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The EU Is Beginning To Face Reality: President Obama And Secretary Geithner, Not So Much

Having a Central Bank that issues what is known as a reserve currency has its advantages. It also has its disadvantages when the federal government attached to that bank refuses to enact austerity policies that are designed to maintain fiscal stability in a national economy.

There are some fascinating events unfolding in the European Union and the United States right now regarding austerity measures (spending constraints) and Central Bank policy. In short, the EU nations, knowing full well that they cannot print money with impunity, are looking for spending discipline. U S Treasury Secretary Tim Geithner wants the EU to encourage consumer demand (re: stimulus spending).

June 6 (Bloomberg) -- European Central Bank President Jean- Claude Trichet and Treasury Secretary Timothy F. Geithner diverged on prescriptions to sustain growth, with Europe set to tighten budgets and the U.S. seeking stronger domestic demand.

The remarks underline determination within the 16-nation euro area to shrink budget deficits in the wake of a sovereign debt crisis that has led to a 750 billion-euro ($913 billion) rescue fund for the region's weakest members. The emphasis contrasts with the message delivered to the G-20 by the U.S., which wants countries with trade surpluses, including China and Germany, to stoke demand to help sustain the global recovery.

"Stronger domestic demand growth in Japan and in the European surplus countries" is needed, Geithner said at a separate press briefing in Busan. Spending in both areas is "relatively weak," he said.

Here is the gist of the debate between Treasury Secretary Geithner and EU Central Bank President Trichet: the United States can print money longer (and sustain deficits for a longer period) than the EU, but the end result is the same. The EU knows it is experiencing a currency crisis right now and may be choosing to face the music by reducing spending. The United States, on the other hand, is still in denial about this looming problem. As the Europeans take on the gut wrenching job of forcing spending cuts on their citizens because they are left with no other choices, our administration is encouraging more Keynesian non sense. Fortunately, the EU is saying "enough" to the Keynesian insanity. Why? Because they have history on their side and know in a very personal way how a currency becomes worthless and what happens as a result. Americans (with the exceptions of Southerners (and their creditors) left holding Confederate dollars 150 years ago) have no experience with the harsh reality that accompanies currency debasement. J P Morgan may have saved the country one hundred years ago but the size and scope of the problem today is several orders of magnitude greater.

This is not a complicated matter. The U S can begin adopting austerity policies now or it can continue to "tickle the dragon's tail" (print dollars they hope some country will buy) and wager that it can prevent a financial nuclear meltdown when the problem reaches critical mass. This is one time when the Americans should be following the example of the Europeans.

Karl Denninger has another take on this that is worth reading.


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Comments (14)

Unfortunately, the Democrat... (Below threshold)

Unfortunately, the Democrats are in control at present and it is in their best interest to keep folks on the government teat. As for the monetary policies - the Euro's have 'been there, done that, got the T-shirt and it don't work'. Timmy and company still spout the socialist line and want to emulate those 'sophisticated Europeans'. Timmy, of course, thinks 'We can do it better'. But what do you honestly expect from a tax cheat?

Once a cheater always a che... (Below threshold)
Heinz 57 state sauce:

Once a cheater always a cheater...As long as its other peoples money Barry & Timmy will spend,spend and spend some more. Its way past time for these clowns to be rode out of town.

here let me save Lee Ward t... (Below threshold)
retired military:

here let me save Lee Ward the trouble.

Republicans didnt have a problem with going into debt until a black man became President.

The sad reality is that Oba... (Below threshold)

The sad reality is that Obama and the Democrats pissed away trillions of dollars in a manner that did nothing to foster private sector job growth. If they had done something sensible like cut or eliminated payroll taxes at least temporarily we would have seen positive employment growth in the private sector economy but now we don't have that possibility anymore without extending deeper into debt. This nation's crushing debt load has reached dangerous levels and quite simply is not sustainable. The stimulus was nothing more than a payoff to the unions that got them elected and now that money is pretty much gone and we have even higher employment now than before it was spent. We are screwed unless we can get off this path but I wonder if it is too late. Our fate may already be sealed - I hope I am wrong.

I'm confused...why don't th... (Below threshold)

I'm confused...why don't the European governments just spend a bunch of money on make work projects and expanded social benefits? I mean, isn't that what those running the US (into the ground) currently believe will fix their economies?

Very concise and accurate t... (Below threshold)
Jim Addison:

Very concise and accurate take on the situation. The EU are finally beginning to "get it" simply because they can't pretend any longer. The Germans and French have suddenly realized they were on tap for everyone else's bills if things kept going the way they were, and a currency meltdown would have been inevitable. The USA is a (very) few years short of that point still, but even if we were at the limit, too, Obama and the Democrats are just not capable of understanding that.


bryanD ~ Ah, screw the Bilderbergers! The Illuminati will destroy them BWAHAHAHAHAHA!

<a href="http://www.google.... (Below threshold)
Royalty and policy are s... (Below threshold)
Jay Guevara:

Royalty and policy are supposed to be mutually exclusive since 1776/1918.

Nope. They've only became mutually exclusive since the Hero of Chappaquidick died.

bryanD will now warn us abo... (Below threshold)

bryanD will now warn us about the Knights Templar.

I'm more worried about the ... (Below threshold)

I'm more worried about the Spanish Inquisition and their Comfy Chairs.

Poor bryand. So much wisdo... (Below threshold)

Poor bryand. So much wisdom and light crammed into his skull and no one else in the world, and I mean no one, is smart enough to recognize his genius.

Of course, it might help if he wasn't screaming at the world from his parents basement while in a drug-induced stupor, but such is life.

However, in the end, we all know perfectly well that it's actually the Pentaverate that is running everything.

The others? Trilaterals? Bilderburgers? Council on Foreign Relations? Mason? Freemasons? Notsofreemasons? masonsforfees? Ha! ALL DISTRACTORS!!!

Which means.....wait for it..... bryand with all of his rantings about groups "running the world" is actually part of the conspiracy to throw off suspicion from the Pentaverate and onto these other false-fronts!


Keep it up bryand! Your masters are well-pleased with your work....or so I've been informed via my tin-foil reinforced auto-apple-peeler.

When Europe has to be the r... (Below threshold)
Caesar Augustus:

When Europe has to be the reality check on your fiscal and monetary policies then you've got even bigger problems than those of which you're currently aware.

Save us all Barry, Were los... (Below threshold)

Save us all Barry, Were lost! How did we ever live without you!

Just remember Obamanomics. ... (Below threshold)

Just remember Obamanomics. We're going to 'spend' our way to prosperity in the interests of 'social justice'.






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