Germany can't stop euro zone from sinking into longest recession

Comments (20)
Willvp wrote:

What did Germany (and their EU henchmen) expect when they squeeze and impoverish the whole of Europe?

And since when is 0,1% not a recession? Those figures are so easily manipulated by a politician that hopes to be re-elected.

May 15, 2013 3:12am EDT  --  Report as abuse
pbgd wrote:

All the other Europeans may be below zero, but Germany’s “growth” by 0.1% is pretty close to zero as well.

May 15, 2013 7:34am EDT  --  Report as abuse
AnotherNobody wrote:

Austerity has really helped….

May 15, 2013 7:42am EDT  --  Report as abuse
ssmits1 wrote:

Too bad this recession keeps on going. The unemployment number just grows and too many people are struggling to pay their bills and taking care of their kids. Hope the German growth will push through and the rest of Europe will follow.

May 15, 2013 8:09am EDT  --  Report as abuse
McBob08 wrote:

This is the result of Austerity. The EU needs to start doing stimuli to get the economies working again, but don’t give the money to the big companies; give it to the people, and it will make its way to the big companies in the proper progression of things. Spend in infrastructure and other domestic projects — that is the time-proven method of breaking out of a recession. Increase the taxes on the rich to pay for it, but even so, increasing domestic spending has been shown time and again as being better and faster at reducing deficits and debts then austerity could ever dream to be.

The numbers that say austerity pays off National Debts are cooked; once that report was looked into, it was found that the coding of the spreadsheets was hopelessly flawed,; maybe even deliberately flawed to misrepresent the impact of austerity measures.

May 15, 2013 8:30am EDT  --  Report as abuse
Crash866 wrote:

I’m just thankful we have such a great leader and adminstration in place to keep us afloat in these difficult economic & trying times. I couldn’t think of a better leader to have at this time.

May 15, 2013 9:13am EDT  --  Report as abuse
Crash866 wrote:

AnotherNobody
No one said Austerity would grow an economy’s GDP. It’s meant to reduce budget deficits and debt. The word by definition has nothing to do with economic growth.

aus·ter·i·ty

[ aw stérrətee ]

1.severity or plainness: severity of discipline, regime, expression, or design
2.economy measure: a saving, economy, or act of self-denial, especially in respect of something regarded as a luxury
3.enforced thrift: thrift imposed as government policy, with restricted access to or availability of consumer goods

May 15, 2013 9:17am EDT  --  Report as abuse
Whittier5 wrote:

Of course, this is happening. “Austerity” is so counter-intuitive as to be Plain Stupid.

US & Euro Leaders refuse to acknowledge that American, British and German Big Bsnks & Brokerages had plunged the World into the 2nd Great Depression (with great assistance from insane US GOP policies). Thus, they refuse to follow Smart Policy.

Blaming the GIPSIIs for mismanagement, when the fault of the above Big Banks & Brokerages has certainly worked, hasn’t it?

Germany needs to admit German stubbornness and delusions are wrong and stop trying to run the show.

May 15, 2013 9:22am EDT  --  Report as abuse
tessaract wrote:

Austerity?people are actually saying that not paying your debts willmagically solve everything…interesting, I think the problem is applying half assed austerity policies but still protect welfare states, you guys were warned, social programs are set to destroy modern economies arround the world.

May 15, 2013 9:31am EDT  --  Report as abuse
tessaract wrote:

Are you actually saying countries debts should not be paid?

May 15, 2013 9:38am EDT  --  Report as abuse
ronryegadfly wrote:

Interest payments on sovereign debt in the USA and European nations has gone beyond the point of being crippling, it is probably insurmountable.

May 15, 2013 10:00am EDT  --  Report as abuse
DeanMJackson wrote:

The caption reads, “Germany can’t stop euro zone from sinking into longest recession”

of course the European Central Bank (ECB; located in Frankfurt, Germany) can revive the European Union’s deplorable economy. All it has to do is raise interest rates so that there can be investment. Investment can’t take place when the expected return on investment (interest) is near 0%!

Currently the ECB’s overnight borrowing is a ludicrously low 0.75%, whereas Iceland’s (not a member of the European Union) central bank’s overnight borrowing is 7%, and Iceland is the ONLY European economy that is well into its recovery from its 2007/2008 downturn.

What do people do when interest rates increase? They invest more (and consume less) because the return on investment is greater. The proceeds that would have gone towards consumption instead goes towards investment because the lure (interest) is higher.

Central Banks know the solution for “stall mode” economies, and that is to raise interest rates.

As all economists know (including those at the Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan), investments are not based on the cost of borrowing, but on the expected return on the investment. Of course, with near zero percent interest rates there is near zero expected return on the investment! So why are Western central banks continuing a policy that (1) is not working; and (2) is not working because it violates the tenets of economic science? When did the science of economics forget about the Law of Marginal Utility?

The cost of borrowing doesn’t determine investment (expected future earnings does). If such were the case, Western economies would be robust beyond description.

Now, decreasing government debt won’t revive the economy, just as little government debt doesn’t equate to a booming economy. In order for an economy to recover, first there has to be an expected return on investment to encourage less consumption and greater investment, the greater investment being spurred on by the higher rate of return that higher interest rates would bring about.

The result of a hike in interest rates to market levels: (1) economic correction that wipes out malinvestments (how can investment take place when true relative general price levels aren’t known?); (2) once the economic correction has run its course, investment begins to pick up; and (3) the economy revives with investment opportunities leading to higher tax revenues to not only pay the higher cost of borrowing, but pay down the Federal debt as well.

With interest rates so low, there is little expected return on investment, hence no investment.

The value of the dollar would increase with the rise of interest rates, since the rise in interest rates would signal the economic recovery. As I said, “…and (3) the economy revives with investment opportunities leading to higher tax revenues to not only pay the higher cost of borrowing, but pay down the Federal debt as well.” Of course, as the economy recovers what happens to Federal borrowing? It decreases!

In addition, any inflation is unhealthy, and is under-counted since it doesn’t take into consideration productivity gains. For example, if productivity in 2012 was 3% and inflation calculated at 2%, real inflation is 5% not 2%. You see, the real general price level has fallen 3%, therefore one must add to that statistic (the 3% fall in general prices) the observable inflationary statistic of 2%.

Deflation is necessary to wipe the malinvestments still in the economic pipeline. How can investments take place when real general relative price levels aren’t known?

Now, if we know these basic rules of economics that promotes investment, then we also know that our politicians and their colleagues at the Federal Reserve Bank are intentionally sabotaging the economy. The question therefore is: Why?

The website “Trading Economics” says, “The benchmark interest rate in Japan was last recorded at 0 percent. Interest Rate in Japan is reported by the Bank of Japan. Historically, from 1972 until 2013, Japan Interest Rate averaged 3.26 Percent reaching an all time high of 9 Percent in December of 1973 and a record low of 0 Percent in February of 1999. In Japan, decisions on interest rates are made by the Bank of Japan’s Policy Board in its Monetary Policy Meetings. The BoJ’s official interest rate is the discount rate. Monetary Policy Meetings produce a guideline for money market operations in inter-meeting periods and this guideline is written in terms of a target for the uncollateralized overnight call rate.”

Japan’s discount rate has been .30% since December 19, 2008. No wonder Japan has been experiencing a “stall mode” economy for years, the expected return on investment is near zero percent! Of course, the BOJ knows this, so the question is why has the BOJ been following a “stall mode” economic policy for over two decades now?

It’s not terribly difficult to understand how an economy grows, and it’s not via cheap credit expansion. The cost of credit has nothing to do with economic growth, EXPECTED RETURNS ON INVESTMENT has, and if interest rates are near zero percent, there is no expected return (interest) on investment.

Japan’s massive $1.4tn quantitative easing will accomplish to devalue the Yen and create a stock bubble, a stock bubble that the United States is currently experiencing under Federal Reserve Bank Chairman Ben Bernanke’s massive credit expansion these last five years (with current relatively low interest rates in the United States, Great Britain, the European Union and Japan, the Law of Marginal Utility takes over where new central bank QE goes either towards paying the dividends for stocks bought under the previous QE or for buying new stocks, where such stock purchases have no intention of being investments. In other words a classic Ponzi scheme, or what economists politely call it…a stock bubble).

Economics Primer:

What do people do when interest rates increase? They invest more (and consume less) because the return on investment is greater. The proceeds that would have gone towards consumption instead goes towards investment because the lure (interest) is higher. It is investment that leads to economic recovery via new technologies that (a) increases the amount of goods that can be purchased since investment has made those goods less expensive; and (2) provide new technologies that cut the cost of business.

What this means is that a properly functioning economy has a DECLINING price level. Economists that tell us that declining general prices are bad for the economy are shills for politicians who for political reasons need central banks and the boom in the economy that credit expansion can produce (when interest rates are high, otherwise a stock bubble will result if interest rates are low).

Central Banks, and crony economists in the universities and elsewhere that salivate to the mention of “central bank”, tell us that we must maintain a stable price level otherwise the economy will free fall! Nonsense, entrepreneurs don’t need stable prices in order to know where to properly allocate labor, capital and natural resources to their most profitable avenues of production. In fact, the reason entrepreneurs exist is to determine (via competition) what real prices are, hence what the general price level is. What central banks are doing then, is to remove the entrepreneurial discovery process for prices from the market, and we’ve seen how well central banks are doing in that task!

May 15, 2013 10:17am EDT  --  Report as abuse
susette wrote:

Let go of the friggin money. It means nothing if no one can spend you idiots. Make stuff. Pay workers who then buy the stuff. Round and round. Stop spending so much on war efforts and kill off those in the world who desire to rule the world like a Gotham City psychopathic evil maniac!

May 15, 2013 11:52am EDT  --  Report as abuse
SparkyVA wrote:

There is a fundamental problem with socialism – it’s purpose is to maximize benefits to the masses. Any prosperity that occurs is to then be given out to everyone. That assumes that prosperity is driven by the masses having benefits. It is not so. Prosperity is driven by people striving for a better life though their contributions to society – read work, creativity, and inventions. Socialism declares that prosperity can be driven by consumption, and disses the importance of work. Over the short term, socialism wins elections and prevents hardships for the masses. Over the long term, socialism has always failed to produce successful economies. As Lady Thatcher said: “after a while you run out of other people’s money”. The EU can expect hard times.

May 15, 2013 12:24pm EDT  --  Report as abuse
grumpyKoz1 wrote:

only 1 quarter away from depression. Nice!
I think it is time for Germany to cut and run. Any country that can save itself must.

May 15, 2013 1:39pm EDT  --  Report as abuse
dareconomics wrote:

While basket cases France, Spain and Italy surprised no one by contracting in the first quarter, Germany’s avoided entering recession by the slimmest of margins. A meager 0.1% of economic growth from the abysmal performance recorded at the end of last year. Despite optimism from the eurocrats, there is no end in sight to this recession.

The Eurozone’s largest markets, China and the U.S, are not growing enough to stoke exports in addition to the lack of demand on the continent. The ECB’s monetary policy will not keep the vigilantes at bay forever, so these countries better arise from their economic torpor soon.

Full post with charts, images and links here:

http://dareconomics.wordpress.com/2013/05/15/around-the-globe-05-15-2013/

May 15, 2013 1:44pm EDT  --  Report as abuse
Miguel526 wrote:

DeanMJackson & dareconomics are among the only responsible voices we hear regarding the collection of fools who run the EuroZone. Psychologically, all that the said collection of fools can comprehend is more taxation, which, in turn, only generates less creation, less work, less product, less employment, but more jobs for bureaucrats on the backs of Euro-children’s yet-un-earned tax money.

Human weakness is not only tolerated, but actually encouraged by these gutless weaklings who want to “give and provide”, everything for everyone, but won’t demand work, personal responsibility, creation, private power-based ingenuity, and honest effort from the People of Europe, in the aggregate.

May 15, 2013 2:57pm EDT  --  Report as abuse
Willvp wrote:

There are too many EU countries who didn’t do 1 bit of cutting government debt. For instance Belgium. What they did was putting more and more taxes on the people without doing any structural savings on the gov. side. The effect of these new taxes (austerity!!) is still to be felt and calculated in minus growth for at least one year.

But wait: that government is inventing still NEW taxes to avoid structural savings….How DUMB can you be ?

May 15, 2013 3:05pm EDT  --  Report as abuse
TheNewWorld wrote:

@McBob08

Deficit spending, is what led to the debt crisis, which led to austerity. Unlike the United States, most of these European countries can not just print their way through a debt crisis. Austerity is the direct result of your policy to stimulate with deficit spending. And as such, deficit spending leads to temporary boost in economy (a government induced bubble), followed by austerity and a recession when that bubble bursts.

May 15, 2013 4:14pm EDT  --  Report as abuse
MamaO wrote:

Returned from five days in Paris this past Monday. Was kicked out of TWO shops for being American. Said “Bonjour,” was asked “Et tu American?” (or perhaps “vous.”) Said, “Oui.” Shop-keeper shook his head angrily. I asked, “No good?” He said, “Non!” I left. Happened TWICE.

On my honeymoon 27 years ago a Paris shop keeper refused to sell me an umbrella because I was “too American” because I looked too much. (So why the 25 variations of an umbrella? If I can’t look, why have so many choix?) 27 years later, I’m pretty sure I was kicked out of the same shop. And by the way, I’m a completely non-combative, polite American.

I’m not sure what to think of Parisians but I know next time I go to France, it won’t be to Paris.

May 15, 2013 7:16pm EDT  --  Report as abuse
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