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As Paul Krugman has said before[1] This is a reflection of the following identity: Current account = Savings – Investment Basically, Germany is over-saving a

by dimitar 12y ago

As Paul Krugman has said before[1] This is a reflection of the following identity: Current account = Savings – Investment Basically, Germany is over-saving and both Germany and its trade partners are worse off because of it. [1]: http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-germany/ http://krugman.blogs.nytimes.com/2013/11/01/more-notes-on-ge...

dmichulke 12y ago
There are schools who disagree with this and say Savings = Investment because 99,9% of the money saved is put on the bank where it gets reinvested.
- Gibbon1 12y ago
  And those schools are nothing but quantity theory of money cargo cultists or worse, gold bugs.
- dimitar 12y ago
  This is called Loanable Funds and is the same thing. The identity in my comment is the open economy version where you also have the current account.
- dimitar 12y ago
  Also, think of I=S as the point of where two curves intersect (saving and investment). The point is that the savings curve is way to the right and the investment is way to the left. The curves still intersect though, but so what? That doesn't provide you with any judgement to which way the curves might shift.
  - dmichulke 12y ago
    OK, I think the difference is whether the amount of money is fixed. If it were, global investment would equal global savings. In any case, it's locally possible to invest more (in nominal terms) than savings, both because money supply is increasing and there are always local imbalances. Typically, interest rate differentials take care of this in a free market. Reducing the interest rate in Germany would be one cure, another one would be hiking it in the importing countries. So I don't see the blame at one side only.
junto 12y ago
Germans are a cautious people and fear that the economy could collapse at any time. As a result they are trying to: - Make sure they have some savings to fall back on - Moving their Euros into bricks and mortar They are careful with their private income and suspicious of debt. When I look at my fellow Brits in the UK living on their credit cards and month-to-month on their Wonga loans, I'm starting to realise that the Germans might be onto something. One thing is quite obvious. The German mentality for cautiousness is not going to change any time soon.
- hackerboos 12y ago
  The differences between our economies are more complex than you've suggested. Differences between the UK and Germany: * Unions are very weak in the UK compared to Germany. Union reps sit on boards of major German companies, negotiate wages that get workers a better deal * Germany's infamous mittelstand provides good technical jobs when compared to the UK which depends heavily on an unstable banking sector to bring in tax revenue * Germany doesn't have the same crippling real estate market as the UK and has stronger tenants rights, long leases when renting * Germany's benefits system is much more generous than the UK's
- patrickk 12y ago
  > Moving their Euros into bricks and mortar This one is certainly untrue, most Germans rent http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate http://en.wikipedia.org/wiki/List_of_countries_by_home_owner... It's certainly true about debt, you have to have cash with you always in Germany because sometimes a shop accepts Visa/Mastercard, sometimes EC Karte (German banking debit card), and sometimes neither. You can rarely predict which is going to be the case.
  - junto 12y ago
    Observer bias, but whilst Germany home ownership rates are one of the lowest in the EU, they are increasing. The housing market here is competitive (between buyers) even with agent commissions of up to 6% of the house price (normally paid by the buyer). Having recently purchased property I can confirm that the market is quite crazy at the moment.

by dimitar 12y ago

dmichulke 12y ago

There are schools who disagree with this and say Savings = Investment because 99,9% of the money saved is put on the bank where it gets reinvested.

Gibbon1 12y ago
And those schools are nothing but quantity theory of money cargo cultists or worse, gold bugs.
dimitar 12y ago
This is called Loanable Funds and is the same thing. The identity in my comment is the open economy version where you also have the current account.
dimitar 12y ago
Also, think of I=S as the point of where two curves intersect (saving and investment). The point is that the savings curve is way to the right and the investment is way to the left. The curves still intersect though, but so what? That doesn't provide you with any judgement to which way the curves might shift.
- dmichulke 12y ago
  OK, I think the difference is whether the amount of money is fixed. If it were, global investment would equal global savings. In any case, it's locally possible to invest more (in nominal terms) than savings, both because money supply is increasing and there are always local imbalances. Typically, interest rate differentials take care of this in a free market. Reducing the interest rate in Germany would be one cure, another one would be hiking it in the importing countries. So I don't see the blame at one side only.

junto 12y ago

Germans are a cautious people and fear that the economy could collapse at any time. As a result they are trying to: - Make sure they have some savings to fall back on - Moving their Euros into bricks and mortar They are careful with their private income and suspicious of debt. When I look at my fellow Brits in the UK living on their credit cards and month-to-month on their Wonga loans, I'm starting to realise that the Germans might be onto something. One thing is quite obvious. The German mentality for cautiousness is not going to change any time soon.

hackerboos 12y ago
The differences between our economies are more complex than you've suggested. Differences between the UK and Germany: * Unions are very weak in the UK compared to Germany. Union reps sit on boards of major German companies, negotiate wages that get workers a better deal * Germany's infamous mittelstand provides good technical jobs when compared to the UK which depends heavily on an unstable banking sector to bring in tax revenue * Germany doesn't have the same crippling real estate market as the UK and has stronger tenants rights, long leases when renting * Germany's benefits system is much more generous than the UK's
patrickk 12y ago
> Moving their Euros into bricks and mortar This one is certainly untrue, most Germans rent http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate http://en.wikipedia.org/wiki/List_of_countries_by_home_owner... It's certainly true about debt, you have to have cash with you always in Germany because sometimes a shop accepts Visa/Mastercard, sometimes EC Karte (German banking debit card), and sometimes neither. You can rarely predict which is going to be the case.
- junto 12y ago
  Observer bias, but whilst Germany home ownership rates are one of the lowest in the EU, they are increasing. The housing market here is competitive (between buyers) even with agent commissions of up to 6% of the house price (normally paid by the buyer). Having recently purchased property I can confirm that the market is quite crazy at the moment.