Saturday, October 10, 2009

Germany Deficits vs. GDP

Here's a link to a short release in Forbes.com about Germany's recent fiscal policy and GDP growth. Excerpt:

Germany's public sector deficit was 17.3 billion euros in the first half of this year, equating to 1.5 percent of gross domestic product (GDP), the Federal Statistics Office said on Tuesday.
During the same period a year earlier, the country racked up a surplus of 7 billion euros, the Office said. Germany's economy shrank 7.1 percent on the year in the second quarter, official data showed, following a 6.4 percent drop in the first.

So if you follow the timeline, Germany's fiscal surpluses last year were followed by severe drops in GDP this year. I wonder if the editors at Forbes can follow the logical cause and effect?

11 comments:

googleheim said...

SURPLUSES ARE EVIDENTLY ELECTION YEAR SMOKE SCREENS

CLINTON BALANCED THE BUDGET FOR GORE, BUT THIS CRATERED THE ECONOMY BY DRAINING FLUIDITY

MERKEL DID IT TO APPEASE TIGHT WAD GERMANY - CRATER

googleheim said...

how do trade deficits differ from domestic spending deficits ?

krugman today gets the gold mentality correct as far a protectionism's invalid creative destruction, but then loses me on the falling dollar as a good bet to make exports and offset trade deficits.

...

Matt Franko said...

Goog,
The way I look at it is:

Trade Deficit: Per Warren Mosler; exports are a true "cost", imports are a true "benefit". So higher imports lead to higher living standards for the nation (as a whole).

Spending or Fiscal Deficit: A smaller fiscal deficit (or a horrific surplus) acts to "de-fund" the economy, reduce the total wealth of the non-govt sector as the public has to liquidate assets in order to pay coercive taxes (again as a whole).

googleheim said...

what about companies who are able to keep billions offshore for tax advantage ?

supposedly ( on bizradio today ) it acts to keep the dollar weak, and if there was an incentive to bring the money home ( very low flat tax on this income ) then this would strengthen the dollar

is UK keeping the quid weak on purpose to encourage exports to reduce their trade deficits ?

Matt Franko said...

Goog,
seems like the weaker pound could be the case in the UK.

As far as the offshore stuff I think these multinational companies do business offshore in the foreign currencies. Hereis a link to a bloomberg article on how GE is a big lender on automobiles in Russia, I think GE is lending Rubles, not USD. Ge may have sold lot of equipment to Russian Cos., took the Rubles and instead of converting them into USD and bringing them back here (which would probably be a taxable event), just decided to lend them back out over there (may not be taxable).

googleheim said...

GE is like it's own self contained China - it is paid in Rubles and lends back in Rubles.

Just as we saw with China, US debt is created & paid in USD and the transfer of money is non existent.

really don't know the significance with ge though

Mike Norman said...

Goog,

As long as the U.S. pursues policies that weaken domestic incomes and strive to support output and employment via exports the dollar is going to stay weak. How do you take a rich country and turn it into an export economy? You lower the standard of living of its citizens to where they are poor, or, poorer, than its trading partners. That is one way, at least. Another way would be to significantly ramp up public investment in technology, education, infrastructure, health care, etc. That would give us technological and productive comparative advantage, which is far, far, better than competing on who's the lowest price. Unfortunately, however, that would add to the deficit. OMG!

googleheim said...

What about the #1 exporter, Germany ?

6 weeks paid vacation for the lowest rung workers, free healthcare that is by the way high quality ( Preventative stuff is free / included ), etc

Why is the Euro so strong ?

Brantley said...

If the dollar continues to fall, (and I think it will) fuel gets more costly and profit will begin to fall. The administration is calling for a stronger yuan. That's code for - a weaker dollar, isn't it?

Lower profits = less hiring = harder to end this depression. Fuel and food costs rising = less discretionary spending = lower standard of living.

bubbleRefuge said...

if the dollar continues to fall, (and I think it will) fuel gets more costly and profit will begin to fall.

Yes, but demand for USD exports increases in a weak dollar scenario and this helps profitability. Also fuel is more supply-side than demand side. So the price of fuel is largely dependent on where the suppliers want to supply it at. Irrespective of the aforementioned, a weak dollar is bad for us as it lowers our standard of living which is the whole point of economics.

googleheim said...

the problem is that when your export more, then all the commodities go up.

it is a spiral. your export prices are low in terms of dollars, but you really have to inflate your export prices to deal with the rising costs of steel, fuel, copper, and other commodities.

so the raw materials are coupled and corelated on a global scale, but you are trying to squeeze a profit with exports by having a weak dollar and the best price.

does not work when you have competition of resources which lead to inflation of commodities as well as commodity hoarding as well as speculation which drives things up even more.

So the stock market rising is not in the best interest of America.

It does nothing to add to the Norman Theory of Capacity which would raise our standard of living by a massive investment in technology, infrastructure and so forth.