Posted by: Dirk | April 5, 2013

Frankfurt newspapers – what are they thinking?

After the conservative FAZ (Frankfurter Allgemeine Zeitung) bought the liberal-left Frankfurter Rundschau many commentators saw a potential problem. Let’s compare two articles published today, one each from each newspaper. FAZ goes first: Die Fehlkonstruktion der Troika (The misconstruction of the troika, my translations):

04.04.2013 ·  Als Kind der Griechenland-Krise wurde 2010 die Troika installiert. Ein immer größerer Teil des Euroraums wird von diesem Dreigestirn mitregiert. Der IWF trägt über die Troika zu einer Amerikanisierung der Wirtschaftspolitik in Europa bei.

Von Patrick Welter, Washington

Interesting. So, the troika was installed in the wake of the Greek crisis. It rules an expanding number of euro zone members. Die IMF contributes to the Americanization of economic policy in Europe. As I said: interesting. The argument continues:

Als Teil der Troika exportiert der Fonds sein nachfrageorientiertes Denken nach Europa. Schuldenfinanzierte Konjunkturimpulse und eine konjunkturpolitische Rolle der Geldpolitik sind auch deshalb hoffähig geworden. Mindestens den Deutschen war anderes zugesagt worden, als sie in den Euro geschubst wurden.

Translation: As part of the troika the Fund exports its demand-led thinking to Europe. This is why debt-financed growth impulses and a business cycle-fighting monetary policy are now acceptable. The Germans were promised something different when they were pushed into the euro.

This stuff is unbelievable. The only thing that comes to mind is Dolchstoßlegende. The poor Germans were pushed into the euro, the PIGIS misbehaved and now the IMF now americanizes Europe! If you call that a newspaper I disagree. This is worse than rubbish. The author is not interested in understanding the economy, not interested whether policies work or not. It seems that he thinks if it is German it will work, if it is American it won’t (or it will but that’s even worse?). Policies during an economic crisis, I believe, are about results, not about whether these policies are German or American or Samoan. Austerity destroys the economy? Well, then change the theory and try something else.

Perhaps the FR (Frankfurter Rundschau) is better. Here is an article on Japan called Notenbank im Kaufrausch (central bank on a buying spree):

Die japanische Regierung hatte mehrfach versucht, durch staatliche Konjunkturprogramme die Flaute zu beenden – erfolglos. Zurück blieben nur riesige Staatsschulden. Noch ist der Schuldenberg zu finanzieren, denn die Zinsen sind niedrig. Doch das liegt nur an der großen Nachfrage der Japaner nach Staatsanleihen. „Auf Dauer ist dieses Modell nicht tragfähig“, urteilt die Commerzbank. Denn in spätestens zehn Jahren überstiegen die staatlichen Schulden die privaten Vermögen der Japaner. Dann muss sich Tokio im Ausland nach Geldgebern umsehen – und das bedeutet höhere Zinsen und möglicherweise eine Staatsschuldenkrise, warnen die Commerzbanker.

Uh-huh. The Japanese government tried multiple times to get out of the slump – without success. They left only big government debts. Still they can finance it, because interest rates are low. But that is only because Japanese people demand government bonds strongly. “In the long run this model is not sustainable”, judges the Commerzbank. Because in 10 years maximum the public debts will rise above the private wealth of the Japanese. Then, Tokyo must look for buyers in the rest of the world – and that means higher interest rates and possibly a government debt crisis, warn the Commerzbankers.

Ok, the usual Japan bashing. Japan at least had positive growth rates during its slump, something that Spain or Greece would have loved to have. What is really strange is that government debt will be above private sector wealth. Why? If you sell your bonds to the Japanese public, by definition the wealth of the private sector rises one to one with the debt of the government. I’d say that the Commerzbank doesn’t know how balance sheets work. (Maybe this is why they needed government aid until this year?) Another aspect: who says that the government will not be able to sell its bonds in Japan? If the central bank creates enough liquidity, this is possible without problem.

The next paragraph starts like this:

Die Bank of Japan feuert daher aus allen Rohren. Sie kauft alles auf, was der Finanzmarkt zu bieten hat. Jedes Monat will sie japanische Staatsanleihen im Wert von sieben Billionen Yen (58 Milliarden Euro) erwerben.

Well, this is outright bizarre. Translation: The Bank of Japan brings in the heavy artillery. She buys everything available on the financial market. Every month she wants to buy Japanese government bonds worth seven trillion yen. End of translation: What?! I give up. The reader is left to draw his/her own conclusions. Can Japanese government bonds be sold in Japan in unlimited amounts, yes or no? The Commerzbank expert says no, doesn’t give an explanation, the author of the article continues to say that yes, it can, doesn’t give an explanation.

If you don’t even care for the explanations, how will you ever be possible who is a wise guy and who is an idiot – or anything in between? In the conservative FAZ, the dream world of conservatives collides with reality, dream world wins. In the FR, the readers are given opinions, but not explanations. With newspaper articles like this Germany will pay a heavy price for its intellectual closure.

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