German powerhouse struggling

buglawton

A country with regular trade deficits will get into debt. It will then borrow money to service that debt. Argentinia defaulted so that up to this day it risks assets being seized and has serious trouble raising new credit today. Iceland scraped by via a massive devaluation.

The U.S. on the other hand owes so much money to China that China is forced to hold ridiculous quantities of U.S. Dollar bonds. That's also a rather unique and unbalanced situation that cannot end well. Note that these bonds are not being converted into real assets.

Debt, caused by trade deficits has caused major wars according to some authors.
See books such as:
Debt: The First 5,000 Years (which I have read; fascinating)
And
War Cycles/Peace Cycles

Generali

buglawton wrote: »

A country with regular trade deficits will get into debt. It will then borrow money to service that debt. Argentinia defaulted so that up to this day it risks assets being seized and has serious trouble raising new credit today. Iceland scraped by via a massive devaluation.

Why will a country with regular trade deficits get into debt? Australia has run trade deficits for years but only has a small debt and that is a very recent phenomenon.

Argentina defaulted on its debt because it didn't raise taxes and the Government was spending like a sailor on shore leave.

Iceland hasn't defaulted as far as I am aware. Foreign Governments claim they have in an effort to have their middle class bailed out by a foreign Government and has never had problems servicing its debt or it's small and intermittent trade deficit except during a relatively short crisis that was entirely cooked up by foreigners.

N1AK

Generali wrote: »

Everyone seems to think that having a surplus is a good thing. Who should countries have a surplus with?

I think one thing that running a surplus gives you which is good, is an comparitively nice ways to deal with it. A deficit by comparison requires industry to become more internationally competitive, which usually winds up including wage restraint etc.

Generali

N1AK wrote: »

I think one thing that running a surplus gives you which is good, is an comparitively nice ways to deal with it. A deficit by comparison requires industry to become more internationally competitive, which usually winds up including wage restraint etc.

Really? How do you deal with a surplus when your clients can't or won't buy any more?

That sounds like what happened to the USA in the 1930s to me. Massive overproduction leading to bankruptcy and deflation as her trading partners in Europe (incl the UK) failed to deal with post war realities.

The Germans have nobody to sell all those machine tools to when the Chinese stop buying. The stopping is happening now.

Thrugelmir

Generali wrote: »

The Germans have nobody to sell all those machine tools to when the Chinese stop buying. The stopping is happening now.

The Chinese have been after the technology. Now they have the technology they can build their own. Trains, Cars, Airplanes the list goes on.

Generali

Thrugelmir wrote: »

The Chinese have been after the technology. Now they have the technology they can build their own. Trains, Cars, Airplanes the list goes on.

The Chinese are producing far too much I suspect. I don't see why they'd want to start producing machine tools.

purch

HAMISH_MCTAVISH wrote: »

Is completely unsustainable.

They do not consume enough to support their own economic model, so are reliant upon the excessive consumption of others.

When others cannot afford to consume, Germany must finance their consumption one way or another (via debt or asset purchases), or the German economic model fails.

I've pointed this out on many occasions.

Deficit and surplus countries are two sides of the same coin.

HAMISH_MCTAVISH wrote: »

Is completely unsustainable.

They do not consume enough to support their own economic model, so are reliant upon the excessive consumption of others.

When others cannot afford to consume, Germany must finance their consumption one way or another (via debt or asset purchases), or the German economic model fails.

I've pointed this out on many occasions.

Deficit and surplus countries are two sides of the same coin.

Which one did you want us to read :eek:

Thrugelmir

Generali wrote: »

The Chinese are producing far too much I suspect. I don't see why they'd want to start producing machine tools.

If you are going to build trains, planes and cars then logically one would.

Generali

Thrugelmir wrote: »

If you are going to build trains, planes and cars then logically one would.

Maybe if the Chinese economy was a person. It's not. It's a load of companies and individuals with complex links.

buglawton

Generali wrote: »

Really? How do you deal with a surplus when your clients can't or won't buy any more?

That sounds like what happened to the USA in the 1930s to me. Massive overproduction leading to bankruptcy and deflation as her trading partners in Europe (incl the UK) failed to deal with post war realities.

The Germans have nobody to sell all those machine tools to when the Chinese stop buying. The stopping is happening now.

There was a piece on Radio 4 where the German trade figures were analysed. Apparently the sharp 6% ish August drop was accounted for by an unusual holiday cycle in Germany plus sanctions on Russia. If 2 months figures are added and averaged, the figures don't come out too bad.

As a result of this drop "Its trade surplus shrank to €17.5bn (£13.8bn)"

By comparison, UK's trade deficit in goods and services stood at £1.9bn in August.

Somehow I'd still rather be Germany