Rick Perry vs. Barack Obama

[hrothgar]

It is basic economics that government spending has a larger stimulative effect on the economy than private spending.

 

Don't recall that this was part of the curriculum back when I was teaching Intro to Macro

[phil_20686]

The problem with arguments about regulation is that they are the same in both directions:

 

In favour:

Look, obviously we need more regulations, you can tell because we didn't prevent this recession.

 

Against:

Look, obviously regulation don't work. You can tell because regulation didn't prevent this recession.

 

Everyone agrees that some financial regulation is desirable, efficient and effective. Unfortunately the world moves too quickly for regulation to effectively prevent recessions. I think its dangerous to pretend otherwise.

 

In so far as this recession has a cause, it is important to disaggregate the common factors. Firstly: what is a recession. I like Karl Smith's explanation of this, "a recession is when markets fail to clear", which means, essentially, that although we still have the capacity to make all the same stuff, but the prices aren't right so people are not buying.

 

A recession can have a variety of different causes, some have clear causes: the silver crises of the late eighteenth century, was caused by a shortage of the medium of exchange. In essence china ran a huge surplus and drained the silver currency out of Europe, creating deflationary pressure. Alternatively, sometimes `real shocks' can produce a recession. In these cases, normally caused by a shortage of a resource, the economy is badly wrong footed, and literally can no longer produce the same stuff that it could before. Such crises are normally associated with high inflation, which makes sense, as there is the same amount of money, but less stuff, so prices rise.

 

To understand a banking crises, we should understand that `money' is a broad and nebulous concept. For example, banks engage in `credit creation', by loaning money out, and as long as investors are happy that the loan will be repaid, they are often happy to treat the loan as a medium of exchange, and use it as an asset. In a banking crises there is a lack of confidence, and consequently investors will no longer treat loans or other securities as safe alternatives to cash. In our recession:

 

http://research.stlouisfed.org/fred2/data/MZM_Max_630_378.png

 

 

And you can see the collapse in the broad money aggregate caused by the banking crises. In practice, the decline shown here is more the fact that many of the securities' principle value, was that they could be used as collateral in repo transactions. Without that use, no one is buying them, and so there is less lending and this is what is showing up. This does not include the fact that the banks have on their balance sheets a massive number of financial instruments that they used to be able to use to raise liquidity, and in practice could treat exactly like cash, which are now effectively illiquid.

 

This narrative is sometimes called the `lack of safe assets'. Demand for assets that can still be traded as a medium of financial exchange is what is driving German, Us and Uk bonds into negative real interest rates. If I am a bank that needs to raise some cash quickly, or needs to provide a security deposit for a loan, these are essentially the only securities that are being accepted.

 

If this recession can be said to have a proximate cause then, it is that the sudden change in the perception of systemic risk has led to a collapse of the broad money aggregates. This has led a a broad deflationary pressure, which shows up in broken markets. Suddenly demand for cash by financial markets is effectively driving up the price of labour. It is this that has driven the labour market out of whack. The correct policy response is to provide enough liquidity by having the central bank replace these securities with things that can be treated as money aggregates. You can do this monetarily, by having the central bank simply create currency to buy these securities and give the banks cash instead. Alternatively you can do it fiscally, since running a large budget deficit is effectively equivalent to large scale credit creation. You will be producing large amounts of a safe asset that the financial markets will treat as a medium of exchange.

 

Central banks the world over should be attempting to create inflation, merely to balance the deflationary pressures of deleveraging. The fact that long dated treasuries are looking negative, is a sure sign that no one is expecting the central banks of the world to succeed in this, or even to attempt it, since its impossible for a central bank to attempt inflation and fail. I do not believe inflation will rear its head until the deleveraging is complete. In fact, even after that, printing money will only lead to inflation if, after the old securities are liquidated into cash, there is an appetite for new securities which are again seen as safe enough to be treated as cash. If this does not happen, or happens slowly, there will be plenty of time for the central bank to adjust the money supply so as to prevent inflation. I suspect risk appetite will only return slowly, but that is really only a guess about the future.

 

EDIT: perhaps I should also have made the point that in none of the other recessions on the graph did the money aggregates decline: declining money aggregates tend to be signatures of banking crises specifically.

[hrothgar]

 

A recession can have a variety of different causes, some have clear causes: the silver crises of the late eighteenth century, was caused by a shortage of the medium of exchange. In essence china ran a huge surplus and drained the silver currency out of Europe, creating deflationary pressure.

 

Guess its time to start exporting opium again

[ArtK78]

Don't recall that this was part of the curriculum back when I was teaching Intro to Macro

The multiplier is far greater for government spending than for private spending.

[phil_20686]

It is basic economics that government spending has a larger stimulative effect on the economy than private spending tax cuts, when the economy is depressed.

 

FYP

[WellSpyder]

"real interest rate" means interest rate adjusted for (expected) inflation?

Yes

Except that the data are based on index-linked gilt yields so the "real" adjustment is for whatever actual inflation turns out to be, rather than for what people expect inflation to be. In other words, investors are saying that provided the gov't compensates them for future inflation they don't mind getting back slightly less than they have lent. The same phenomenon can be seen in the UK, and makes long-term low risk investment pretty tough!

[Winstonm]

The question is what should be regulated.

 

http://www.ritholtz.com/blog/wp-content/uploads/2012/05/adding_fuel_may_influence_fire.png

[hrothgar]

The question is what should be regulated.

 

http://www.ritholtz.com/blog/wp-content/uploads/2012/05/adding_fuel_may_influence_fire.png

 

Very timely cartoon given the big Morgan Stanley announcement

 

http://articles.marketwatch.com/2012-05-10/industries/31653065_1_credit-default-swaps-bank-morgan-stanley

 

There are direct allegations that Morgan Stanley incurred the loss because their trader made a series of large transparent trades which other folks capitalized on.

[Winstonm]

Very timely cartoon given the big Morgan Stanley announcement

 

http://articles.marketwatch.com/2012-05-10/industries/31653065_1_credit-default-swaps-bank-morgan-stanley

 

There are direct allegations that Morgan Stanley incurred the loss because their trader made a series of large transparent trades which other folks capitalized on.

 

Exactly - J.P Morgan (corrected) had $2 billion in losses in credit default swaps, the insurance-like derivative product that is not regulated as either insurance or a financial product due to the Commodity Futures Modernization Act pushed through by Ron Rubin and signed into law by Bill Clinton.

 

I agree that there probably is too much minute regulation - but there is also too little major regulation. Rescinding of the CFMA and restoration Glass-Steagall would go far in correcting the ills that are inherent still in the banking industry.

[PassedOut]

Very timely cartoon given the big Morgan Stanley announcement

 

http://articles.marketwatch.com/2012-05-10/industries/31653065_1_credit-default-swaps-bank-morgan-stanley

 

There are direct allegations that Morgan Stanley incurred the loss because their trader made a series of large transparent trades which other folks capitalized on.

Morgan Stanley and J. P. Morgan are different companies, even though both company names contain the word "Morgan."

[mike777]

btw for the quarter JP MOrgan is expected to still make 4 billion after tax.

 

As for what the multipler is for govt spending, would love to see some articles that discuss that.

----

 

 

Robert Barro: Stimulus Spending Keeps Failing

 

If austerity is so terrible, how come Germany and Sweden have done so well?

 

 

http://online.wsj.com/article/SB10001424052702304451104577390482019129156.html

[kenberg]

 

 

If austerity is so terrible, how come Germany and Sweden have done so well?

 

http://online.wsj.co...2019129156.html

 

 

This has occurred to me as well. I imagine that part of the answer, for both austerity and spending, is that it depends on how it is done. It's hard to believe that squandering money is a good idea. Spending it may well be a good idea, if carefully done, and then it may look a bit like austerity.

[awm]

Austerity isn't "always bad" -- the claim is that its a bad response to a recession caused primarily by lack of demand.

 

Countries like Germany and Sweden are in good budgetary shape because they were more fiscally disciplined in the relatively stronger economic times of the 90s and early 2000s. Neither was hit too hard by the current crisis (relative to the rest of Europe) and neither has responded with massive cuts to government services.

 

A better comparison might be Iceland vs. Ireland.

[kenberg]

There was a particularly bizarre artical in the Washington Post yesterday (May 11)

 

http://www.washingtonpost.com/todays_paper?dt=2012-5-11

 

The gist appears to be that teh Romney camp is actually encouraging discussion of stupid things Romney did while in high school to show that he is really just a loose and cool sort of guy. Of course then other things get brought up Romney doesn't recall leading a pack of guys to hold down a presumed gay classmate with long hair and giving him a haircut. Just slipped his mind, apparently. But the Romney folks mention that he did really clever jokes such as pretending to open a glass door for a teacher and distracting him so that the guy ran into the door.

 

So: Everyone out there who had been planning on voting for Obama but now, after reading this article about what a clever guy old mitt was fifty years ago in high school now plan to switch sides, please raise your hands.

 

 

The Romney camp squeezed out the gay guy but kept the bozo who came up with tis vote getting strategy? Did he get a raise?

 

 

By the way, if doing stupid things as a teenager qualifies one for the presidency, write me in. My teenage idiocy lacked the sadistic touch however, instead it was just stupid, so maybe it doesn't count?

[Winstonm]

btw for the quarter JP MOrgan is expected to still make 4 billion after tax.

 

That still doesn't explain why de facto insurance products (credit default swaps) are not regulated as insurance, thus eliminating the need for capital reserve requirements, and why they are not regulated as a commodity, eliminating all transparancy.

 

When trades can cause movements in a $2T market but no one outside the firm is allowed to know the parties involved or the bets, and there is no reserve requirement to cover possible losses, how can anything possible go wrong?

[phil_20686]

Robert Barro: Stimulus Spending Keeps Failing

 

If austerity is so terrible, how come Germany and Sweden have done so well?

 

 

This has occurred to me as well. I imagine that part of the answer, for both austerity and spending, is that it depends on how it is done. It's hard to believe that squandering money is a good idea. Spending it may well be a good idea, if carefully done, and then it may look a bit like austerity.

 

Its a mistake to think of fiscal policy separate from monetary policy. The reason austerity is working ok for Germany and Sweden is that they are running large export surpluses with the rest of the currency zone. This means, essentially, that they are soaking up currency. Look at

http://graphics8.nytimes.com/images/2012/01/30/opinion/013012krugman3/013012krugman3-blog480.jpg

 

 

from krugman's blog. So, in practice Germany, and the other exporting nations in the eurozone are undergoing expansionary monetary policy. This is exporting deflationary pressure to the periphery:

http://www.tradingeconomics.com/chart.png?s=grbc20yy&d1=20080101&d2=20120531

 

 

http://www.tradingeconomics.com/chart.png?s=gkcpnewy&d1=20080101&d2=20120531

 

http://www.tradingeconomics.com/chart.png?s=spipcyoy&d1=20080101&d2=20120531

 

 

The key thing to notice about these charts is not the amount of inflation, but the direction since Jan 11 ish. The exporting nations will have rising inflation and the debtor nations are experiencing deflation(ary pressure). Without ECB action, the continuing imbalance will drive the periphery into outright deflation, and if that happens its the end. No country can avoid default if the real value of its debt is increasing.

 

Now you might ask, why did this not happen before? Well the anser essentially was that the core was happy to return the `money' they were accumulating to the periphery via investment. Look at the balance of trade chart for spain:

http://www.tradingeconomics.com/chart.png?s=sptbeubl&d1=19910101&d2=20120531

 

 

This balance of trade was largely driven by foreign investment, and look how it collapsed following the crisis in 08-09. This was a structural problem, but as long as the core were prepared to invest it would be ok, eventually, as investment would lead to rising productivity and eventually you would expect productivity to somewhat equalise. Then came the financial crisis and investment has basically come to a halt. Since then the structural pressure has been building.

 

There really is only one (or two) solutions. The ECB absolutely must provide enough inflationary pressure in the periphery to prevent deflation. It is clear that the periphery cannot manage this through fiscal expansion. Possibly the EU could manage this by redistributing its massive CAP budget into infrastructure projects in the periphery. There is enough money in the CAP to make a sizeable difference in the Balance of Trade, but I don't think that it is politically feasible.

 

If it seems easier, reflect that this is pretty much exactly the same mechanism that leads to price inflation in New York or London, compared to the rest of the local region. They are exporting services and goods to the rest of the country, so they accumulate lots of dollars (get richer), but part of this leads to price inflation, since the accumulation of dollars is not accompanied by a comparable increase in production. Thus, inflation occurs, and housing, food etc become more expensive. At the local level tax brackets limit this, as new yorkers will end up paying more in tax than surrounding regions, and a lot of this will be redistributed, until a local equilibrium is reached. Unfortunately, the EU has no comparable institutions that can redistribute wealth as effectively as the state and federal governments. Thus, the only real chance is for the ECB to come to the party. Inflation will redistribute wealth from those countries with a larger monetary base to those with a smaller i.e. from germany to the core. Say 5% ish inflation in the EU will lead to large wealth redistribution from germany, and the other exporters, to the periphery.

[y66]

Austerity isn't "always bad" -- the claim is that its a bad response to a recession caused primarily by lack of demand.

 

Countries like Germany and Sweden are in good budgetary shape because they were more fiscally disciplined in the relatively stronger economic times of the 90s and early 2000s. Neither was hit too hard by the current crisis (relative to the rest of Europe) and neither has responded with massive cuts to government services.

 

A better comparison might be Iceland vs. Ireland.

Iceland vs Ireland is the textbook example of the usefulness of exchange rate flexibility and haircuts for foreign investors as alternatives to http://graphics8.nytimes.com/images/2012/02/25/opinion/022512krugman2/022512krugman2-blog480.jpg[/img]ds=z8o7pt6rd5uqa6_&met_y=unemployment_rate&idim=country:is&fdim_y=seasonality:sa&dl=en&hl=en&q=iceland+unemployment#!ctype=l&strail=false&bcs=d&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:sa&scale_y=lin&ind_y=false&rdim=country_group&idim=country:is:ie&ifdim=country_group&tstart=918795600000&tend=1331524800000&hl=en_US&dl=en&ind=false"]massive unemployment for resolving massive balance of payments problems.

 

I don't get the fiscal discipline explanation for Germany's having steered clear of the current crisis. Perhaps the German export machine is a better explanation.

 

http://graphics8.nytimes.com/images/2012/02/25/opinion/022512krugman2/022512krugman2-blog480.jpg

 

Source: IMF World Economic Outlook Database via Krugman. Similar data are available from Eurostat via Google Public Data.

[phil_20686]

That still doesn't explain why de facto insurance products (credit default swaps) are not regulated as insurance, thus eliminating the need for capital reserve requirements, and why they are not regulated as a commodity, eliminating all transparancy.

 

When trades can cause movements in a $2T market but no one outside the firm is allowed to know the parties involved or the bets, and there is no reserve requirement to cover possible losses, how can anything possible go wrong?

 

I don't really understand this attitude. Banks invest money on behalf of their savers. They make money out of the maturity mismatch: there are plenty of profitable long term investments that individual savers would not take because they need ready access to their money, but by grouping people together you can always make sure there is enough of someone's money to finance.

 

However, there is not such thing as a risk free investment. Sometimes banks lose money on investments. 2bn is not a lot of money for a bank with an asset base of two trillion dollars. They made an investment of 0.1% of their net asset base, and it lost. Hopefully they will make money on the other 99.9% of their asset base, and life will be rosy. I mean, according to their shareholder report they have 250bn dollars of cash on hand. Hence the `Fortress balance sheet' moniker. This is money they keep just for a rainy day. When you invest, sometimes you lose, big deal?

[Winstonm]

I don't really understand this attitude. Banks invest money on behalf of their savers. They make money out of the maturity mismatch: there are plenty of profitable long term investments that individual savers would not take because they need ready access to their money, but by grouping people together you can always make sure there is enough of someone's money to finance.

 

However, there is not such thing as a risk free investment. Sometimes banks lose money on investments. 2bn is not a lot of money for a bank with an asset base of two trillion dollars. They made an investment of 0.1% of their net asset base, and it lost. Hopefully they will make money on the other 99.9% of their asset base, and life will be rosy. I mean, according to their shareholder report they have 250bn dollars of cash on hand. Hence the `Fortress balance sheet' moniker. This is money they keep just for a rainy day. When you invest, sometimes you lose, big deal?

 

You don't lose if the losses are socialized but the profits are privatized.

[mike777]

You don't lose if the losses are socialized but the profits are privatized.

 

 

so again the issue is over and over again too much regulation and govt.....

 

they pass stuff and rest ignore.l

[jdeegan]

:P Pissy, pissy pissy. It is just the Goldilocks problem. Is the porridge too hot or too cold. You cannot have any sort of market in financial claims that deals with ordinary consumers without some sort of uber mensch (eg. government and THE LAW) standing behind and vouching for the deal. We have health regulations that make restaurant dining not a health issue. How is the market in financial claims any different?

[mike777]

:P Pissy, pissy pissy. It is just the Goldilocks problem. Is the porridge too hot or too cold. You cannot have any sort of market in financial claims that deals with ordinary consumers without some sort of uber mensch (eg. government and THE LAW) standing behind and vouching for the deal. We have health regulations that make restaurant dining not a health issue. How is the market in financial claims any different?

 

 

wht is your question?

 

is a health question diff from a fin. question?

 

Is one mkt diff from another mkt?

 

 

YES but alot of basic stuff is the same so?

[kenberg]

It's a mistake to think of fiscal policy separate from monetary policy. The reason austerity is working ok for Germany and Sweden is that they are running large export surpluses with the rest of the currency zone. This means, essentially, that they are soaking up currency

 

No doubt I need to do some hard work if I really want to grasp all that you said. This first sentence though is easy enough for me to buy into. The second sentence I want to focus on. Why are they having this success with exports? And I assume we cannot arrange things so that everyone has an export surplus? That would be like everyone having an income that is above the average income.

 

Observation 1.

When I was young and before you were born, I once owned a BSA motorcycle. At the time, some people rode Honda 50 cc cycles. These were considered "cute". They were not allowed on serious highways. Now I drive a Honda Accord, and Hondas and Toyotas account for a sizable percentage of the cars on American roads.

 

Observation 2:

I just finished teaching a course in which, as always, some students did better than others. Why? Some worked harder, and some are smarter.

 

Where am I going with this? Back to the question:

 

Why is it true that Germany and Sweden are running an export surplus?

 

 

I do understand that economic policies make a difference, even if I have trouble grasping exactly how it works. But at some point, someone actually has to build something that someone wants to buy if export surpluses are to happen, no? I have long been worried about what I see as a pervasive view in the U.S. that the key to success is learning how to make a financial deal. Moving money around is important, no doubt about it, but for a country to prosper, that may not be enough.

[phil_20686]

The second sentence I want to focus on. Why are they having this success with exports? And I assume we cannot arrange things so that everyone has an export surplus? That would be like everyone having an income that is above the average income.

 

Observation 1.

When I was young and before you were born, I once owned a BSA motorcycle. At the time, some people rode Honda 50 cc cycles. These were considered "cute". They were not allowed on serious highways. Now I drive a Honda Accord, and Hondas and Toyotas account for a sizable percentage of the cars on American roads.

 

Observation 2:

I just finished teaching a course in which, as always, some students did better than others. Why? Some worked harder, and some are smarter.

 

Where am I going with this? Back to the question:

 

Why is it true that Germany and Sweden are running an export surplus?

 

 

I do understand that economic policies make a difference, even if I have trouble grasping exactly how it works. But at some point, someone actually has to build something that someone wants to buy if export surpluses are to happen, no? I have long been worried about what I see as a pervasive view in the U.S. that the key to success is learning how to make a financial deal. Moving money around is important, no doubt about it, but for a country to prosper, that may not be enough.

 

So the point about free floating currencies, is that they should always move move to choke of current account deficits. That is to say, if you export something to another country, the buyer must first buy your currency, and then use that currency to buy your stuff. Thus an export surplus will move to strengthen a currency, and a deficit will weaken it. Since a strengthening currency makes labour in your country more expensive, it will make it cheaper for the buyer to buy from elsewhere, and you move towards an equilibrium where every currency has a trade balance of zero.

 

In practice, through innovation and development and changing regulations and circumstances, the currency is always playing catch up to the Balance of trade. Its a dynamical process moving to wards a constantly changing equilibrium. But still, large trade imbalances between regions are impossible in the long run unless you have currency manipulation of some description.

 

However, this analysis only applies between currency regions, not within one. Within one the exchange rate is fixed so there is no break on imbalances within a zone except if they are applied fiscally by the government. Hence we have this terrible situation where the trade imbalances between regions in the euro zone are bigger than the trade deficit of the eurozone as a whole:

consier this graph

http://www.tradingeconomics.com/chart.png?s=xttbez&d1=19990101&d2=20120531

 

so we can see that the eurozone has approximately an imbalance of +-10bn euros (per month). For germany,

http://www.tradingeconomics.com/chart.png?s=grtbale&d1=19950101&d2=20120531

 

 

so germany's trade imbalance is larger than that for the whole EU despite being only a fraction the size. Also notice how the imbalance grew substantially post euro. (1999). This is because following the introduction of the euro, the currency became, effectively, the weighted average of all of the eurozone's individual currencies. Thus the poor performance of the periphery has been holding down the price of labour in germany, which otherwise would have tended to increase as the DM appreciated.

 

It is this effect that has made germany the biggest beneficiary of the eurozone, while the periphery is lumbered with an exchange rate much too high to make their economies competitive. If this was to happen in a single country, the normal answer is to create a tax differential, which makes it cheaper to invest in the poorer areas. This will generally happen automatically if your income tax is bracketed, since the more expensive places pay more in the top bracket.

 

Of course, you are right that government policy, regulation, quality of education etc all make a difference, but these differences would normally be priced in through the exchange rate mechanism. The result would be a worse exchange rate, and it would be more difficult to import stuff, so you would be poorer on a world stage, but your exchange rate would adjust to make your economy competitive anyway. Moreover, there is pretty good evidence that the trend line for economic growth depends mostly on technological innovation which is easily imported, and so all industrial economies are basically on the same trendline, policies and stuff normally just mean that better regulation is a one time event, and does not compound. E.g. Germany might be 20% better than britian, then it will be 20% richer, but this difference will not grow, unlike technological innovation which compounds, and we get exponential growth in economies.

 

Finally, within a currency zone, there is a competitive advantage to clustering. Car firms in a country tend to locate their manufacturing bases close to each other, either because they have similar requirements or because then suppliers move together or whatever, so for example, detroit became well known for its cars, las vegas for gambling etc. It could well be that the end state for a euro-state is an industrial north and a goods and service dominated south. That would be ok if there were large fiscal transfers, and it works ok in the US, where levels of industry vary widely between states, but it is not ok if each country sees itself in a competitive zero-sum game with the others. In fact, the balance of trade issue is self defeating, the north cannot keep making stuff for the south, as eventually there just will not be enough euros left in the south to pay for anything :).

 

SO in summary:

(1) The eurozone story is one of balance of trade issues.

(2) If the desired endstate is homogeneous, with every country doing roughly the same, then there must be large scale wealth transfers to negate the effects of clustering.

(3) On current pathways the endstate will be an industrial north and a south so impoverished that they cannot purchase any goods from the north. This will eventually fix the balance of trade, but it will not be a healthy end.

 

PS: A random aside. Given the analysis I provided above, you might wonder how the US has had such a massive balance of trade deficit for so long without its currency weakening enough to choke it off. I think I have hit upon the answer to this: OPEC sells oil in dollars. Thus, if the EU wants to buy oil from OPEC, first we must buy dollar, and that supports the strength of the US. Essentially the US does not make up the whole of the dollar currency zone. So if OPEC exports 30 million barrels a day, at $100 a barrel, then that is a dollar export of 30*30,000,000*100 = 90bn per month, or around twice the US trade deficit. Of course, we should only count barrels sold to non-dollar countries, I.e. not the US, so if half of OPEC production goes to non dollar currencies, then that exactly supports the US trade deficit, and prevents the dollar weakening.

 

http://www.tradingeconomics.com/chart.png?s=ustbtot&d1=19950101&d2=20120531

 

http://www.tradingeconomics.com/chart.png?s=cl1&d1=19950101&d2=20120531

 

 

Also, just look how correlated the US BOT is with the price of oil. Pretty convincing IMO.

[Cthulhu D]

I don't really understand this attitude. Banks invest money on behalf of their savers. They make money out of the maturity mismatch: there are plenty of profitable long term investments that individual savers would not take because they need ready access to their money, but by grouping people together you can always make sure there is enough of someone's money to finance.

 

That's true for a deposit taking institution, but not for an investment bank. The two behave very differently.

 

Germany's free ride

 

Yeah, while Germany and Sweden both have better governments, more effective regulations etc, the Germans currently benefit from the Greeks etc artificially holding down the value of their currency. Basically German goods are substantially cheaper because the Greeks don't know how to run a country (tip: like the Swedes). This is why the Germans want to perpetuate the status quo - it's hugely beneficial to them. They basically get the same benefits of currency manipulation that the Chinese do, except it happens automatially.

 

The greeks on the other hand either need massive inflation or to default on their loans or both or, altenatively, leave the euro zone enabling them to tank their currency - then they will become much more competitive overnight.