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Germany to Benefit from Lower US Credit Rating

"Standard & Poor's warning the United States could lose its AAA rating may ultimately bring investment to Germany, reduce interest rates on its bonds and help the country lower its own debt," writes Deutsche Welle:

"Standard & Poor's reassessed US sovereign debt and decided to put it on negative watch for the first time, meaning there is one-in-three chance the ratings agency will downgrade the country's hitherto cast-iron AAA credit rating in the next two years. "Germany wins in this equation because it gets a dividend through stability," said Clemens Fuest, a member of the German finance ministry's technical advisory committee. "Interest rates will be pressed down as a result." Germany maintains a secure AAA rating, pays less for a 10-year bond than the United States, and has a constitutionally-mandated 'debt brake.' In Europe, German bonds, known as bunds, have long been the benchmark for investors. (...)

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Austerity and Regulation vs. Stimulus: The Latest Transatlantic Squabble

Ahead of the G-20 summit we are witnessing rising German-American disagreements. Germany wants to reform the financial markets and deal with the debt crisis, while US academics and the president prefers economic stimulus plans and criticize the teutonic export champion. Spiegel International:

Krugman is far from alone with his concerns about German and European austerity packages. Last week, US President Barack Obama sent a letter to other G-20 countries in which he fired a not-so-subtle shot across Berlin's bow. "I am concerned about weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses," he wrote in a clear reference to Germany. He also warned against reversing economic stimulus policies too soon. "We worked exceptionally hard to restore growth," he wrote. "We cannot let it falter or lose strength now."

Germany and France were hoping that the G-20 summit would focus on measures aimed at reforming global financial markets. In particular, Merkel would like to see an international tax on financial transactions as well as a mandatory bank levy, which would go towards a fund to be used to bail out banks in future crises. But opposition to both proposals has been stiff. And the US, in particular, is hoping to use the G-20 to push for more economic stimulus rather than less, given ongoing high unemployment at home.

Personally, I am not sure, if the US and Europe really need and can afford more stimulus plans right now. They make the long-term debt crisis worse. Besides, tax cuts do not lead to more consumer spending, when citizens are smart enough to realize that the economy and government finances are in trouble and consider tax cuts for what they are: desperate measures to stimulate growth. In those cases citizens use the tax cuts to save more money to prepare for the worst. Of course, stimulus is more than tax cuts.

ENDNOTE: I am sorry for the lack of blogging. In the last six weeks, I learned quite a lot of stuff the hard way: First, a new bike with strong front wheel breaks is not necessarily a good thing. Second, I cannot fly. Third, a broken elbow joint requires two surgeries, the second one kept three doctors over four hours busy. Fourth, doctors and nurses are nicer and more caring than I thought. Even the hospital food was good. Our health care system is still okay. Fifth, even if only the elbow is broken, fingers don't work (typing etc.) very well. Regaining full flexibility apparently takes months. Sixth, one can get quite a lot done with just one functioning arm. Now "I'm a graduate of pain." Yeah.

New York City Shops Put Up "Euros Accepted" Signs

Reuters:

In the latest example that the U.S. dollar just ain't what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise.

This comes after the Latest Indication of US Economic Troubles: Hip-Hopper Flashes Euro Notes.

Thus, Kevin Hassett, director of economic-policy studies at the American Enterprise Institute and an adviser to Senator McCain, considers it necessary to remind everyone: Ignore the Obituaries, U.S. Reign Will Endure, which is also response to Parag Khanna's essay in the NYT, discussed on Atlantic Review.

I think it is good that NYC shops open up to Euros, but most customers pay with credit card anyway these days. The Boston Globe claimed in November 2007: "With dollar low, US is one big outlet: Europeans arriving in droves for bargains."

Do you see an expression of Schadenfreude on my face? Nope. I am just reflecting on history: Before we had the Euro and before credit cards were popular in Europe, we would travel to other European, Asian or African cities and use plenty of exchange bureaus or banks to convert our national into the local currencies. But this was not possible when traveling to the United States, where it was extremely difficult to find a bank that would exchange Deutschmark into Dollars without several days waiting period and huge fees. The dollar was the only currency Americans knew and accepted. Every tourist had to get dollars before arrival. So we were carrying plenty of cash and traveler checks in dollars. Now the United States is becoming more international by opening-up to the Euro. Cool, but then again, everybody is paying with credit card these days, so it is not such a significant change now.

Related post in the Atlantic Review: Thanksgiving: More Americans Travel to Europe Despite the Weak Dollar