Is there something behind the latest global economic disagreement, or a back story as to why the United States wants debt ridden countries in Europe focus on boosting domestic consumption instead of getting their books in order?
In a bizarre twist, Brazil and the United States are both arguing for richer developed countries to forgo budget cuts in order to keep growth on track. Timothy Geithner noted that it has been “only a year since the economy stopped collapsing.” That may be true on a macroeconomic scale, but many in the United States are without jobs. Geithner also criticized Japan and Europe for relying on exports to pull them out of the economic malaise.
Doesn’t this sound weird to anybody? It was the collapse of major American financial players which is credited as being a major reason why we are in the Great Recession to begin with, that in addition the loosening of mortgage lending over the past decade in the United States was another burst bubble that contributed to the mess. I don’t necessarily think that our Treasury Secretary should be criticizing Europe and Japan. Europe has real fiscal issues that must be dealt with, and if they choose not to jump on a stimulus band wagon with the United States then that is their decision.
Of course since the economies of the world are much more intertwined, large budget cuts in Europe will mean less demand for American goods abroad. Is this all the Treasury Secretary is angling at? He and his boss, President Obama, just want to make sure that global demand for U.S. products keeps steady even though it might bankrupt several economies around the globe?
It must be the height of hubris for the treasury secretary of one country to tell another country that they must focus on increasing domestic demand and forget about their budgetary problems. (Geithner did conveniently excuse Greece and Spain from participating in any “growth oriented activities” as apparently their budgets are in such shambles that they really do need to engage in massive budget cutting to reassure financial markets.)
Maybe Geithner is trying to do the right thing, but perhaps the U.S. also wants another “spend our way out of recession” economic partner. After all, the large financial stimulus which Geithner helped put together does not seem to be having the effect that some people thought it would. Though many economists believe that a fiscal stimulus rarely stimulates the economy after a major economic downturn, and that bailing out the major financial institutions may well have been a bad idea in the long run.
Bailed out mortgage lender Fannie Mae has recently gotten tough on people with mortgages which are now underwater.
The bailout of Fannie Mae was uber-expensive and the company’s poor lending practices helped contribute to the current mess. Now the company is chiding others for behavior that is much less worse than the irresponsible risky lending they engaged in.
While the reasons for the discord, and urging of other countries not to reduce their deficits, are very murky to me, the fact that the Treasury Secretary is making these public condemnations is a bit scary. Almost as if he knows that the United States’s economy is going no where fast and that its going to stay that way for a long time.
For whatever reasons Geithner took the position, his comments appear to have fallen on deaf ears as German leaders have called the concerns “unfounded”. It appears that much of Europe and other developed countries have decided that austerity measures are necessary and that fixing their budgets is the best way forward.