Monthly Archives: August 2012

Euro-Area Exports Rose 2.4% in June

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Unfortunately this is will also be spun as ‘austerity works’ as they don’t realize exports are real costs and imports as real benefits, meaning this is in fact evidence of deteriorating real terms of trade.

And, of course, globally it’s a 0 sum game as for every export there is an equal import. But while we can’t all net export, we can all attempt to net export with overly tight fiscal/low aggregate demand/high unemployment etc. in a very ugly race to the bottom.

Additionally, a rise in net exports from euro zone domestic policy comes with upward pressure on the currency that continues to the point where there are no net exports.

That’s why the ‘export models’ include the govt building foreign exchange reserves, as it sells its currency vs the currency of the region targeted for exports. Hence the growing hoards of $US reserves by all the nations targeting the US for exports.

However, the euro zone, unlike Germany under the mark, doesn’t do that for ideological reasons. They don’t want to buy $US and build $US reserves and give the appearance that the $US is the ‘reserve currency’ backing the euro. And so instead of sustaining net exports, the euro goes up to the point where there are no net exports. Note that the euro appreciated from about 85 to 160 to the dollar during its first decade before backing off to under 120 due to portfolio shifting from blind fear of oblivion. And during that time the currency movement always kept net exports in check.

This is all why the ECB doing ‘whatever it takes’ which means conditional funding to sustain solvency while keeping fiscal ‘overly tight’ is extremely euro friendly.

Euro-Area Exports Rose 2.4% in June, Led by Germany: Economy

By Simone Meier

August 17 (Bloomberg) — Euro-area exports rose for a second month in June, driven by a surge in shipments from Germany, as companies tapped into emerging markets to offset declining demand at home.\

Exports from the 17-nation currency bloc advanced a seasonally adjusted 2.4 percent from May, when they gained 0.4 percent, the European Union’s statistics office in Luxembourg said today. Imports stagnated in the period and the trade surplus widened to 10.5 billion euros ($13 billion) from 6.8 billion euros.

Europe’s economy contracted 0.2 percent in the second quarter as tougher austerity measures pushed at least six member states including Italy and Spain into recession. With households and companies across the region cutting spending, exporters such as L’Oreal SA, the world’s largest cosmetics maker, have relied on faster-growing Asian markets to bolster sales.

“The euro-region economy is undergoing a mild recession,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The global growth dynamic has eased somewhat, but exports will continue to support development to a certain extent in the second half of the year.”

German exports jumped 6.6 percent in June to 40.9 billion euros, while imports in Europe’s largest economy rose 1.5 percent. Shipments from Italy increased 2 percent in the period.
France and Spain reported gains of 1 percent and 1.4 percent, respectively.

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Ryan the next Bachmann?

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There’s a reason the hardcore budget balancer/deficit hawk does not last long under the microscope. Their numbers can’t add up, which leaves them with contradictory statements.

Why can’t they add up? The dollar is a ‘closed system’, what’s called a case of ‘inside money’ due to the fact that they all come from govt and/or its designated agents (apart from counterfeits).

This means the dollars in our pension funds, IRA’s, corporate reserves, cash in circulation, foreign central bank reserves, etc. all come from someone else spending more than his income.

Yes, the rest of the private sector can and does often spend a bit more than it’s income to supply those ‘saver’s dollars’ but most of it comes from the $15 trillion or so the US govt has spent in excess of its tax collections. That’s called federal deficit spending.

In fact, the US govt debt is equal to the net dollar denominated ‘savings’ of all the other sectors combined. To the penny. It can’t come from anywhere else.

That means any plan to balance the federal budget is also a plan that doesn’t allow global dollar savings to grow. This means the ‘automatic savings’ like dollars going into and compounding in pension funds, IRA’s, corporate reserves, cash in circulation, and foreign central bank reserves, etc. either can’t happen or are ‘supplied’ by equal private sector debt increases.

So a plan to reduce the deficit $10 trillion from current forecasts is also a plan that either causes private sector debt to increase by that much and/or causes pensions, IRA’s, corporate reserves, cash in circulation, and foreign central bank reserves to decrease by that much.

None of which is consistent with a growing economy, to say the least.

This means, any plan for long term deficit reduction that includes relatively high rates of growth is what can be called a financial optical illusion, that doesn’t hold up on close examination.

And that’s why all the budget balancers ultimately fail. Yes, their headline rhetoric can be casually convincing and even win local elections. But under serious scrutiny, it all falls apart.

But maybe this time it’s different.
:(

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German Economic Model Vindicated by GDP Data

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As previously suggested, any sign of stabilization will be twisted into ‘austerity works’ rhetoric.

Yes, austerity has pushed deficits up the ugly way- higher unemployment comp and lower tax payments due to the slowing economy- to the point where the deficits gravitate to levels high enough for euro zone GDP to stabilize and even begin to grow a bit. (Presuming they don’t beat it down again with more austerity, which could very well be the case.)

For whatever reason they can’t seem to grasp the notion that it’s the deficits that support growth, as they fill in the ‘spending gap’ caused by taxes and ‘savings desires’ and that they could use deficits proactively to achieve growth from any starting point short of full employment.

German Economic Model Vindicated by GDP Data

By Catherine Boyle

August 14 (CNBC) — Germany’s reputation as the healthy man of Europe has been reinforced by better-than-expected growth in gross domestic product (GDP – click here for an explanation) for the second quarter, as growth contracted in the broader euro zone.

On Tuesday morning, euro zone GDP data for the second quarter shrank by 0.2 percent, as predicted by analysts polled by Reuters.

Germany, Europe’s biggest economy grew by 0.3 percent between April and July – not a huge leap, but better than most of the euro[EUR=X 1.2349 0.0018 (+0.15%) ] zone – as its export strength continued.

“Germany shows to some degree the way forward to other countries,” Daniel Morris, global strategist at JP Morgan Asset Management, told CNBC Europe’s ” Squawk Box” Tuesday.

“Germany’s point is if you run a low budget deficit you can still have economic growth. You can’t depend so much on government spending, fundamentally it has to be about the competitiveness of the economy, and Germany’s shown that.”

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Paul Davidson on Paul Ryan’s economic knowledge in NY Times in 2009

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>   
>   (email exchange)
>   
>   On Sat, Aug 11, 2012 at 1:32 PM, Paul wrote:
>   
>   In an op-ed ”Thirty Years Later, a Return to Stagflation” (Op-Ed, Feb. 14), Representative
>   Paul D. Ryan, Republican of Wisconsin, argued that the stimulus plan will bring the
>   combination of high inflation and high unemployment known as stagflation.
>   
>   Here is a copy of my February 22, 2009 published letter to the Editor of the New York
>   Times evaluating Paul Ryan’s economics.
>   

LETTERS; Can We Spend Our Way to Recovery?

February 22, 2009 (NYT)

To the Editor:

Paul D. Ryan repeats the tired idea that when the Federal Reserve prints money for the government to spend on economic recovery, the result will be inflation because ”it is a situation in which too few goods are being chased by too much money.” This is based on a false assumption that the output of the country will not increase when government lets contracts to businesses to produce more goods and services that will improve the productivity and health of our country.

If there is significant unemployment and idle capacity in the private sector (and who can deny that there is?), then this deficit spending will not cause inflation. Rather, the ”printed” money spent on a recovery plan creates profit opportunities that induce private enterprise to hire and produce more goods. Then there will be many more goods available for this money to chase and no inflation need occur.

Paul Davidson
Boynton Beach, Fla., Feb. 14, 2009

The writer is editor of The Journal of Post Keynesian Economics.

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