Bill Mitchell — Germany to play smokes and mirrors again

Germany is proposing some more smokes and mirrors so that it can maintain its position as the exemplar of fiscal responsibility by obeying its ‘Debt brake’ yet inject significant deficit spending into its recessed economy, which is starved of public infrastructure spending. They are proposing to set up new institutions which will be funded by government-guaranteed debt and spend billions into the economy while ensuring these transactions do not show up on the official fiscal books of the German government. The only financial constraint these new agencies will be bound by are the European Commission’s Stability and Growth Pact rules. But because the allowable spending difference between the ‘Debt brake’ and the SGP is huge (but still well below what is needed to redress the years of austerity and infrastructure degradation) and so will provide a much-needed stimulus to the ailing German economy. Meanwhile, the Germans will tell the world how thrifty they are and how they obey their own rules. And then they can say that all other Member States should also stick to the rules. Meanwhile, the smoke and mirrors are going hammer and tong to create spending growth that bears no resemblance to the allowable growth under the Debt brake. The Debt brake then is just a sham. The upside is that needed public spending will enter the economy which tells us that the Debt brake should never have been introduced in the first place. Such is life in the EU – a daily circus.

The conservative mind equates financial debt with being guilty of moral failure, sin. In fact, in German the same term, Schuld, signifies both debt and guilt, as Michael Hudson so tirelessly points out. So this is conflation of finance and morality is a no-brainer there. 

But even in English there are two dominant translations of the Lord's Prayer, where one rendering as "forgive us our debts," and another "forgive us our trespasses." American conservatives also tend to be more religious culturally than liberals, that is, they "inherit" their world view through social reproduction of the culture by means of upbringing and association. So even when the terms are different, the conservative mind conflates them anyway.  It is backed into conservative culture and is socially "inherited" as a key fundamental of the conservative cultural world view.

In conservative minds, this manifests as a black and white world in which savers that are virtuous, with the savers supposed funding the profligate borrowers. Debts can never be cancelled other than in a way that involves punishment, bankruptcy at least, if not the poorhouse and debtors prison. 

The same applies to obligations among nations, which is a reason that the notion of imports being a real benefit when the exporter is acquiring the importer's debt is "wrong," and also held to be "dangerous" since it is believed to give the debtor power over the nation issuing the debt. In the mercantilist view, a nation's wealth is not figured in real resources but rather in financial wealth, which meant gold or silver back in the day. Now it accumulating the debt of other countries.

Deficit hysteria and debt phobia underlies the preference for fiscal austerity, which is often advertised as "expansionary fiscal austerity," a virtuous thing that stands in contrast to the "fiscal profligacy" and "fiscal irresponsibility" of the "degenerate" liberal mindset.

Because this erroneous belief about how modern money works is embedded in a strongly held moral view, explanations of how operations actually take work, together what this implies for macroeconomic and formulation of socio-economic policy, fall on deaf ears, if they are not ridiculed as "liberal" fumes of a disordered brain.

Since the "savers" are in charge politically under bourgeois liberalism, the ownership class being constituted of savers by definition, the story goes on, and on, and on.

Bill Mitchell – billy blog
Germany to play smokes and mirrors again
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia