Write-up at FP here.
Last year, Germany racked up a record trade surplus of 217 billion euros ($246 billion), second only to China in global export dominance. To some, this made Germany a bright spot in an otherwise anemic eurozone economy — a “growth driver,” as the German finance minister, Wolfgang Schäuble, puts it.
In fact, Germany’s chronic trade surpluses lie at the heart of Europe’s problems; far from boosting the global economy, they are dragging it down. The best way to end this perverse situation is for Germany to leave the eurozone.
Germans usually respond to such charges with a kind of hurt confusion. We run trade surpluses, they patiently explain, because we are simply much more competitive than most of our trading partners. Can you blame us, they ask, if the world prefers to buy superior German goods (and has nothing we want in return)? So goes the argument: The rest of the world just needs to up its game, get its house in order, and become a bit more like Germany."Be more like them?".... Well if you ask me these defeated export-zombie slave people can go screw themselves and the horse they rode in on.
And this is interesting it continues:
Perversely, those same politicians refuse to cut taxes or boost public spending, which in 2014 resulted in Germany posting its first balanced federal budget since 1969, a year earlier than planned. To most Germans, any suggestion that they should relax this fiscal discipline smacks of Greek-style profligacy
So all of this "budget balancing" is not going to go well for them ultimately; and if they become "addicted" to it, then the result will be continuos domestic austerity.
This will leave the export firms no choice but to reduce the prices for their goods in foreign currency (read USD) terms in order to foster sales increases in the US market which will lead to further weakening in the EUR/USD pair as their banks have to respond to these USD price reductions in the export products.
Right now, the US fiscal backdrop is "muddle thru" or perhaps "muddle thru +", but is in no way what one could call robust.
The Obama admin has put a 7% increase in both defense and non-defense discretionary spending on the table, there has not been much reaction to this proposal by the GOP reported to this point. We have a date with destiny approaching in mid-March as the "debt ceiling" suspension will expire at that time so the debate about the US fiscal policy is going to heat up very soon and will have to be worked out during the next few months.
If the GOP approves the admin's 7% fiscal lift in the discretionary, this will help Germany's defeated export-zombie policy succeed for a while longer and would be supportive of the EUR/USD, as the US market would be better supplied with USD balances to buy German/EZ exports at current prices in USDs.
The way things look in the EZ, the European export-capable firms won't get any help from there as austerity will continue in earnest for 2015 in the EZ. And then there are always the other two 600 pound gorilla export-zombies of Japan and China to be concerned about; if those two continue to lower prices in USD terms in 2015, then the USD could keep rallying on all fronts if the EZ firms seek to maintain US share.
The two main issues to focus on are what the US does with this 7% lift in discretionary leading USD flow the Obama admin has on the table, and the "debt ceiling". If we get both of those, then we will break out of this "muddle thru +" we are dealing with for now going on 4 years, and the USD rally will be at least stopped short term and will probably reverse as the foreign firms will regain some pricing power in the US market.
13 comments:
Recipe for deflationary depression and eventual conflict.
Déjà vu.
"these defeated export-zombie slave people"
Typical crude arrogant American verbal diarrhea. The world really needs a vacation from "America." Why not write a little more carefully and intelligently, a little more nobly (foreign word in the US) and respectfully. Why not specify which people rather than pillory an entire nation (which by the way took several nations (by far mostly by Russians and certainly not the Americans) and several years to "defeat," and which was treated abominably by the "Allies" and even fire-bombed, a summit of barbarity.
No I'm not of German descent.
I should clarify the above comment about deflationary depression in Europe leading to conflict. I do not mean conflict among EU states but rather NATO vs. Russia or (non-exclusive disjunction) ISIS. The odds of this are increasing daily, and the US war hawks and neocons are fanning the flames.
John I could have added "melanin deficient" but didn't think that would have been appropriate... :p
@ John
Well said!
Ha!! then stop exporting to us for our almighty USDs! LOL!
These nations are so broken, defeated and slave-like, that they readily accept our USDs as easily (if not even more readily) than their own currencies... they are in truth second rate nations ...
Here is the 'hall of shame':
http://www.treasury.gov/ticdata/Publish/mfh.txt
Right now, the whole thing is going to swing on whether the US can pass this 7% increase the US President has proposed... if we dont pass this, and continue with our $4.2T annual rate, then watch these zombies compete for what scraps we can throw them in a continued race to the bottom.....
This from /L over at Bill's:
“Neglected, decaying Kiel Canal wreaks havoc with Baltic box schedules”
Seanews com
German road, railway infrastructure is decaying
“The once-soaring bridges are sagging. Some railroad switching equipment, once top-of-the-line, has not been updated since the time of the kaisers. Well-engineered canal locks are succumbing to silt and neglect. …
Even maintaining the status quo will require nearly doubling current spending levels, according to a recent report issued by a government commission. …
Peter Osse, a shipper in the port of Hamburg, said he increasingly reaches not for a timetable but a prayer book when he makes transportation plans. …”
Washingtonpost com
And now they have made balanced/surplus budgets law.
Meanwhile the Chinese is planning to build modern railroad from Thessaloniki and Piraeus to Budapest via Belgrade, that is if they get the contract on the Greek ports. China with their pockets stuffed with American deficit dollars created out of thin air. This while Europe and Germany have “run out of money” in their fictional gold standard. Europe have to be saved from itself somehow."
They are not going to export their way out of this...
we are dealing with the sons and daughters of Hitler Youth at best and actual Nazis at worst... they are deranged damaged goods and should not be allowed any where near positions of authority..
How are those countries "broken"? Most of the EU countries are in every list of the most prosperous countries in the world.
How are those countries "broken"? Most of the EU countries are in every list of the most prosperous countries in the world.
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Don't ever question Matt. He knows everything. He is an expert on everything. His perspective is impeccable. Matt is an American expert, indispensable, a shining beacon on the MMT hill.
"Truly, the ugliest of voices is the braying of the ass."
Right Dan "everyone should seek to be a competitive net exporter and balance their budgets..."
???????
How can a nation be considered a "success" when their economic outcomes are dependent on another nation's fiscal policy?
These export nations rise and fall based on the US fiscal policy... not their own... imo that is a pretty sad state of a nation...
There's a lot of truth to that, Matt, and while the US bitching all the way publicly, I suspect that this is for the rubes and TPTB understands real terms of trade. So know that the US making out like a bandit having the ROW work for them for chits we just credit to a spreadsheet. (Voluntary) slaves, indeed.
And Tom nobody under 50 wants a Mercedes or a BMW I can tell you that so those brands are fading fast...
Now Apple is getting into autos wait till that hits with the millenials ...
So they are going to have to compete with China and those people work for 3 rations of dog brain soup per day and are willing to go down to 2 servings if they have to...
That said, if we by some miracle can get a 7% increase past our debt morons this year, then they will probably "benefit" (to them) at least shorter term by a better US market for exports...
Okay Matt. The quip about BMW is a little much. They have become to some extent enthusiast cars, but are largely unaffordable. Affordability is of course as much a function of disposable income as price. There lies the problem... And I know many folks (largely car folk, yes) of under and over 50 that'd love to own a beamer at least until the first major service/ breakdown post warranty.
Butch
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