LONDON — Germany has become accustomed to being top of the class in Europe, the economic musterkind, or model pupil, of the Continent. But it was recently reprimanded by the United States Treasury for running a large trade surplus and imposing a “deflationary bias” on the euro zone. Germany was then told by the European Commission that the country could face action under the European Union’s “excessive imbalance procedure,” which gives the commission the right to demand action to address large trade surpluses and deficits.
Germany has a “duty” to deficit spend — or to spend down surpluses at all?
Let me see if I can put this into a bit of context when you boil down what is being suggested:
- Your people are too smart and industrious — and thus you have to blow the benefits ofproductivity improvement that are in fact earned by your workers (and which belong to them — or at least should!) Hint: “deflationary bias” is called the economic norm absent intervention because productivity improvement over time tends to make the average price level decrease as we learn to do more by using less. This is good, not bad.
- The Euro has “risen in value” and this must be counteracted in some way. In a fiat world all currency values are relative. Has the Euro risen in value or has competitive devaluation depressed the value of other currencies instead? There aren’t two other major central banks — the largest two incidentally — that are intentionally emitting unbacked credit are there? Oh wait — there are — the Japanese and American central banks. Hmmmmm…
- Weak domestic demand is bad. Really? That depends on why it’s weak. If it’s because people are tired of playing on the hamster wheel and don’t need to buy as much because they’re producing more with less, and their goods last longer, that’s positive! In addition the savings that this allows for turns into capital formation which in turn fuels innovation. That’s a virtuous cycle in that it lifts everyone’s standard of living — well, everyone who participates in it anyway.
- Deflation makes debts unmanageable. So what? Debt is a consensual transaction. Stop consenting and stop borrowing. If you can’t pay, default and throw the loss on the people who foolishly lent you money. That’s how it’s supposed to be and if you do that then risk will be priced into future borrowing (which should have happened before, but gee, it didn’t!)
I don’t see the problem here. As for Germany they should erect the middle finger toward the rest of the Euro zone — and if the EU doesn’t like it, I hear stories about there being Deutsche Marks stored somewhere and ready for use.
Perhaps flashing a few of those around Brussels will shake up a few idiots.
H/t: Jonathan Sugarman for the poke
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