon. even supposed educated people, like lawyers, if that is supposed to be an educated group, bought and still buy the bs that the Right continues to sell.

    seems similar to the way Germany is claiming/feigning horror over America’s economic behavior. keep pushing the lies and never, ever admit defeat or the lies will keep the game going for a longer time than thought possible.

    it is a shame Americans don’t want to face reality about their “owners.” i kind of hope Ireland and the Irish will set the stage for the beginning of the crash. to see Sarkozy use the police to stop the French is a sign of the power of the Elite in France and Germany. France has a history of not putting up with the lies of the Elites. that is what made America possible.

    this accounts for the hatred of the Right in America for the French. Reality is not something that fits with the lies of the Right.

    Socialism is such a bad name here in America, so the Right keeps up the attack 24/7 to divert attention as they always have. just getting so difficult to cover up and pretend anymore. Knowing Americans, i bet the fall will be the Democrats fault.

    as they say, keep on keeping on.

    1. Jason Rines

      Keep on going? Are you *ucking mad? In thinking of this self-sodomizing ‘brilliance’ realize that no place on earth will be safe.

      Think this is the 1930’s? Private citizens have far more control of vital communications systems and are not playing a game of cat and mouse if push comes to shove, blacking out cities in terror will boomerang to ALL parties now isn’t interconnectedness lovely? The design was happily provided by fools thinking every person outside of the circle is a dumb peon, oh yeah learn to pay your I.T. people or those damn Indians and Chinese will sell it off like DVD players. Hubris is not funny game buddy.

      So keep on going? To where, making sure a Beslan happens in a ritzy sleeping town where some believe it safe and secure? What a disgusting train of thought you are really promoting. How about this one? To invest so much into security apparatus that finding a producer of Sardines is impossible?

      What? Some of your thinking kind building moon and underwater bases? If so, do tell. Otherwise don’t get off on what is coming in losses. History rythmes, this time is not different.

      I am an American and like most other Americans, the population has caught on we are Fascists. The duopoly thing is getting old, the general word on the street is all the politicians and bankers are crooked. The misdirection stuff is being caught onto quite a bit faster now. It is the Information Age remember? Der. Nope, further colonization is not something the citizenship here will fund in perpetuity. I am your contrarian not because I wish it, merely because cause and effect with human nature is rather predictable.

      1. Paul Repstock

        Jason my freind; Hitler or whatever name this time are counting on you.

        Don’t imagine that don’t agree with you. But, the sheer frustration pouring out of your post brings a song to mind.
        “The Boxer”, By Simon and Garfunkle..

        The anger of good and moral people everywhere will be directed anywhere but where it belongs. The potential for destruction is always greater than the creative urges when people are disenfranchised. Dramatic events are far more likely to fail than an evolutionary change, because in the calm after the storm people will always seek comfort in familiar things and structures. So often a repressive regime is replaced by one even more repressive.

  26. Doug Terpstra

    Bernard says: “i am always amazed at the right continuing to throw out the meme that it was the “left” and socialist policies that caused America to crash as it is now … a superb marketing job … and now the house of cards is finally coming down. to watch the Right still blame the Left and have Obama sell it to America is just awesome in its’ brilliance.”

    Well said. Witness Jose’s confusion. I hope he sticks around, even if DownSouth is such a mean intellectual bully :-)

    The diabolical brilliance you describe is especially mind-blowing with respect to socialism. It is a stunning achievement: effectively sell to a “Christian nation” the notion that social welfare, shared wealth, and peacemaking is are evil taboos that have issued straight from the sulfurous pits of hell. Very Orwellian.

  27. Paul Repstock

    The effects of frustration make “Divide and Conquer”…So easy.
    The results are showing here more and more each day. The decreasing levels of civility and coutesty which marked this blog in earlier times are dissapearing..even Yves is being ground away. Each sucessive revalation and our growing sense of impotence in dealing with them, are causing us to digress further and further from the topics till often and have less and less patience if people disagree or don’t understand what we are trying to say.

    The people of the world have a common problem. None of us can rely on the integrity of current government structures. Our second problem is that most of us want a “remote control” government which will look after our personal wants and security. Since it is not possible ever to please everyone, the whole mindset is a nonstarter.

    1. Maju

      I think this only has one solution: a participative decentralized government. If you can directly participate in your neighborhood’s decisions, such as what is in the supermarket or whether the street should or not be allowed for vehicles, you can also intervene through delegated democracy in higher tiers of decission-making. But a lot much more power, including economic power must exist at local level.

      1. Paul Repstock

        Maju; What are you willing to give up to get what you want? Since every person is ‘unique’, it follows that we all want different things. Therefore, it all becomes a tradeoff. This will not be easy, and it will not be achieved by replacing our repressive centralized regimes with even tighter restrictions on a local level. Liaise’faire has been so vilified only because the Establishment cannot live with the concept. (another wonderful example of propaganda).

        We need to go back to the basics. Each person must to define what they need to have for a decent quality of life. And then work with all other people to allow the same for all. Imposing chices on society is a step in the wrong direction. If you want to decide what is on supermarket shelves, you should build a supermarket. Otherwise just don’t buy what does not please you. If you want to live on a no traffic street, move. Or convince “All” of your neighbors to think the same way and then close the street.

        Every time you restrict an other person’s right to choice, you legitimize rights being taken from yourself.

        1. Maju

          I don’t understand well your question.

          I only know that private property of land is illegitimate because land was there before there was any human being. Only communities can claim some right to the territory and its management. And that is an essential big hit against the capitalist system of property, because land property is the mother of all capitalist accumulation.

          I’m not against laissez faire (I’m a communist libertarian) but I am against private property on real state specially. Another thing is posession, the right of use and enjoyment anyone effectively using a piece of land or property has or should have (as long as that use is not against the community nor the environment).

          “If you want to decide what is on supermarket shelves, you should build a supermarket”.

          The supermarket of my street was not built by the supermarket chain: they just bought an old bakery and recycled it. Anyhow, it is always the workers and not the capitalists who build everything: capitalists just coordinate such efforts in their own benefit. This can perfectly be done with some other more democratic form of organization, where the bosses are elected and deposed as needed by workers and neighbors, where being the boss is being a public servant.

          Most of the stuff in the supermarket’s shelves is not determined by demand but by offer: companies pay the supermarket so it has their products well visible. This is not acceptable even from a market perspective: it’s corporate totalitarianism that sabotages market forces and laissez faire itself.

    2. attempter

      None of us can rely on the integrity of current government structures. Our second problem is that most of us want a “remote control” government which will look after our personal wants and security.

      It sure is frustrating to have to deal with that contradiction everywhere we look.

      “All the elites are crooks! What can we do?

      We need better elites!”

      I think this only has one solution: a participative decentralized government.

      Exactly right.

      Direct democracy and economic self-management is the only form of government and economy which is not a proven practical failure and moral obscenity.

      And it works, as they proved in Spain before they were destroyed by violence. It works anywhere it’s not destroyed by external hostility.

      1. Paul Repstock

        Aye, there’s the rub of our so called “Enlightened Governments”. They allow no ‘Opt out clause’. It is a atavistic aspect of our animal roots, anything different is percieved as a threat. Whether this is from fear or envy is irrelevant. The very fact of an alternative (choice), is seen as a threat to the cohesivness of the group.

        That is why I say that mankind must evolve to advance, and possibly even to continue existing. This tribalist aspect is destroying us.

  28. Robert

    Auerbach is absolutely correct. After having resided in this smug, rassist and arrogant little country filled with hostile to everything which is not GERMAN. (Hitler – Light)
    I have zero interest in even defending anything german. Let´s go back to the basics Hrn. Schauble. The defeat of Nazi Germany, lead to the liberation of the entire civilized world from the worst monster (Germany) the planet has ever seen, will ever see and will hopefully never see again. Then came the Marshall Plan, Oh did you forget little german man? We saved you, we pumped 900 Billion (in todaýs value) Dollars into Germany alone, rebúilt everything. Now, give it back Germány! We demand you return 900 Billion Dollars to Uncle Sam; WITH INTEREST!
    Next, those ungrateful little people start trading with Uncle Sam, we buy your automobil and too many, (the engine of our VW blew up in 1984) some great car that was!
    The cold war, ever heard of that one Hrn Schauble?
    We spent abount 9 trillion dollars in todaýs value on defending Germany from the Soviet´s (Germany committed Genocide on Russia in WW2, 20 MILLION children, women and non combatant civilians were slaughtered, raped and ungodly horribly things were done to them by the Germans)
    We saved your &$%$/! Again!
    Next, we permitted you to RE-UNIFY! Didn´t have to do it, no sir. But did anyway, allowing you to power monger your ´way all over Eastern Europe, mess up East Germany with your terribly corrupt mismanagement TREUHAND re-unification
    create a hordes of NEO-NAZI´S WITH government or state-sponsored terrorism i.e. Karl Heinz Hoffman WSG —October Fest Bombing…of course you remember, dont you?

    AnD during that entire post WW2 period we let you off the hook for all those genocidal wars, was it 45 million victims of German aggression, or maybe 44 Million? Hell with those stats, who´s really counting, right?

    Oh and then we opened up our borders for the German Invasion
    Cars, chemicals, Luxury goods, Optics, heavy machinery, paint, …the list is long! I´d estimate you all raked in about 4 trillion US Dollars in todaýs value of American wealth since about the mid 1950´s.

    And now…after all of these freebies, get-out-of-jail times 20 million, free trade, protection from Russian revenge, and European revenge, Reunification-Nationalist power Trip, flag waving …

    you begin to even suggest it´s America´s fault..for their own deficits, trade and government…what a miserable back-stabbing löittle munchen you are! Go back to your little cottage society, of rassist, genocidal tendicies, bitter, arrogant Übermenschen and shove Hrn. Schauble. Good day!

      1. Maju

        Yah, he’s going to far. The Marshall Plan was made up at least largely of loans, not gifts, and served primarily US and generic Capitalist imperialism against the threat of socialist uprisings in Europe, which was quite real. Most of Marshall Plan money was spent buying US goods, which in turn helped the USA to recycle from war economy and effectively ended the 1930s recession.

        However now Germany should be thinking in some sort of Marshall Plan for the GIPSIes if it wants to sell any volkswagens in the near future and wants to prevent its colonial empire (erm… the EU) from totally collapsing, maybe into socialist alternatives. Being the leader is not just something good, much less easy: you have to demonstrate you can actually lead the pack, not just bully others around.

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