re: Trichet statement

The old german model was tight fiscal to keep domestic demand down, costs down, to help exporters. this made the mark strong so they sold marks vs dollars to keep it weak at the expense of the macro economy but to the benefit of the exporters.

The euro zone is trying same but can’t buy dollars for ideological reasons- it would look like the dollar is backing the euro as a reserve currency, etc.

So the euro gets strong to the point where the export strategy is thwarted. Hence it went up to 160 to the dollar before it all broke down and ‘automatic’ counter cyclical deficits kicked in which weakened the euro, which they are now trying to reverse with austerity. But going broke trying, etc.

From Pragmatic Capitalist:

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5 Responses to re: Trichet statement

  1. The bar chart here shows German holdings of U.S. national debt are not large.

    http://www.marketoracle.co.uk/Article1571.html

    My hunch is that German export prowess derives from the fact that whatever Germans chose to do, they tend to be good at it: engineering, classical music, etc. Someone measured the average I.Q. of Euro countries recently and Germans came top.

    Reply

  2. warren mosler says:

    before the euro took over they did have a pretty big pile of dollars for that day, that they still have?

    Reply

  3. The above “old German model” would only work where Germany CONTINUOUSLY bought dollars (i.e. presumably tsys). But I don’t remember scare stories from the 1960s and 70s about Germany owning half the U.S. national debt. Certainly nothing like the scare stories nowadays about China and Japan owning half this debt.

    Have recently upgraded my wardrobe by purchasing a Mosler Economics cap and shirt. Plus coffee tastes better out of a Moser Economics mug.

    Reply

  4. Panayotis says:

    Yes, there is an export strategy but the austerity package reflects their ideological debt leverage capacity that corresponds to their liquidity and solvency fears and not some long term income growth deficiencies of the eurozone .

    Reply

  5. Tom Hickey says:

    It’s the new mercantilism. Everyone wants to export their way out, and that’s impossible, so something’s got to give.

    Andy Xie, Steering Out of a Smash-Up No One Wants, on the US and China’s coming head butt over this issue, too.

    Reply

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