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What's Worse? Debt or Frugality?

"Bashing Germany is the new favorite sport for policy makers and economists who want a more balanced world economy," writes The Wall Street Journal and points out: "That Germany's economy is unbalanced is clear. Household incomes and consumer spending have stagnated for a decade, and economic growth has come almost entirely from exports and related investment. Consumption is set to drop 1.4% this year, even though the overall economy will grow 1.9%."

The WSJ explains the German position very well, even though it does not quite agree with it:

German Chancellor Angela Merkel argued in an interview last week that balancing the budget could even unlock consumers' wallets-whereas deficit spending might only lead to even-higher household saving. Germans save because they are worried the public pension and health-care systems will run out of money, and would save less if they had confidence in sustainable public finances, she argued.

Ms. Merkel's first term doesn't offer good evidence for that view, however. Germany cut its budget deficit from 4% in 2005, when she took office, to nil in 2008, before the financial crisis struck. In that time, Germans' household savings rate rose rather than fell-to 11.2% of disposable income, from 10.5%. The core problem is lack of growth in Germans' disposable income, not high savings rates which are largely justified for an aging population, say most economists.

Endnote: Does Obama sound French, when he says that he is "concerned by weak private-sector demand and continued reliance on exports by some countries with already large external surpluses."? He was clearly asking Germans to buy more American stuff. (Hey, nearly everyone is walking around with iPhones and the city is full with huge iPad advertisements. Or are that Chinese products?)

Finance Minister Schäuble hits back at Obama by saying: "Governments should not become addicted to borrowing as a quick fix to stimulate demand. Deficit spending cannot become a permanent state of affairs." Oooch. I think most Germans agree. According to polls a majority of Germans are even against tax cuts. Can you believe it?


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Marie Claude on :

"The survey, conducted in March and April this year, found that the number of EU companies making profits in China had fallen from more than 70pc two years ago to less than 60pc today, as they faced increasing local competition, rising wage costs and shrinking margins." Austerity's all very well, but someone must spend more to ensure recovery Sarkozy: "Each time we have made a austerity policy, we ended with less groth, more taxes, more deficits, more spendings" a angry German at Merkel 's policy:[tt_news]=2833&tx_ttnews[backPid]=901&cHash=fd4d019649 well many economists, and not among the keynesians, are saying that a general austerity program will drive to recession, even for Germany, because her surplus benefit from exportations will dangerouly slow down, no customers left for buying german goods, besides China is reversing to be a lesser importer of european goods, (majoritarly German's), to become a manufacturer and a seller of these goods. And the german banks are exposed to a exponentional debt[tt_news]=2839&tx_ttnews[backPid]=901&cHash=1c0e44724e sorry for ruining your optimism

Zyme on :

What comes to my mind in this discussion of "Debt of Frugality" is one point: While I am no economist and cannot judge objectively WHICH of these two is more promising, I am pretty sure that BOTH used at the same time in the economic centers of the world is bound to fail. And this is what is likely to happen.

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