Merkel Criticizes US Over Economic Crisis

Angela Merkel, the German chancellor, turned the tables on her international critics on Wednesday by accusing the US and other governments of making "cheap money" a central tool of their economic management, thus planting the seeds of a similar crisis in five years.

"Excessively cheap money in the US was a driver of today's crisis," she told the German parliament. "I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis."

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Comments

[sculptor]

Chancellor Merkel, there is plenty of blame to go around but much of it belongs heaped on the heads of conservative politicians just like you. So I suggest, that instead of pointing fingers and trying to distract people from the fact that your political philosophy was in part responsible, you should concentrate on helping the EU survive this mess.

[leeman79]

Bravo sculptor. "Steel on target."

[nogimmicks]

The main problem is unregulated banks and the Fed and out of control
"profit taking" and wasteful spending by the financial sector. Here is a summary:
The bankers changed laws and ran a ponzi scheme ,
Took enormous profits and inflated the cost of their "industry"
When asked to pay to the people they tricked, they called it a crisis
and suggested that
1) they will be give 1T dollars more of the taxpayer money
2) they print more dollars and add to their wealth

The right answer: retrieve the remaining money FROM them instead of giving money to them, prosecute, regulate to avoid future abuse, do not print money, let the inflated things deflate. Arresting a thief looks like a crisis for him personally, but for everybody else it is a triumph of justice.

[dryrock]

The Japanese faced a similar situation ten years ago and took a measured approach, which caused less pain and panic, but at the same time here we are ten years later and their economy has barely recovered. Merkel is no one's fool, and her remarks sound like they reflect this kind of thinking. It looks like we take the pain now and recover in a couple of years, or face a decade or more of no growth, high unemployment, falling wages (and jobs), lost IRAs. Deer Jeezuz I hope there's a THIRD option someone brighter then these people (myself included) have considered.

[psch]

The voice of reason. Things usually go down hill faster than they come back up, but so many countries are trying the quick-fix. The quick-fix will almost certainly not provide solid help for the long haul for those who really need it.
Spending on public works programs will help, but tight regulation of the big industries is an absolute must. The big companies should not get a penny unless they sign up to new regulations and propose what they intend to do with the money.
It also shows that all these already massive companies that continue to merge and acquire are huge problem. When those companies colapse it's a much bigger problem, because of wide impact they have on employment.
We should also take a hard look at ourselves and rethink the individual impact we have on the bigger picture. Do we have some money saved? If we can only afford Toyota or a small Chevy instead of a BMW, so be it, if that means some money can be put aside for the harder times. Living high on the hog (and a sense of entitlement) has contributed to this massive mess.

[research]

She's ABSOLUTELY WRONG.

Tightening the money supply now, guarantees a depression. look it up.

Wasted Spending on war and cronies is the problem.

Not to mention deregulation of the bankers so they can off track bet with Credit Default Swaps,

create derivatives on mortgages that hide bad ones till it's too late, and

Hedge funds shorting everything and thus motivated to cause companies to fail by rumor.

NOW IS THE TIME FOR MASSIVE PUBLIC WORKS ENERGY INFRASTRUCTURE SPENDING.

Spending is the only way out. The question is on what.

War only boost the economy for awhile till everything is broken and it has to stop.

Give those Billions to the states, to the unemployed, to those facing foreclosure, That money will go right back into the economy, unlike the waste on banks.

Pass anti Usury laws cap interest at 10%.

Order billions of dollars of offshore wind turbines and the grid.

give individuals and businesses huge tax credits for installing roof top solar.

Create an US Green Bank to help green companies with liquidity problems.

giving to the banks is insane! it's what Hoover did.

FDR clamped down on the banks like a ton of bricks.
Forced a bank holiday, broke up the big banks.

IF WE GIVE THE BANKS MORE MONEY WE JUST MAKE IT HARDER TO DIG OUR WAY OUT OF THIS.

HIGH INCOME TAXES DO NOT ADVERSELY EFFECT THE ECONOMY!

[Samalabear]

RIght on point. Especially the last part. The totally out-of-whack upper tier should be taxed and taxed often. I was what helped get us out of the Great Depression and worked for many, many years. That's why we had a healthy middle class for so long and free or low-cost education helped the poor to work themselves out of poverty. We don't have that anymore.

This problem with the banks is going to be a huge problem. I don't know why are not being dismantled and I have no idea why AIG wasn't broken up.

[majii]

You make some very good points. I read about some of this recently in an article on the web.

[mjb5406]

Our government's solution to the crisis is "print more money"... don't have the backing for it, just print more.

[SteveMDFP]

Money is inevitably backed by the goods, services, and property available for purchase. Printing more can devalue the dollar (inflation) but we're battling a deflationary crisis, and putting more in circulation is critical.

[11907281]

Ya, it makes perfect sense to print money that is backed by NOTHING and give it to the people who created the crisis. I will inevitably be king of the world in one of the infinite universes, but just not this one so I will play the cards I have.

[ILikeH00ters]

She is pissed off about Bush's back rub.

[Emlyn]

Would you want your back rubbed by Bush?

[netzwerg]

"Merkel has been wary of raising public borrowing to stimulate demand, fearing that the extra income could boost GERMANS' SAVING RATE, WHICH IS ALREADY HIGH."

The German People have a saving rate of 11%, which means that they save (= do not spend) 11% of their income.

The US have a saving rate of 0%.

Here is a comparison of both: http://www.eyestat.com/multigraph.php?subject=Household-Net-Saving-Rate&Germany=on&United+States=on&Submit=Generate+Graph

I do not really understand the connection between economy and the saving rate, but spending all of the individual income seems pretty bad to me in the long run, especially when retiring.

[Samalabear]

We should envy that savings rate. This is what the U.S. needs desperately. Our problem is we haven't saved, 70% of Americans live paycheck to paycheck and when they can't make ends meet on the paycheck they've been using credit. An unmitigated disaster. Credit is the biggest part of this perfect storm. And yet all we hear is "unfreeze the credit" so we can shop and charge our way out of this mess. I don't think so.

[dutchman]

I completely agree, but to raise our savings rate we have to necessarily reduce consumption, which is going to cost jobs and the cause economy to contract, at least in the short term. And that, unfortunately, will make it harder still to improve our savings rate at the national level.

Our problem is that our policy makers can't easily take the long view. Look at Carter. He brought in Paul Volker to (successfully) break the back of inflation, which was such a big problem in the 1970s. But to do so he had dramatically raise short term interest rates, causing a recession that pretty much killed Carter's chances at re-election. Or Bush I - when he finally realized that his "read my lips" pledge was causing more economic harm than good, he did the right thing and promptly lost the backing of his "base". Of course it was no bad thing that Clinton was elected as a result; my point is that it will be much easier for the government to keep interest rates artificially low and spend money we don't have than to get our savings rate back up to a respectable level any time soon.

Peace

Dutchman

[AContrario]

check out www.zeitgeist.com and www.iousa.com, they are comprehensive and understable documentaries about public finance and economy.

[dryrock]

One variable often overlooked in comparing savings rates between countries is home ownership. Americans invest primarily in their homes, and we have a relatively high home ownership rate (or did...). Nevertheless, most peoples homes are the equivalent of most of their savings. I don't advocate one's entire future savings should be in one asset - my point is that this variable makes many comparison's between different countries savings rates an apples-to-oranges comparison, especially considering the relative value of homes in different countries.

This is why the bail-out should focus first on keeping people in their homes.

[AContrario]

I totally agree with her. We are missing out an opportunity to rejuvenate the economic and financial
system. When a tree's root are rotten(sorry for the bad pun but quite fitting) you let it rot or remove it.
Our current economic and financial system is rotten.

[gladiatorpodolsky]

She is absolutely right. Bailouts never work.

[Nonamnesiac]

Bush thinks his backrub didn't satisfy Merkel and her criticisms are really about the backrub and have nothing to do with the catastrophic failure of Bush's voodoo economics. So Obama will fix it all -- no backrubs, just wholesale application of voodoo economics based on his appointments. They are, to a person, people who favor unbridled free trade, privatization and wholesale deregulation -- the three hallmarks of voodoo economics. All of them also personally gained by pushing to remove regulations that protected working families from the possibility of a collapse. Once the regulations were removed the collapse was inevitable. And his economic team enriched themselves at the expense of the middle class in the US and the whole of the rest of the international financial system in pushing through the deregulation.

I know. Who do those Europeans think they are attacking the trillion dollar giveaway? Merkel should love the bailout which has no accountability or transparency and no reregulation. She should believe the financial institutions who caused the collapse should get the trillion no strings attached so they could continue what they were doing to cause the collapse -- giving loans to already over-borrowed American consumers so they can buy more, go further into debt and then have another financial collapse when they can't repay the new loans.

[LiberalForever]

There will never be a way to control greed. It simply can't be done.

Consumerism in the end needs greed to grow and survive.

Associating human worth with human wealth will always be a flawed system.

Very cheap money plus massive deficit spending equals _______ (fill in the blank).

[AContrario]

Agreed with your analysis. The financial crisis has its roots in the complete failure of our systems of
moral values. I am not talking about ethics or any other fancy intellectual or theoritical concepts and no
I am not affiliated with any religious or spiritual organizations or movements.

I am just talking about practical morality.i.e. "Studies have showed a strong correlation between lung
cancer death rate and tobacco kills thus putting a finacial burden, directly or indirectly, on our
healthcare system and its overall damages to society outweight the financial and economic benefits
to small group of individuals. So it is wrong, let's stop it.Period"

There is no need for a religious or intellectual narrative or framework here to understand this but I guess we have all been well trained by the formal educative system to rationalize our narrow-minded point of view when we decide that satisfying our small and individual agenda in the short term is more important than the greater good.

We are all guilty.

[thegreatgiginthesky]

Wow, even after that massage Bush gave her? Who would have thought so?

[mamacat]

The way I see it, Merkel is not quite right. Using cheap money and government spending to avert an economic collapse works, which is a lesson we learned from FDR and the New Deal.

Where Merkel is right, is that if cheap money and deficit spending are used to benefit the richest among us, as they have been under the Republicans, then that is a business and government model that is not substainable, as we are currently witnessing.

As long as the massive deficit spending is used constructively, to avert a world-wide depression, it is justified. If it is used during times of relative prosperity, it is destructive, and can be the cause of a world-wide depression.

[FogBelter]

Merkel is in an unenviable position of her own making. As a leader of the CDU, Germany's center-right party, Merkel was pro-market, pro-deregulation, and anti-labour ... and now those chickens are coming home to roost.

She can try to put daylight between herself and the US economic policies, but she bought into them ... and now she has Germany's "The Left" coalition to compete with at a time that she and the Christian Democrats look very, very bad,

[truthbrigade]

I hope she goes down soon. She was a major cheer leader of the Baboon we have in the W/H today.