Paul Krugman explains why we need to take careful steps to prevent a combination of China and Germany from bringing our economy to its knees.
China has done nothing to change its policy of massive currency manipulation, and its exports are surging. Meanwhile, Europe is going wild for fiscal austerity. Angela Merkel says that budget cuts will make Germany more competitive — but competitive against whom, exactly?You know the answer, don’t you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.
So we need to stand up to both China and Germany. No more Mr. Nice Guys. In the first case, do something realistic about China's ongoing currency manipulation. As for Germany, send them a message, says Krugman. Let them know that "we are not going to let them export the consequences of their obsession with austerity."
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You know, on second thought it would seem smart for us to let Germany to leak just a teensy bit of austerity obsession on our soil. It could come in the form of pleasant, hypnotic fumes. We'd hardly notice it but we'd carve some wobbly flesh off our backsides, cut some "entertainment" and "etc." and "misc." out of our budgets, and take an oath that no electronics device gets replaced for three years unless actually broken and unusable.
