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>> Germany props themselves up with exports I don't understand what you mean. Why is this different from saying "the shop owner props herself up by selling to

>> Germany props themselves up with exports I don't understand what you mean. Why is this different from saying "the shop owner props herself up by selling to other people in town?", only at an international level? In other words, why is it a bad thing?

lmm 14y ago
Because it seems unsustainable. Sooner or later international trade has to reach an equilibrium where everyone exports as much as they import (just as everyone in town must ultimately sell the same amount of value as they buy). Obviously someone who's buying more than they're selling has a problem, since sooner or later they'll run out. But someone who's selling more than they're buying should not expect this to go on forever either, and if their internal economy depends on a constant influx of money from outside then there will be trouble when it stops. To stretch the analogy to its limits, a shopkeeper who's got in the habit of having the extra money on hand from being able to sell more than they buy in the market is living dangerously. (More specifically for Germany I'd say there's a risk of a deflationary spiral - if exports fall then companies will reduce domestic prices and take losses (leading to reduced pay in real terms). Consumers see that prices and salaries are falling, so they hold onto their money and spend less, which only makes it worse). But you're right in that it's not so much having high exports that's a problem, as the risk of seeing a sudden drop in your exports.
- nathan_long 14y ago
  >> international trade has to reach an equilibrium where everyone exports as much as they import (just as everyone in town must ultimately sell the same amount of value as they buy) I'm not sure that must or will happen. Maybe the US will decline as a German customer, but India will step up, for example. Germany might be able to go on relying on exports for ever. And a wise shopkeeper brings in more than they earn for decades, saving up for when their is no income (hard times or retirement). Dependance on exports makes Germany vulnerable to worldwide financial changes, but dependance on domestic sales makes them vulnerable to domestic crises, like a falling birth rate. Pick your poison. I'm not sure the choice is very clear. Although maybe the answer is "spread your risks by having a balance," which I suppose was your original point.
  - lmm 14y ago
    >I'm not sure that must or will happen. Maybe the US will decline as a German customer, but India will step up, for example. Germany might be able to go on relying on exports for ever. The thing is, money can't really be created or destroyed, because it's just a marker for wealth. If country X is paying Germany money for its exports, that money is "really" a promise of future goods/labour from country X or someone they trade with; it only really works if it's "redeemed" from the same country in the end. If the trades were denominated in some scarce resource like gold, sooner or later all the gold would end up in Germany; likewise trading in euros within the eurozone. (Obviously with fiat money if country X is paying in their own currency (let's say shillings) then they can continue to print more, but that devalues everyone's shillings (including the ones that have now made their way into German pension funds), German companies start charging more and more for their exports so the shilling inflates faster and faster and it all ends very badly for country X.) ((In reality, of course, neither of these extreme scenarios usually comes to pass. What would tend to happen is that as more of the international money supply is concentrated in Germany, other countries can't afford to pay as much for German exports, while Germany has more money available to spend on imports, and the market adjusts so imports and exports balance out)) >And a wise shopkeeper brings in more than they earn for decades, saving up for when their is no income (hard times or retirement). True, but I think the analogy breaks down here. Thought if Germany were to "go into retirement" as a country the effects on the global financial system would be... interesting to say the least.

lmm 14y ago

Because it seems unsustainable. Sooner or later international trade has to reach an equilibrium where everyone exports as much as they import (just as everyone in town must ultimately sell the same amount of value as they buy). Obviously someone who's buying more than they're selling has a problem, since sooner or later they'll run out. But someone who's selling more than they're buying should not expect this to go on forever either, and if their internal economy depends on a constant influx of money from outside then there will be trouble when it stops. To stretch the analogy to its limits, a shopkeeper who's got in the habit of having the extra money on hand from being able to sell more than they buy in the market is living dangerously. (More specifically for Germany I'd say there's a risk of a deflationary spiral - if exports fall then companies will reduce domestic prices and take losses (leading to reduced pay in real terms). Consumers see that prices and salaries are falling, so they hold onto their money and spend less, which only makes it worse). But you're right in that it's not so much having high exports that's a problem, as the risk of seeing a sudden drop in your exports.

nathan_long 14y ago
>> international trade has to reach an equilibrium where everyone exports as much as they import (just as everyone in town must ultimately sell the same amount of value as they buy) I'm not sure that must or will happen. Maybe the US will decline as a German customer, but India will step up, for example. Germany might be able to go on relying on exports for ever. And a wise shopkeeper brings in more than they earn for decades, saving up for when their is no income (hard times or retirement). Dependance on exports makes Germany vulnerable to worldwide financial changes, but dependance on domestic sales makes them vulnerable to domestic crises, like a falling birth rate. Pick your poison. I'm not sure the choice is very clear. Although maybe the answer is "spread your risks by having a balance," which I suppose was your original point.
- lmm 14y ago
  >I'm not sure that must or will happen. Maybe the US will decline as a German customer, but India will step up, for example. Germany might be able to go on relying on exports for ever. The thing is, money can't really be created or destroyed, because it's just a marker for wealth. If country X is paying Germany money for its exports, that money is "really" a promise of future goods/labour from country X or someone they trade with; it only really works if it's "redeemed" from the same country in the end. If the trades were denominated in some scarce resource like gold, sooner or later all the gold would end up in Germany; likewise trading in euros within the eurozone. (Obviously with fiat money if country X is paying in their own currency (let's say shillings) then they can continue to print more, but that devalues everyone's shillings (including the ones that have now made their way into German pension funds), German companies start charging more and more for their exports so the shilling inflates faster and faster and it all ends very badly for country X.) ((In reality, of course, neither of these extreme scenarios usually comes to pass. What would tend to happen is that as more of the international money supply is concentrated in Germany, other countries can't afford to pay as much for German exports, while Germany has more money available to spend on imports, and the market adjusts so imports and exports balance out)) >And a wise shopkeeper brings in more than they earn for decades, saving up for when their is no income (hard times or retirement). True, but I think the analogy breaks down here. Thought if Germany were to "go into retirement" as a country the effects on the global financial system would be... interesting to say the least.