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Global Crisis Blog

Germany Puts America In Its Place – It’s About Time!

By Shlomo Maital

  

 

 

Angela Merkel, German Chancellor

Readers have noticed: This blog has been highly critical of America, America’s President, America’s Treasury Secretary, and the economic (non)-policies they have implemented. Turns out American voters felt the same way on Nov. 2.  Obama apparently thinks the failure was one of communication – he just did not explain how he saved America.  It is the American voters, apparently, whom we need to replace, not the President.  They don’t get it. 

    Following the G-20 summit in Seoul Korea, Obama made an incredible statement detached from reality.  It was tough going, he said, but – we achieved consensus!  

    We did?  Consensus?  On what?   The only consensus reached was on the utter stupidity of America’s current analysis of global problems.  It’s not us, say Obama and Geithner. It’s everybody else.   When will this pair get real?

    Writing in today’s International Herald Tribune, author Stephen Hill tells us what really went on in Seoul.  It did not come close to resembling Obama’s ‘consensus’.  Instead, it featured Angela Merkel telling America to smarten up, with other G20 leaders backing her.  Obama floated an absurd plan to require nations who have NOT screwed up their economy to bail out America by buying American goods (does America still make anything?  If so, what?).  In response, Angela Merkel said:

   The United States is the one that must take the necessary steps to increase its competitiveness, she said. The U.S. should not try to put limits on countries that have figured out how to get the world to buy their goods. “In the task ahead, the benchmark has to be the countries that have been most competitive, not to reduce to the lowest common denominator,” she said. Ouch! — America being called “the lowest common denominator.”  Her finance minister, Wolfgang Schäuble, was even more blunt. He described American policy as “clueless” and said the American growth model is stuck in a deep crisis: “The U.S.A. lived off credit for too long, inflated its financial sector massively and neglected its industrial base.” Ouch again. Germany — previously sneered at by U.S. pundits for its “weak and sclerotic” economy — lecturing America about how to grow its economy.  Merkel said something else that is even more of a game changer: “It is essential to return to a sustainable growth path.” One cause of the crisis was that “we did not have sustainable growth. In many countries growth was built on debt and bubbles.”   What Merkel was saying is that the era of U.S.-style consumption-driven economics is over. The world needs to figure out how advanced economies can provide for their people without having roaring growth rates driven by asset bubbles, and how to develop in a way that is ecologically sustainable.

If consumer-driven growth was the order of the day in the post-World War II era, in the new era of Pax Germania it will be steady-state economic growth — not too fast, but not too slowly — and producing value-added products that the rest of the world wants to buy.  Utilizing more conservation and renewable energy technologies than the United States, Germany already has reduced its carbon footprint to half that of America’s — and it provides universal health care and has less inequality.    

    America ruined both its own economy and that of the world.  It and its leaders should remain perfectly silent for, say, 20 years, and listen carefully to others who have done better.  America is financially and morally broke.  Good for Angela for speaking out.  She said what many other world leaders have been thinking for years but have hesitated to say out loud.

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 Global Crisis Blog

Hot Potato:  Which Country Will Be Burned?

By Shlomo Maital 

    

 (Bill Whalen, Politi-Cal)

 

 

In Korea, at the G20 meetings,  President Obama said to Asian leaders: Don’t count on America to continue to create jobs for you.  Here is what he meant.

  Children play a game called “hot potato”, a party game in which players sit in a circle and pass a potato to one another while music plays. The player who holds the ‘hot potato’ when the music stops is out. The game ends when there is only one player left.

  Nations of the world are currently playing ‘hot potato’ with unemployment. Here is how it works.  America imports $620 b. more than it exports.  If this number were zero, that is if America produced itself the import surplus it currently gets from abroad, 5 million jobs would be created, and America’s unemployment rate would fall from nearly 10 per cent to about 6 per cent.  This will get Obama re-elected in 2012.  

   At the same time, if America’s trade balances, Asia will lose about 40 million jobs — half of them in China. (Asia loses far more jobs than America gains, because American productivity is about 8 times higher).  Even China cannot absorb such a huge loss of jobs without severe social unrest. 

   WTO rules forbid imposing tariffs. Budget deficits are already excessive. So the “hot potato” game becomes one of currency devaluation. By printing up to $1.5 trillion in new money, America purposely seeks to devalue the dollar.  This, despite the mealy-mouthed declaration of Treasury Secretary Timothy Geitner that this is not America’s intention.  China, Japan, Korea and Taiwan can prevent this dollar devaluation by simply buying up huge amounts of dollars, as they have in the past.  A sub-game called “Chicken” will result — how many dollars will America print, how many will Asia buy, before one country is “chicken” and gives up?  Who in the end will be stuck with the unemployment “hot potato”? 

   This game is totally unnecessary.  If leading nations got together and built a consensus policy for rebalancing the world economy and for stimulating trade and growth worldwide, over the coming decade, all would benefit.  Win-win. But so far, there is not one sign this will happen.  When one or more nations are burned by the hot potato, ultimately,  all are.

    

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
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