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Monday, June 11, 2012

Parallels and differences Germany vs. EU and US vs. China

I would like to draw attention of policy watchers to this interesting parallel - What Germany is to EU, China is to US. I have raised this point earlier as well.

  1. Germany is the manufacturing powerhouse primed by debt-accumulation across EU just like China is manufacturing powerhouse primed by US debt. 
  2. Both Germany and China hold government bonds in quantities that may break the bond markets and trigger concurrent run on currencies and banks. 
  3. Both want others to follow austerity while trying to keep interest rates low and economy primed at low unemployment.
  4. In effect, both will have to be architects of bailouts at substantial costs to their respective tax payers. It seems unfair but it is only reasonable way out of the current problem. 
Let us watch what experts recommend to both economies in these scenarios.

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