Notes From Underground: Europe To Be Crucified On a EUR/YEN Cross
Tonight’s BLOG headline is attributable to my friend KM after a long conversation about the IMF and G-20 meetings that took place in Washington during the past four days. It appears that Japanese monetary policy was not the subject of derision but rather applauded as a strong measure to lift Japan’s domestic economy out of two decades of malaise. Let me be as clear as possible: There is a full frontal assault being waged on the German model of GROWTH THROUGH AUSTERITY. The first shot fired was several months ago when IMF economist Olivier Blanchard delivered a paper stating that the previous belief that the negative impact on GDP from austerity was not a multiplier effect of 0.5% but rather a greater measure of 0.9-1.5% in its impact so a decease in fiscal spending would create a much greater slowdown than previously thought. The battle was waged in the efforts to limit the sequestration in the U.S. even as IMF Managing Director Lagarde cautioned
that U.S. tightening is “too much, too fast and it’s in the wrong place. It’s not right for the U.S. economy and it’s not right for the world.”
The recent academic attack questioning the reliability of the Rogoff/Reinhart work is another sword unsheathed against those promoting fiscal austerity during the time of slow global growth. The IMF has become the phalanx for pushing back against the “austerians” and thus easing the restrictions on EU budgets (or just say no to austerity and yes to any and all fiscal and monetary efforts to sustain growth). The Japanese were not the G-20 goat and even if the YEN depreciates the greatest impact will be on the Germans as they are direct competitors. If the Germans do not desire global growth then the end result will be Japanese corporations merely taking market share from German business. Without increased global growth it will merely be a game of profit transference. The amount of money spent on luxury autos will be stagnant but the money will flow to the most price competitive–Lexus versus Mercedes. The higher the EURO/YEN moves, the more the
German economy suffers and the more content Christine Lagarde and her IMF cronies become.
The rest of Europe will suffer under a stronger EURO but the short-term pain will be nothing if it breaks the back of the German model of growth through austerity. The battle lines have definitely been drawn and the more the global economy muddles along the more the effort will be to curtail fiscal austerity. The efforts of the U.S. and the U.K. to achieve solid economic growth through aggressive monetary policy have achieved minimal success. ‘Monetary policy needs fiscal stimulus’ seems to be the path to increased GDP. If Germany wants to remain on the growth through austerity path there will be a price to be paid.
***The case of Germany being the target of G-20 and IMF “slings and arrows” can be found in various places:
http://yragharris.com/2013/04/21/cross/
that U.S. tightening is “too much, too fast and it’s in the wrong place. It’s not right for the U.S. economy and it’s not right for the world.”
The recent academic attack questioning the reliability of the Rogoff/Reinhart work is another sword unsheathed against those promoting fiscal austerity during the time of slow global growth. The IMF has become the phalanx for pushing back against the “austerians” and thus easing the restrictions on EU budgets (or just say no to austerity and yes to any and all fiscal and monetary efforts to sustain growth). The Japanese were not the G-20 goat and even if the YEN depreciates the greatest impact will be on the Germans as they are direct competitors. If the Germans do not desire global growth then the end result will be Japanese corporations merely taking market share from German business. Without increased global growth it will merely be a game of profit transference. The amount of money spent on luxury autos will be stagnant but the money will flow to the most price competitive–Lexus versus Mercedes. The higher the EURO/YEN moves, the more the
German economy suffers and the more content Christine Lagarde and her IMF cronies become.
The rest of Europe will suffer under a stronger EURO but the short-term pain will be nothing if it breaks the back of the German model of growth through austerity. The battle lines have definitely been drawn and the more the global economy muddles along the more the effort will be to curtail fiscal austerity. The efforts of the U.S. and the U.K. to achieve solid economic growth through aggressive monetary policy have achieved minimal success. ‘Monetary policy needs fiscal stimulus’ seems to be the path to increased GDP. If Germany wants to remain on the growth through austerity path there will be a price to be paid.
***The case of Germany being the target of G-20 and IMF “slings and arrows” can be found in various places:
http://yragharris.com/2013/04/21/cross/
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