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A thoughtful piece by Tyler Cowen suggests there is much to be learned from Germany's...

A thoughtful piece by Tyler Cowen suggests there is much to be learned from Germany's deep-seated belief that adding debt does not solve problems.
Comments (15)
  • Teutonic Knight
    , contributor
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    A delightful masterpiece exemplary of that legendary Germanic 'efficiency' by my fellow Teutons. A must read.
    17 Jul 2010, 06:43 PM Reply Like
  • Andy Harless
    , contributor
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    The Germans have lent huge amounts of money to foreigners over the past decade. If they consider debt such a bad thing, is Germany somehow more virtuous for being a pusher rather than a user?
    17 Jul 2010, 07:08 PM Reply Like
  • Michael Clark
    , contributor
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    As big lenders, the Germans don't want inflation to rob the value of their external loans. Germans also seem to be inherently austere; they seem to understand that too much of a good thing probably IS too much of a good thing.

     

    We're following the drunken sailors lead instead. Why?
    18 Jul 2010, 03:30 AM Reply Like
  • positivethoughts
    , contributor
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    Nobody has to look to Germany to learn anything. I knew too much debt was a bad thing when I was 18 and started using my first credit card. I also knew the cost of amortization of a debt when it took me 9 years to pay off a student loan. Even Barack Obama knows trillion dollar deficits are bad, but he, like almost every politician that came before him, will talk a big game but continue his spending ways and take his cut from the action. Once he amasses a 30 - 40 million dollar fortune, much like the Clintons (100+M), he won't mind paying a 50% tax rate because he will still have more than enough to live the good life. It is the people making under $250,000 that will feel the pain - ironically the ones Obama claims to care about so much.
    17 Jul 2010, 08:59 PM Reply Like
  • Michael Clark
    , contributor
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    Absolutely right. Find those in your community who believe that spending like a drunken sailor is a good thing and you'll find them either in the drunk tank or in bankruptcy.
    18 Jul 2010, 03:28 AM Reply Like
  • Andy Harless
    , contributor
    Comments (95) | Send Message
     
    It's very different for the government, because the government is not just borrowing; it's producing a product called money, which is now in very high demand. When the government borrows at a near zero interest rate, it's just like creating money (since money and zero-interest T-bills are near-perfect substitutes). Perhaps, like a private sector durable good producer, the government should worry about flooding its market, worry that it will be in trouble when the demand dies out. But in the mean time, government borrowing, because it produces money, creates net wealth, just as private sector production creates net wealth. It's very different from individual borrowing, which merely transfers the use of wealth from one person to another.
    18 Jul 2010, 12:09 PM Reply Like
  • Michael Clark
    , contributor
    Comments (8600) | Send Message
     
    Producing money that is increasingly losing value.

     

    I can have 5 pieces of A that are equivalent of 200 pieces of B. If the government loans too much to itself (even at 0% interest) the currency becomes less valuable. Right?
    19 Jul 2010, 05:30 AM Reply Like
  • Andy Harless
    , contributor
    Comments (95) | Send Message
     
    Is it losing value? Not in the sense of current market value. According to the CPI, dollars buy as much goods and services as they did six months ago. And the market price of current money against future money (the interest rate) is as low as ever, so in the market, the value of future money against current goods is higher than it was six months ago.

     

    I would restate your concern by saying that the government may be saturating the market for its product. Just like, right now everyone is buying iPads, but in a few months Apple may have to cut the price to sell any more. Similarly, right now everyone is "buying money" (that is, selling goods and services as usual and then pocketing the money instead of buying other goods and services with it), but in a few years, the government may have to "cut the price of money" to get people to keep "buying" it. It's a legitimate concern, but personally I'm not very worried. I'd be happy to see the value of money go down because people start buying more goods and services, provided it doesn't go down too quickly.
    19 Jul 2010, 03:08 PM Reply Like
  • nobby73
    , contributor
    Comments (1177) | Send Message
     
    When Merkel's CDU lead coalition won the 2009 election, they had promised tax cuts as part of their manifesto. What was fascinating was after the elections, opinion polls showed the majority had decided these cuts were a bad idea. The consensus was that cutting taxes and increasing debts was merely going to burden the next generation with the problem. One of America's greatest strengths is its optimism, but this can also been a weakness. People approve of tax cuts for the rich, because they will be rich one day and they are always shocked by downturns, because they expect things to always be getting better. Germans tend to be sad when the sun is shining, because they know it's going to rain some day in the future.

     

    However, Germany seems to be very optimistic at the moment and maybe that's because they know the immediate future is going to be difficult, but they are in a relatively strong position and the world will recover. I wonder whether they fully understand the implication of a global deflationary spiral, and especially what it will do to their highly leveraged banks, but they will emerge as one of the winners out of this. They have Russia to supply energy, emerging Asia to buy machine equipment and luxury hardware and they are not reliant on foreign creditors.

     

    The bigger contrast between the US and Germany is that the US has gone beyond the point were it can reduce its debts and is now inexorably creeping towards the end game.
    18 Jul 2010, 04:18 AM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    While I agree with much of this discussion I lack the pessimism of many. The resolution of the economic woes of the United State are daunting and seem to be forever periled by our need for instant gratification but there can be a positive outcome if we only grasp it. One does not become obese overnight and one cannot become lean by wishing it were true. We need to understand that as a nation we must live within our means and begin to rebuild our manufacturing base. We need to make things not just consume things. We need to cut back on consumption and make due with what we can afford. It may be a far fetched dream but I still believe that it can come true.
    18 Jul 2010, 07:18 AM Reply Like
  • 158672
    , contributor
    Comments (3) | Send Message
     
    How? The nations "leaders" are doing the opposite. Do you have any positive, constructive actions to suggest?
    Respect.
    18 Jul 2010, 08:26 AM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    While I would like to be more optimistic, prior periods had more of a consensus of American goals. There are now several strong currents driving, or I should say dividing, the country. Lincoln warned about a house divided. We are deeply divided philosophically and that is a great curb on my normal optimism.
    18 Jul 2010, 10:50 AM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    I respectfully submit.Ah, you raise the answer with the question. Leaders lead they do not divide. America needs a leader. One who is unselfish and wants only to move the nation ahead. The current Administration was elected to bring about change. I have seen no leadership. We have had change albeit not always in the direction I would like. There a tough choices to be made and a Leader marshals his or her resources in a manner that conveys confidence and trust. There is sadly little or none of these qualities showing within the Administration. I do not expect anyone to have all of the answers and I do not expect to agree with all of the proposed solutions but I do expect that a true Leader has in the forefront of his thinking at all times the greater interests of those he leads and not simply his legacy or reelection prospects. The new current Governor of New Jersey is showing some of these leadership qualities in the early days of his administration. He is attacking tough and controversial issues in a straightforward manner much to the disappointment of many but those issues are very similar to the issues faced by the Nation and they must be addressed.
    18 Jul 2010, 02:46 PM Reply Like
  • Goosie69
    , contributor
    Comments (19) | Send Message
     
    Germans have a tendency for "Weltschmerz". We are melancholic, we question optimistic outlooks and we rather complain than cheer. Germans.
    However - in a time when the future does NOT look too bright (and probably also isn't - did you expect sth else for a German to say?), austerity and a long term plan to reduce debt doesn't sound like a bad idea. Will it work? We will see. In the meantime - we Germans will pay the higher taxes and work more with a shrinking population - but we will also stay relaxed in that we have health care, that we all get paid sick days and that the world still wants to buy German cars, German engineering and German quality. Forever? Probably not... But what else you want a German to say?

     

    18 Jul 2010, 07:11 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3080) | Send Message
     
    In Germany we grow up with different attitudes and outlook than Americans. Even with my many years in the US, I wait for the walk signal before crossing any street, even with no cars around; a practice that gets me a great deal of humorous criticism from my friends.

     

    Functionally the big difference between US and German governments is that there is not a simple two party system in place in Germany. Politicians in Germany have to work together to get things passed or accomplished, while in the US there is vastly less consensus amongst opposing party politicians. I will not clam that the German government operates smoother, but there is far less of the polarization seen in the US. In my opinion, the polarization is what limits progress in the US.
    18 Jul 2010, 03:24 PM Reply Like
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