Monday, January 21, 2008

Looking from the outside in...in English

Realizing that the majority of those reading this blog may not read German, I put together a quick summary of Henrik Müller's arguments to which I pointed last Friday.

In his most recent article, he claims that, in a somewhat healthy economy, we have three feedback loops that would stabilize our economy and dampen out our current problems:

  • People and the government would spend more to stabilize consumption.

  • Government would borrow more in order to support its temporarily increased spending.

  • The Fed would lower rates to encourage consumption (and, presumably, investment).


He claims all three are at their limits here. He quotes an OECD number that says our savings rate is -1.0%, and housing values are dropping, so we have nothing left to spend.

He says our Federal budget deficit is only 3% of the GDP, and our debt, at 60% of the GDP, is 60% beneath the norm in Europe, so we could increase the debt to try to pull us out. Unfortunately, because we save so little, the only people who can buy that debt are foreigners.

Finally, while the Fed has room to lower the rate, he sees banks as ready to absorb any excess cash rather than loan it out, and he worries about inflationary pressures that may present, thanks in part to an ever-weakening dollar.

In the current political scene, he sees candidates pushing protectionist agendas and hope, while he sees our real hope as lying in global product and capital markets. In fact, the only good news he sees is that the devalued dollar has increased exports and that foreign governments seem ready to invest huge sums in US banks, and he's worried that we don't see that for the good news it is.

What do you think? If you read German (especially if you read it natively), what important points do you think I missed from the two articles?

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2 Comments:

Blogger mel said...

You say: "the only good news he sees is that ... foreign governments seem ready to invest huge sums in US banks" I wonder why it is good news to find that foreign governments are buying up our financial institutions. If you are a real paranoid, you might think that the Bush plan to give the Fed enormously increased power to poke into the inner workings of financial institutions might be more about giving the government access to financial transactions it might deem "unfriendly to US interests" more than for protecting US citizens against financial depredations by corporate profit seekers.

01 April, 2008 07:53  
Blogger Bill Harris said...

Good question, Mel. While you'd have to ask Henrik Müller to know for sure, I suspect that he meant that, given where we are today, it's good that someone is willing to invest, for, in his mind, we have saved too little ourselves to be able to invest at that level. My goal wasn't to suggest he was right, though; it was to point out how others see us.

For a slightly different take, see Helmut Schmidt's 12 questions to the US presidential candidates. Question 11 seems to address your concerns.

Google Language Tools does only a fair job at translating that article; my translation is roughly, "Will your budgetary and fiscal policies strive to stabilize your foreign trade balance? Will America stop using a large part of the savings and capital of other nations? Will America work for a collaborative order in and oversight over highly speculative global financial markets?"

Thanks for dropping by. More thoughts?

01 April, 2008 10:09  

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