Monday, July 02, 2012

Paul Krugman Calls it Europe’s Great Illusion: Are Inflation and Monetary Devaluation via Increased Spending the Only Real Solutions?

Paul Krugman's most recent piece at the New York Times is Europe’s Great Illusion, writing inter alia in the aftermath of the recent -- in our eyes "relatively successful" -- Eurozone summit meeting:
"Over the past few months I’ve read a number of optimistic assessments of the prospects for Europe. Oddly, however, none of these assessments argue that Europe’s German-dictated formula of redemption through suffering has any chance of working. Instead, the case for optimism is that failure — in particular, a breakup of the euro — would be a disaster for everyone, including the Germans, and that in the end this prospect will induce European leaders to do whatever it takes to save the situation."
We agree with Paul Krugman on much of his basic macroeconomics, but are recently somewhat more concerned about why he continues to pounce on the economy of Europe rather than on the economic situation in the United States.

We presume that the reason is because the USA and the EU are the biggest bilateral trading and investment partners in the world (with China soon overtaking) whose fortunes are inextricably entwined.

The transatlantic economy has traditionally been the world's motor, as can be seen from these figures from the European Commission, the executive body of the European Union (EU):
"Trade in goods
  • EU good exports to the US in 2010: €242.1 billion
  • EU goods imports from the US in 2010: €169.5 billion
Trade in services
  • EU services exports to the US 2010: €125.2 billion
  • EU services imports from the US in 2010: €131.0 billion
Foreign Direct Investment
  • EU investment flows to the US in 2009: €79.2 billion
  • US investment flows to the EU in 2009: €97.3 billion
  • Investment stocks inward in 2009: €1044 billion
  • Investment stocks outward in 2009: €1134 billion
More statistics on USA"
What would be useful to see from Krugman is an analysis of the people and institutions to whom the money of the debt crisis is OWED and why (or not) they should be saved from their bad investments viz. loans and why money speculators, banks looking for absurd returns from sovereign nations -- and failing, hedge funds, and their ilk, etc. should be rewarded for what is nothing other than monetary gambling. That is a far more important question than all this theoretical economic bantering.

Hat tip to CaryGEE.

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