(a survey among 9,000 German firms) and the statistics of incoming orders for the manufacturing sector at the beginning of September revealed a continuation of the economic downturn in Germany that cannot be ignored anymore.
The business climate dropped to 94.3 points – its lowest value since November 2012.
Incoming orders (see Figure 2 below) point to a severe weakness of investment.
These factors, amongst others, further strengthen the now widespread expectation that the Federal Statistics Office of Germany (Statistisches Bundesamt) will announce negative GDP growth for the third quarter of 2019.
Since this would mark the second consecutive quarterly contraction, it means that the German economy would be officially in a technical recession.
The recession in Germany comes at a time at which the only readily available instrument in the Monetary Union (EMU) to fight recessions, namely monetary policy, is not available anymore.
Moreover, German policymakers, the media, and professional economists have imprudently ignored the downturn, so that a discussion about appropriate countermeasures on the fiscal side remained silenced and valuable time was lost.
The repercussions for several fragile member states of the EMU, such as Italy and France, could turn out to be ominous.”
another opinion: every state needs a public bank (to invest into key areas)
opportunity in crisis: for investors to buy key companies cheap?
opportunities… for whom?
those that already have a lot.
opportunities for populists and demagogues – who is shouting louder – people believe has a solution.
Hitler did a lot of “good things” especially for the farmers – at the beginning of his regime.
But we all now the bottom line was catastrophic.
Super rich people funded Hitler because they feared of their wealth being confiscated and given to “lazy idiots” by socialists and communists.
So would not be the solution – ongoing talks – similar to a “grand debate” – (a little better than Macron’s idea) – with key actors – from super wealthy – super poor – academics and politics – to come up with a solution – before things explode again and again.
Germany Shows Signs of Recession – Is the Global Economy Next?
the infrastructure is already screwed massively.
The gov wanted to get private investors to privatize the railway and the motorways.
But this kind of failed partly. Because investors want to buy only perfect roads not roads that need massive investments before generating revenue.
Also: Ex Finance Minister Scheuble (after failing to fix the cum-ex billions of tax fraud) imposed a policy of “Schwarze Null” – not increasing the governmental debt – halting investments.
This is what Greece did and we all know what happend.
Again: If private companies and families save money – that is okay – but the gov should not stop spending in crisis (when nobody is spending/investing) – because this risks halt of all of the economy and mass uneployment (as happened in Greece, Portugal was wise to go a different way)
Heiner Flassbeck argues that the China-US trade war is not having as much of an impact on the global economy as many assume.
China’s currency is not undervalued, despite its recent devaluation.
Rather, the undervalued Euro gives Germany a real competitive advantage in world trade.
It’s actually Europe’s economic weakness that is dragging down Germany, not China (src)
GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore.
Indications are increasing that the US-China trade war might be leading the global economy towards a recession. One indicator of this is that Germany, which is often considered to be the economic motor of Europe, experienced an important decline in industrial production during the second quarter of 2019. It dropped by 1.5% in June, and is expected to drop another 1.5% in July because of declining orders from China. This is not yet a recession, but a technical recession, which is what happens when you have two consecutive quarters of economic contraction. The trade war between the US and China is making Chinese imports cheaper for Germany and making German exports more expensive, thus reducing the demand for German industrial products. Also, there is the fear of a no-deal Brexit now that Boris Johnson was appointed Prime Minister of the UK, and there are very low interest rates that may be creating a new financial bubble.
Joining me now to discuss the German economy in the context of the US-China trade war is Heiner Flassbeck. He’s the Director of Flassbeck-Economics, a consultancy for global macro questions. Also, he’s the former Chief of Macroeconomics and Development of the United Nations Conference on Trade and Development. Thanks for joining us again, Heiner.
HEINER FLASSBECK: Thanks for inviting me.
GREG WILPERT: Germany is known as the economic engine of Europe as I mentioned, or at the very least its industrial engine. How real do you think is the danger of recession in Germany, and would such a recession drag down the whole European Union with it?
HEINER FLASSBECK: Well, first of all, that with Germany being the engine of Europe, I have my doubts because as I’ve said many times on this program, Germany has been exploiting the other countries by exporting its way out of the crisis and exporting its way into a good recovery compared to the bad recoveries that the other European countries had. So far what we see is indeed we have a German economy that is extremely exposed to the world economy, and in particular China, you mentioned it. This is showing now in a reduction of demand from the rest of the world.
But, but, the big but is that also from Europe, demand from Europe at this moment of time is shrinking more than demand from the rest of the world. So what we have is [foreign language 00:02:32], European [foreign language 00:02:33], a weakness of Europe for a really long time because Europe is struggling with this super competitive Germany and is pushing down wages. We have with this low wage increases in the last 10 years, more or less, we have very weak domestic demand. That is why any reduction from export, any shock from the export side, is immediately driving or getting the European economy off track.
GREG WILPERT: When you mentioned the more general European context of the German economy, it sounds like you’re discounting perhaps the role that the US-China trade war and the devaluation of the Chinese yuan are playing in the economic problems that Germany is currently facing. Is that correct, or what role exactly do you see the trade war playing for Germany and more generally for the global economy?
HEINER FLASSBECK: Well, everybody says the trade war is the main thing. I have my doubts it is the main thing. It’s surely adding to the uncertainty around the world, including the Chinese small depreciation that happened a couple of days ago when the US called it a “currency manipulator,” which is a big word for a little thing. But overall the Chinese position, the competitive position, hasn’t changed very much. If you look at the real effective exchange rate, and that is the only reliable measure for competitiveness. That is, the competitiveness compared to all the trading partners of the country, including the exchange rate and including the inflation differentials or unit labor cost differentials. Then you see that China is still at a very high level.
Europe on the other hand, has a very low level, and US also is on a quite high level. So the point is still, that I’ve been making also many times, that Europe is still a little undervalued. Europe is definitely more undervalued than China, and so far the focus of Mr. Trump on China and the fist-fight, his in-fight with China, is very irrational. It should focus more on Europe. Europe is the bigger thing worldwide. Although the bilateral relations – in the bilateral relation, China is more important than Europe. But for the world as a whole, and this is what really counts and not the bilateral relationships, what really counts is the global picture. There, Europe is in a dangerous situation. Then you see in addition to all this, to our dependence on exports, the German dependence on exports, we see all over Europe, except for the monetary policy – it’s quite stupid, it’s quite stupid policy reactions in particular on the fiscal side.
GREG WILPERT: Well, I want to get to that point in a moment, but first I’d like to ask you about something you just said, which is, you said that Europe is being undervalued, and that Trump ought to be focusing on Europe. I mean I want you to explain, “What do you mean by that?”
HEINER FLASSBECK: Well, Germany still has an extremely high current account surplus. The valuation, again, the real effective exchange rate of the Euro is rather low compared to many years before. So far, if there is a competitive advantage in this world that a big region has against other regions, then it’s Europe against the United States. So far the Trump complaints about the German surplus, he said, “The Germans are bad, very bad,” it’s not fully unsound. It has its justification, and indeed what we should see in Europe is a much stronger focus all over Europe on domestic demand.
Europe is as closed an economy as the United States. The overall export share is very low, below 20%. Only Germany has an export share of 50%, which is really unreasonable for such a big country. An export share at 50% is absurd. So Germany has the wrong structure, and mainly Germany has to change. But the point is, Germany is not doing trade policies. The trade policies are done in Brussels, and so Trump does not really know whom to address with his accusations. But as I said, Europe could solve its own problems and does not have to look permanently to the world market.
GREG WILPERT: Well, that’s exactly the next issue I want to turn to. Now, you recently published a series of articles on your website, Flassbeck-Economics, with the title, “The Great Paradox: Liberalism Destroys the Market Economy.” Now we don’t have enough time to delve into all of your argument in detail here-
HEINER FLASSBECK: Unfortunately.
GREG WILPERT: … but I’d like to get the general gist of it and look at how it relates to the economic situation today. That is, your articles look at how liberalism, or what would some would call “neoliberalism”, contributes to the continuous slowing economic growth ever since the 1970s. Now, how does economic liberalism relate to Germany’s and Europe’s economic problems?
HEINER FLASSBECK: Well, to make a long story rather short, the point is rather trivial. The point is that under the neoliberal hegemony in the last 30 years, it began in the 70s. More than 30 years, it’s close to 50 years now, the market economy turned into something quite strange. Namely, a system where the company sector does not play the role that it should play in a market economy, which is to be the main investor and to be the main debtor. This combination to be investor and debtor is long gone. In most of our economies, including the United States, it’s gone for 15 years or 20 years even, so that we are faced with the situation that people save.
People still continue to save. Private households are saving money, but also the company sector is saving money. So in this situation, it is impossible that a market economy can function because the only way out then is you need someone who takes on debt. You need someone who invests these savings or the money that is needed to compensate for the demand restriction, demand fall that comes from the savings, so who’s going to do that? The only guy around for the whole world is obviously the government. The only guy around for big regions like the United States and Europe is the government. Only the Germans have found a nice solution with their export surpluses, so they ask other countries to be the debtor so that they are out of the trouble.
But that is obviously not a solution for the world and it’s not a solution for Europe. So Europe has to accept that fiscal policy must play a much stronger role, as it does in the United States. United States claims to be the best market economy in the world, but who is the demander so to say, the investor of last resort? It’s the government. Look at your figures. The figures are dramatic. In European terms they’re dramatic. They’re not dramatic in objective economic terms, but in European terms they are dramatic. More than 4% current deficit. More than 1,000 billion in the next fiscal year. Close to 800 billion last fiscal year. So in Europe everybody would say, “This economy is going to collapse. The government is bankrupt and we need other countries to finance the government.”
So far, the Europeans have to learn the lesson that neoliberalism has taken out the dynamics of investment, of private investment in the market economy, and there’s only one institution that can replace private investment and private dynamics. That is the government. That is the transformation of the whole economy that has taken place in the last 50 years. The only region in the world that is not accepting it are the Europeans. And this is the big failure and this is a big problem.
GREG WILPERT: Well, I think that’s a very interesting and very important point. Although I would also perhaps point out that it’s important to keep in mind that the US deficit is to a large extent also based on a fairly low taxation rate, and extremely high spending rate on military expenditures. Half of the budget going towards the military, which is obviously not necessarily the solution, but which some people have called “Military Keynesianism.” Wouldn’t you agree ?
HEINER FLASSBECK: That is right. It’s not a solution in the long term, but in the short term the market doesn’t care where the demand comes from. Does it come from the government military sector, or the government private sector, the government investment sector? Nobody cares. That is the simple point. To solve the problems of the moment, you need the demand. And where the demand is coming from is not the first question. It’s only the second or third question. In Europe there is no demand at all, and that is the biggest problem that you can have. I do not defend Trump’s tax reduction. That was stupid. In a situation where when the company sector is a net saver, to reduce the taxes for the company sector is really absurd. But the United States showed that it’s nevertheless possible, despite all these errors, despite these foolish policies, it is possible to have an ongoing recovery, and the unemployment rate is low. There is no doubt about it.
GREG WILPERT: Well, we’re going to leave it there for now, but I hope we will have you back on very soon.
HEINER FLASSBECK: Sure.
GREG WILPERT: I was speaking to Heiner Flassbeck, Director of Flassbeck-Economics. Thanks again, Heiner, for having joined us today.
HEINER FLASSBECK: Bye-bye. Thanks for having me.
GREG WILPERT: And thank you for joining The Real News Network.
New Jobs in the military? (US role model? again? hope not)
let me tell you one thing straight: if there is “no money” for things that make sense – like solar power in Nevada (sunniest place on earth) (including battery to make the sun shine at night?) – then capitalism has become non-sense.
with “no money” usually one means – no bank is giving a loan for this or that project.
But besides this Germany is using now 50% from renewables and the costs for electricity have been falling – the only problem now are the companies that own the grid.
They want to charge more and more for transferring electricity. (because power generation is done by the people itself)
So either this get’s fixed or the only solution is: completely off grid. (solar + wind + batteries… might not charge your electric car and run your hair dryer but except for that it can run quiet a lot)
You know what NOBODY can afford?
Stupidity and a destroyed inhabitable planet.
We want a good world to live in and have a bright future and live among the stars.
Nobody needs depressions (except the Pharma to sell more drugs, like shorting a stock, profiting from the end of mankind).
The Democratic Party has clearly swung to the progressive left, with candidates in the first round of presidential debates coming up with one program after another to help the poor, the disadvantaged and the struggling middle class. Proposals ranged from a Universal Basic Income to Medicare for All to a Green New Deal to student debt forgiveness and free college tuition. The problem, as Stuart Varney observed on FOX Business, was that no one had a viable way to pay for it all without raising taxes or taking from other programs, a hard sell to voters. If robbing Peter to pay Paul is the only alternative, the proposals will go the way of Trump’s trillion dollar infrastructure bill for lack of funding.
Fortunately there is another alternative, one that no one seems to be talking about – at least no one on the presidential candidates’ stage. In Japan, it is a hot topic; and in China, it is evidently taken for granted: the government can generate the money it needs simply by creating it on the books of its own banks. Leaders in China and Japan recognize that stimulating the economy is not a zero-sum game in which funds are just shuffled from one pot to another. To grow the economy and increase GDP, demand (money) must go up along with supply. New money needs to be added to the system; and that is what China and Japan have been doing, very successfully.
Before the 2008-09 global banking crisis, China’s GDP increased by an average of 10% per year for 30 years. The money supply increased right along with it, created on the books of its state-owned banks. Japan under Prime Minister Shinzo Abe has been following suit, with massive economic stimulus funded by correspondingly massive purchases of the government’s debt by its central bank, using money simply created with computer keystrokes.
All of this has occurred without driving up prices, the dire result predicted by US economists who subscribe to classical monetarist theory. In the 20 years from 1998 to 2018, China’s M2 money supply grew from just over 10 trillion yuan to 180 trillion yuan ($26T), an 18-fold increase. Yet it closed 2018 with a consumer inflation rate that was under 2%. Price stability has been maintained because China’s Gross Domestic Product has grown at nearly the same fast clip, by a factor of 13 over 20 years.
In Japan, the massive stimulus programs called “Abenomics” have been funded through its central bank. The Bank of Japan has now “monetized” nearly 50% of the government’s debt, turning it into new money by purchasing it with yen created on the bank’s books. If the US Fed did that, it would own $11 trillion in US government bonds, four times what it holds now. Yet Japan’s M2 money supply has not even doubled in 20 years, while the US money supply has grown by 300%; and Japan’s inflation rate remains stubbornly below the BOJ’s 2% target. Abe’s stimulus programs have not driven up prices. In fact deflation remains a greater concern than inflation in Japan, despite unprecedented debt monetization by its central bank.
China’s Economy: A Giant Ponzi Scheme or a New Economic Model?
Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world’s largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves.
This massive growth has been funded with credit created on the books of China’s banks, most of which are state-owned. Even in the US, course, most money today is created on the books of banks. That is what our money supply is – bank credit. What is different about the Chinese model is that the Chinese government can and does intervene to direct where the credit goes. In a July 2018 article titled “China Invents a Different Way to Run an Economy,” Noah Smith suggests that China’s novel approach to macroeconomic stabilization by regulating bank credit represents a new economic model, one that may hold valuable lessons for developed economies. He writes:
Many economists would see this approach as hopelessly ad hoc, haphazard, and interventionist — not the kind of thing any developed country would want to rely on. And yet, it seems to have carried China successfully through several crises, while always averting the catastrophic financial crash that outside observers have been warning about for years.
Abenomics, Helicopter Money and Modern Monetary Theory
Noah Smith has also written about Japan’s unique model. After Prime Minister Abe crushed his opponents in October 2017, Smith wrote on Bloomberg News, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power—govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one; small and midsize businesses were doing well; and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free.
Like China’s economic model, Abenomics has been called a Ponzi scheme, funded by central bank-created “free” money. But whatever it is called, the strategy has been working for the economy. Even the once-dubious International Monetary Fund has declared Abenomics a success.
The Bank of Japan’s massive bond-buying program has also been called “helicopter money” — a policy in which the central bank directly finances government spending by underwriting bonds – and it has been compared to Modern Monetary Theory, which similarly posits that the government can spend money into existence with central bank funding. As Nathan Lewis wrote in Forbes in February 2019:
In practice, something like “MMT” has reached a new level of sophistication these days, exemplified by Japan. . . . The Bank of Japan now holds government bonds amounting to more than 100% of GDP. In other words, the government has managed to finance itself “with the printing press” to the amount of about 100% of GDP, with no inflationary consequences. [Emphasis added.]
Japanese officials have resisted comparisons with both helicopter money and MMT, arguing that Japanese law does not allow the government to sell its bonds directly to the central bank. As in the US, the government’s bonds must be sold on the open market, a limitation that also prevents the US government from directly monetizing its debt. But as Bank of Japan Deputy Governor Kikuo Iwata observed in a 2013 Reuters article, where the bonds are sold does not matter. What is important is that the central bank has agreed to buy them, and it is here that US banking law diverges from the laws of both Japan and China.
Central Banking Asia-style
When the US Treasury sells bonds on the open market, it can only hope the Fed will buy them. Any attempt by the president or the legislature to influence Fed policy is considered a gross interference with the sacrosanct independence of the central bank.
In theory, the central banks of China and Japan are also independent. Both are members of the Bank for International Settlements, which stresses the importance of maintaining the stability of the currency and the independence of the central bank; and both countries revised their banking laws in the 1990s to better reflect those policies. But their banking laws still differ in significant ways from those of the US.
The Bank of Japan shall, taking into account the fact that currency and monetary control is a component of overall economic policy, always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government’s economic policy shall be mutually compatible.
Unlike in the US, Prime Minister Abe can negotiate with the head of the central bank to buy the government’s bonds, ensuring that the debt is in fact turned into new money that will stimulate domestic economic growth; and he is completely within his legal rights in doing it.
The People’s Bank of China shall, under the leadership of the State Council, formulate and implement monetary policies, guard against and eliminate financial risks, and maintain financial stability.
The State Council has final decision-making power on such things as the annual money supply, interest rates and exchange rates; and it has used this power to stabilize the economy by directing and regulating the issuance of bank credit, the new Chinese macroeconomic model that Noah Smith says holds important lessons for us.
The successful six-year run of Abenomics, along with China’s decades of unprecedented economic growth, have proven that governments can indeed monetize their debts, expanding the money supply and stimulating the economy, without driving up consumer prices. The monetarist theories of US policymakers are obsolete and need to be discarded.
“Kyouryoku,” the Japanese word for cooperation, is composed of characters that mean “together strength” – “stronger by working together.” This is a recognized principle in Asian culture and it is an approach we would do well to adopt. What US presidential candidates from both parties should talk about is how to modify the law so that Congress, the Administration and the central bank can work together in setting monetary policy, following the approaches successfully modeled in China and Japan.