Sounds like an argument for caution - when you don’t understand what the effects of your actions may be, it’s wise to proceed lightly. Primum non nocere.
I couldn’t agree with you more.
I couldn’t agree with you more 
spoke it more looks like some in the EU think that either the US solution is just plain wrong or at least wont work in their country with their conditions, I don’t think it as uber-cynical as you seem to see it.
One thing’s for sure, it’s gonna get worse before it gets better and we are all gonna feel pain on some level*
*From next month my salary is -10%. I’m happy to be still working though. crosses fingers
There is no open plan by Europeans to have the Euro replace the Dollar (it might be a secret conspiracy, but then I haven’t heard of it). The dollar fluctuated with regard to the Euro before the crisis, too, and this was generally regarded as sign of bad/weak fiscal policy by the US (lending more from the US Fed bank), while the Euro was stronger regulated (it’s written down how much percent of their budget each country can overdraw into new debts each year to prevent the debt growing larger and larger, for example) and that the EU economy was more stable.
Even before the Euro was introduced, the German Mark was quite stable, both from having a strong economy and a strict fiscal policy than compared to the Italian Lira or similar.
Of course, one of the factors that will always cause fluctuations is the rate of export /import - if one country is strong in import and weak in export (like the US), their dollar will behave differently from the German Mark with strong export or the Euro with strong inter-EU trading. So don’t expect the exchange rate ever to be fair or even.
Currently, the top discussion in Germany is about saving Opel (the car maker) and how General Motors owning its patents (that have now been handed over to the US state because GM is close to bankrupt) affects Opels future; Angela Merkel has stated that the German state won’t give money to Opel if that money goes across the pond to help GM (as an US company, the US state should help GM - the german taxpayers money should help german companies).
A newspaper said that dis-entangling Opel from GM could take 1 year at least, more likely 5 years, until all the legal stuff is sorted out - by which time the crisis will have been solved one way or the other most likely.
Of course, a side issue is why we let Opel be sold to GM with the patents, but that’t the past.
Well, I wouldn’t say strongarming, but preciscly because the financial market is so intertwined that we can’t let the US collapse on its own mistakes that I think we have a right to call for regulations that prevent a similar disaster.
After all, after the black friday of 1929, the US also passed several laws to prevent the causes that led to this banking disaster. Only the politicans of today didn’t look at the real underlying reasons and problems of naked capitalism, but narrowly at the mistakes of the past, thought “Those mistakes have been corrected” but didn’t notice that similarly dangerous unregulated new fields of finance had opened up.
That would take hours and hours to explain, because even the experts aren’t clear on what exactly to do. Some optimists hope to use this crisis to chuck the whole capitalism thing overboard and go for somehting completly different (not communism - that’s been disproven to work thoroughly by now, but a third way).
Since we didn’t have this type of crisis before, it’s basically guesswork what will work and what won’t. The politicans have to think of their re-elections, about keeping the economy running, but also that simply throwing money somewhere without a plan won’t solve the problem, and that a huge debt run up now will create a new (different) bubble down the road (more like a damokles sword).
They will not want to go for drastic measures that would make them unpopular.
The economist experts know that economy and finance and consum and confidence of the people are connected, but they don’t know how to get things together again when everything is broken - people don’t consume because they lost their work and their confidence in everything, economy not producing because people aren’t buying etc. Where do you start?
And the underlying questions should be asked and answered, too. E.g. the magic square, fundamental for economic theory, doesn’t really work once the market is saturated because everybody has a fridge and a car. Similarly, work is no longer rare, but in abundance: too many people for not enough jobs; capital = money is in overabundance (trying to get high rates for investment started this mess), but production is low; and natural ressources are dirt cheap despite their importance for the future.
All these problems and how to change the system to face a different future have been there for the last 20 years or so, but now, with everything in shambles, the question is: do we use theories discretited by the new reality to try and patch the already broken system - or do we start anew with different presumptions and a new system from a new starting point?
In that case, you have most lobbies against you, who think it’s easier to patch the broken than start from clean slate.
One problem we are seeing here in Germany with the first and second stimulus packages: it’s pretty hard to spend more money in ways that
- spend the money quickly (if a major infrastructure project is given the go-ahead today, the bulk of the cost is going to be spent several years from now - when the present crisis will already be over and we will possibly have to worry more about overheating)
- achieve something worthwile
Just giving out money to people is pretty much out as most of that would just increase the savings rate. (people don’t cut down consumption because they have no money now - even for someone who loses his job today the big step down in purchasing power would not be before a year from now - but because of a feeling of insecurity (that we Germans indulge in at the slightest opportunity)).
Also a difference with the US is that in most European countries the social insurance systems and employment policies already in place make for a huge automatic increase in expenditure when jobs are threatened and after layoffs occur. These are not counted as stimulus programs as they are already long legislated. For example a German worker whose employer now has too much capacity may well first work a shorter workweek for up to 18 months, with most of the loss of income made good from unemployment insurance, then get laid off and for a year collect most of his previous income from unemployment insurance. (After that first year unemployment benefits decrease to welfare level).
Those are meaningless numbers if wages are also rising to match them, of course. And if both currencies are inflating, trade doesn’t dry up for one country while the other finds itself unable to afford imports.
In fact, if both the Euro and the Dollar are inflating, it might bring the trade of Europe/US more into balance with some of the other nations of the world, as poorer nations will find US and European goods more affordable and it becomes less profitable to ship manufacturing jobs overseas.
But again, I am no economist.
I find it amusing to see Americans who some months ago were arrogantly saying America did not need to consult with anybody not any assistance as it was capable of going alone very well and pretty much ruling the word because “we are the only superpower”, those same Americans are now saying Europe has an obligation to help America in the economy, in Afghanistan etc. Fuck that.
Europe’s inaction is somewhat understandable for a variety of reasons. This New Yorker article provides a good overview. If you’re an unemployed European, your situation isn’t going to be as painful as it is for an unemployed American, all things being equal, so there’s less pressure to stimulate the economy.
The bigger problem in Europe is the specter of an E. European collapse (potentially on the scale of the Asian crisis in the 90s) dragging down W. Europe’s banks. This article estimates the EU’s total toxic debt liabilities to be around $23 trillion (compared to $11 trillion for the U.S.). That puts the EU nations in a tough position. What happens if their banking industry goes down the drain like ours did? What if they have to cut social spending to address it? Will they look back a year or two from now and wish they had done something to stimulate the EU’s economies?
Europe isn’t trying to take advantage of the U.S. stimulus; they don’t want to follow the same economic path.
Europe wants international monetary reform to be the focus of the G-20. The instability of a single currency reserve, namely the dollar, and the volatility of an unregulated global market is not a system the EU wants to live with anymore. Instead, they want to create a new international financial system with a fixed exchange rate and regulated financial markets. Something modeled after Bretton Woods. This is an informative site.
The U.S. is a powerful country with an important economy. The EU doesn’t want the U.S. to crash. Europe wants reform, and the U.S. doesn’t want to lose its position as the global leader.
Based on my understanding, these European banks were essentially functioning as U.S. banks. These were part of the U.S. shadow banking system.
What do you mean by the “shadow banking system?”
I wanted to comment on this particularly. The American stimulus, in my non-economist’s understanding, is simply pumping credit into the economy–which means that the printing presses are being turned up to 11 and we are printing money like nobody’s business. I don’t think there will be hyperinflation, but there will be inflation proportionate to the amount of extra money being created. And this is where we get to the fundamental divide between Western Europe and the U.S. Over there they fund social programs and infrastructure by directly taxing large incomes and large assets. “We’re going to tax you, and you can like it, or emigrate to the Caribbean as a tax refugee”. In this country, by contrast, that still is not politically possible, so we have to confiscate wealth by the stealth tax of inflation. Of course, that strategy unfortunately confiscates in like proportion from the not-quite-so-rich, all the way down to the person who’s just got two pennies to rub together, one of which now gets taken away.
What with the government taking over hiring and firing decisions at major companies, I don’t think we’re headed towards a social democratic nirvana. Instead, we’re probably going to end up like East Germany, or even more possibly, like China, where government controlled capitalism is the order of the day and, in spite of numerically large middle class, the average citizen lives in conditions which most Europeans or Americans today would consider miserable. If the idea that only the small percentage of the population that have the talent and inclination to successful entrepreneurship is entitled to anything truly wins the day, then what happens to the other 90 percent in an world of abundant slave-wage labor? I wouldn’t want any part of that if I lived in Western Europe, either.
Having Europe also start borrowing more money increases the probability of inflation, because it creates competition for investor’s money and makes it more likely that the fed will have to buy its own treasuries and monetize the debt.
Getting Europe to go along with a stimulus is very difficult for a number of reasons. For one, Europe is a large free trade zone of closely interlinked countries, with widely varying amounts of national debt and widely different economic conditions. This means that you can’t get all countries to coordinate their ‘stimulus’, and imbalances between them cause all sort of problems. This is one of the problems the Maastrict treaty tried to avoid - capping the debt loads of EU countries.
Another problem in Europe is that governments generally have larger shares in the economy, taxes are higher, there is more unionization and regulations in general, and that makes it difficult to make big changes in a short period of time. It also means that there’s less ‘headroom’ for government to take additional action.
Finally, there are quite a few governments who simply believe a fiscal stimulus is the wrong way to go. Believe it or not, the notion that you can spend your way out of this problem is not universal, even in America. People are still free to disagree with Obama’s approach, and many do.
GM bought Opel in 1929, so that’s really water under the bridge now.
The unregulated investment houses, hedge funds, insurance, etc. that functioned as banks. The European banks AIG bailed out were actual banks but functioned as unregulated U.S. investment houses. I will look for the information. I just can’t remember where I read it.
I’m pretty sure we aren’t going to see hyper-inflation. That’s where you have a wheelbarrel full of cash that is worth less than the wheelbarrel.
What may also happen is that the US pulls out of the recession well before Europe. Some would argue that WWII pulled us out of the Great Depression. Well what was WWII? Massive government spending on things like tanks and planes and ships to be used to fight Germany and Japan. From an economic standpoint, the government spent a much greater portion of GDP on stuff that might as well just sank in the ocean.
Common sense, however, dictates that constantly spending money you don’t have is a recipe for disaster sometime in the future.
I see what you’re saying, but I wonder if the leader of the United States may not recognize how helping the European Union serves his own self-interest. Americans are fooling themselves.
So no change there.
Really, why isn’t the US following the EU’s lead in economic matters? Why would it be the other way around?
Which “same Americans”. Did you see me saying that? Did you hear Obama saying that? “America” is not a monolithic entity.
And both with respect to the economy and Afghanistan, you sound like the man in the back of the boat who won’t bail because the hole is in the front of the boat, and it’s not his problem.
OK, I can see where that makes some sense from the European perspective. It at least makes me less cynical about motives.
Maybe I am the man who has been rowing for too long already to take the boat where the rich fat guy up front wants to go and then got tired when the fat man decided it would be a good idea to drill a hole in the front and now he wants me to row and bail at the same time while he continues to coast. And maybe I am beginning to realize that I can swim easily because living lean has kept me in good shape while the idiot upfront wants me to row and bail because he’s overweight and could hardly swim. And maybe I am just getting tired of always taking the boat where he wants to go and maybe I would rather go somewhere else sometimes. Specially after he drilled a hole and then insulted me when I said that did not seem like such a good idea to me. Maybe the idiot up front should learn to listen sometimes.
Exactly, and what many of you seem to be forgetting is that the EU is even less so. We don’t even have the veneer of nationhood to encourage us to make sacrifices for each other- despite it possibly making economic sense any EU stimulus would in effect be Germany bailing out everyone else.
And considering they’ve had to put up with close to a decade of lecturing from the US, UK and others about making their economy more ‘dynamic’ they’d be pretty pissed off about bailing out the UK and Spain.
That’s on top of long being the biggest contributor to EU funds but not having comparable political influence. So remember that there can be no such thing as a European stimulus, the EU is 27 sovereign states eache of which has its own priorities i.e. Germany is deathly afraid of inflation, France worries more about unemployment, the Czech republic doesn’t want its currency to completely loco etc, etc…
The premise of the OP’s accusation simply doesn’t exist. Please stop trying to blame others.
I could say the same. Why are European banks in trouble? Did the US force them to invest in securitized real estate? Or did greed overcome caution? We are all in the same boat, and we all drilled the hole together.