His comment that "As Maynard Keynes wrote in 1931, deficits in a slump are "nature’s remedy from preventing business losses being so great as to bring production altogether to a standstill."" is selective use of the truth. Keynes assumed that governments would run roughly balanced budgets which would move into surplus in the good times as growing tax revenues allowed them to build up reserves and then into deficit in bad times as those reserves were expended on welfare, unemployment and other similar payments - thus acting as automatic stabilisers. He did not advocate growing deficits as a policy when budget deficits are already at 8%+ of GDP and total government debt is heading to, or over, 100% of GDP.
He also has yet another go at Germany for running a current account surplus - "Britain has a big current account deficit (unlike Euroland), and is therefore not morally obliged to offer the world reciprocal demand (unlike Germany with a 6.4pc surplus this year). ".
The message is clear - Germany should spend more on crap it doesn't need or want to bail out reduced demand for that same crap from everyone else.
Firstly, this assumes that Germany is some sort of single entity, or that Germans and their spending are directly controllable by the German government. Otherwise how is this increased spending supposed to be achieved? German culture views fiscal prudence as a virtue. That is hardly likely to change overnight, and frankly the rest of Europe should be thankful of their parsimonious nature rather than complain about it - without Germany the Eurozone would be well and truly up the creek with no paddles in sight. As it is Germany's deep pockets is the only thing keeping the whole thing afloat at present.
rather than having a go at Germany, the rest of Europe would do well to copy them. The current crisis is a direct result of growing debt allowing both governments and individuals to spend today money they thought they would have tomorrow. It now turns out they don't have that money and they are struggling to service those debts. Like any household, the solution to excess debt is belt-tightening. It's unfortunate that everyone has to do it at the same time, but that's what happens when tomorrow's consumption is brought forward to today by the use of debt. If the debt keeps growing then you start into the day after tomorrow's consumption, and the day after that..... that can only end in tears because eventually tomorrow arrives and you've consumed everything already.
There are two parts to the solution to this crisis - firstly exactly what's happening - massive internal devaluations by countries such as Greece brought about by high unemployment driving down wage costs until those virtuous and solvent Germans start moving their manufacturing there, and a large external currency devaluation to help the whole Eurozone.
This is the biggest mystery to me in the whole thing - how the Euro is anywhere close to 1.30 against the dollar. I don't even understand how it's above parity, let alone at current levels. At some point reality will hit home and the currency will fall - I can only assume the FX market is waiting for more signs of growth in the US and the end of QE there before hitting the sell button, but it has to happen.
In the meantime, this is going to be a long slow slog, but economic pain is the only solution I'm afraid. There is no quick fix.
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