The World Has a Germany Problem: Debt Obsession Ate the Economy | Hacker News Reader

The World Has a Germany Problem: Debt Obsession Ate the Economy

nytimes.com

34 pointsjs278 comments

Given that German bonds are in negative territory out to thirty years, the government would actually profit by issuing them:

* https://www.bloomberg.com/markets/rates-bonds/government-bon...

* https://www.reuters.com/article/eurozone-bonds/update-3-yiel...

Is there any reason not to "borrow" when you're being paid to do so?

> Is there any reason not to "borrow" when you're being paid to do so?

You still have to pay it back in the future and you can live beyond your means to the point where you can't?

Investing in crumbling infrastructure wouldn't be 'live beyond your means'.

I was talking about issuing debt for the sake of being incentivized to do so, because of negative interest rates.

Infrastructure investments that are profitable later on are a different story.

However, I live in Germany, and when I go out I don't see any crumbling infrastructure. There's certainly potential for improvements, but it's not as if we're living in a crumbling country.

> I was talking about issuing debt for the sake of being incentivized to do so, because of negative interest rates.

I, the GGP, was not talking about borrowing just because one can. But in the context of this story--Germany being tight fisted.

The Germany army has been using broomsticks in place of weapons:

* https://www.independent.co.uk/news/world/europe/german-army-...

I'm sure there are things that need to be fixed or upgraded.

There's nothing wrong with being prudent with money, but Berlin has a fetish about it; it caused all sorts of problems during the Euro crisis (2010-2011).

Germany gave itself a bunch of rules on debt, and we're not in a catastrophic situation that allows bypassing them: https://en.wikipedia.org/wiki/Balanced_budget_amendment#Germ...

> Is there any reason not to "borrow" when you're being paid to do so?

If negative yields forecast shrinking economy and smaller tax base in a future.. You will pay back less nominaly but more in proportion to your revenues. But this is a topic for another time..

It's still better than not borrowing, isn't it?

Goverment budgets are highly unelastic - railways, submarines, healthcare, pensions must be paid. So even small increase in costs of servicing debt results in embarasing and painfull cuts in elastic areas of the budget.

So in general MoFs avoid that unless they are going to pass the ball to the opposition.

But of course you have to borrow to roll old debt.

"But of course you have to borrow to roll old debt."

Not if you have your own currency. Currency issuers never need to borrow.

It makes no sense to even suggest borrowing something that you can create at will.

Austerity, is it really? How about not increasing spending at the same pace as other countries. Many countries could be come debt free by simply keeping spending increases under the rate of inflation.

Krugman was having a hissy in 2014 about Germany for similar things, yet it worked for the Swiss. They have a cap! So staying under three percent paid off for the Germans and this upsets those who subscribe to the idea that government spending is never bad, well if you never plan to pay it off in your lifetime you can borrow against the future quite easily.

This.

Plus all the new money printing debases the currency eventually (even if you are the world reserve currency issuer). This is what transfers the bulk of the wealth from the bottom to the top. Wages can't keep up with inflation and the new money only arrives at the bottom once its value has been inflated away substantially already.

In principle, yes. But each and every Minister of Finance welcomes inflation as it increases budget revenues faster then expenses. And with increased revenues you can buy a lot of votes.

Why going debt free though? What's the point of going debt free? The real economy is dictated by production and consumption, not amount of number that you have on the either side of the balance sheet. If going into debt creates a bigger economy by balancing/revitalizing production/consumption, it should be done. The debt gets larger but so does the economy.

This assumes the debt you’re incurring is going to grow the economy. This is a big “if” in most developed countries, where no amount of debt will change foundational demographic transitions (see: Japan).

But as long as you control monetary policy and can inflate debt away in the future, no one today really cares as the can is kicked down the road.

And that's correct too, how much debt you have doesn't nearly matter as much as the perception that it will be paid eventually. And sovereign countries (Might only be a few on this planet) have almost unlimited choices there. The only kind of debt that matter is the debt denominated in another currency, which is dangerous.

"Many countries could be come debt free"

Why is "debt-free" a desirable condition for a nation?

Why would "in debt" be a more desirable condition?

If nothing else, debt free increases your freedom of action. If you're debt free, and you decide that being in debt is better, well, it's really easy to get there. But if you're in debt and decide that debt free is more desirable, getting there is much harder.

Because debt can be valuable.

The Federal government has a unique ability to guarantee that you will hold a certain number of dollars on a certain date. That should sound a lot like "escrow" to you.

Federal debt lubricates a number of economic processes.

Uhm, sorry, but is the author serious?

I mean, how did we come to the point where not being indebted is bad and should be condemned?

Because debt issued by a soverign and denominated in its own currency is fundamentally different to debt accrued by a private entity.

One design quirk of the Euro is that there is no sovereign to go with it.

Yes, Euro is a disaster. It's a predominantly ideological project that economically is totally unsound. Okay, it was conceived as a way to boost the German economy (before Euro the German mark was just too strong so Germany couldn't export as much as it does now) but ends up painfully backfiring at all Euro economies. First the weaker economies (Greece and Italy) and now Germany.

> it was conceived as a way to boost the German economy (before Euro the German mark was just too strong

Interesting theory, but I wonder when the German economy was so strong that Germany forced the rest of Europe to agree to the Euro:

When the first plans for an economic and monetary union within the EEC were brought up in 1969?

Or in 1979, when European currencies were pegged against the ECU, stabilizing exchange rates (and taking large parts of monetary policy out of the member states' hands)?

Maybe in 1989 when France made German reunification depend on Germany committing to the monetary union?

>Yes, Euro is a disaster. It's a predominantly ideological project that economically is totally unsound.

It has been running for about 20 years, becoming the world's second most traded currency after the dollar and without it Europe would still be a mixed bag of national currencies rather than being one of the big three economic powers.

If the euro is totally economically unsound, then I must say that it is doing rather well considering.

Personally, I store all my wealth in a 3 ton rai stone sunk in deep water 60 km NNW off the isle of Yap. There are some limits on fungibility, but the transaction security is excellent.

So why not print all the money everyone needs? I'd start off with a couple of million EURs. Oh, you also want a couple of million? No problem. Oops, hyper inflation and we're back at the start.

Seriously, this doesn't work.

The article claims that German/European inflation is too low, they should be printing more money (or an equivalent, like borrowing)

The ECB has been "printing money" like crazy for the last decade. Inflation in Germany is between 1 and 2 percent. Why is that a problem? If you've saved some money it's already eating up about 1% (or more) on an annual basis since you don't get any interest anymore.

Money has had a value until 2008. Then somehow the rules were rewritten and now you are getting penalized for saving so you can later invest. This doesn't make any sense.

Of course you should be penalizing for saving. Hiding a dollar away where it's not doing any good to the world economy? You should get rewarded for investing, taking risks and letting that dollar do something.

You are basically saying that I don't have a right to preserve my wealth for the time period I see fit and that the government (I consider the central banks to be part of the gov) should enforce that by manipulating interest rates.

What's next? Prohibit ownership of precious metals (again)?

Preserving your wealth in a risk free fashion is a service the government is providing to you. That's a big portion of the reason why the army, police et cetera exist. It costs them and you a lot more than 1% per annum.

>Preserving your wealth in a risk free fashion is a service the government is providing to you. That's a big portion of the reason why the army, police et cetera exist. It costs them and you a lot more than 1% per annum

Sure, but all that doesn't come out for free (and it isn't even cheap), as you pay taxes on your income.

Once it is in your pocket the money is "free" from the costs that have been already detracted from it for all the general government costs.

And besides once you have your income, you can spend it (and thus give to the government some more taxes, i.e. VAT or Mehrwersteuer) or save part of it, investing it (and BTW paying some more taxes on the interests or dividends your investments - hopefully - produce).

> Preserving your wealth in a risk free fashion is a service the government is providing to you. That's a big portion of the reason why the army, police et cetera exist. It costs them and you a lot more than 1% per annum.

No, the government doesn't provide me with the financial tools to preserve my wealth. The market wants to do that, because there's demand for it. It's the government that indirectly manipulates interest rates and thereby distorts the market so that it isn't capable anymore of providing these services.

It seems as if all is nice and cozy from your viewpoint with this situation as long as I spend my currency (immediately!) to "help the system". But nobody asks whether this allocates my resources towards the right investment.

When the time comes and I cannot retire, because I wasn't able to save, it's now again the problem of society that needs to step in, and you will probably opt for even more debt to "sustain" my standard of living.

Again, this financial/political ideology is severely damaging our prospects as a society. I wonder how it's so hard to understand.

This works if you GDP grows as well.

But it does work. Basically all governments issue debt, and companies, too, by the way, and that's a good thing.

If debt is issued to invest productively, yes, then it's good. Now look at what caused 2008. I don't think it was good debt that got us into this situation.

It works to the extent there's slack in the economy. Circulating money is just a tool to allocate real resources (materials, people, manufacturing capacity, etc.) If the resources are under-allocated (i.e., high unemployment), then circulating more money can fix that problem.

>So why not print all the money everyone needs?

We do. That is how money is created and we tend to print a bit too much because not having enough restricts ability to trade. Inflation is essentially the money we printed and it turns out we didn't need.

Keynesian economics

Because government finance is not the same as personal finance. Debt craze gripped the US in the early 2010s shortly after the lows of the great recession, defecit spending would've boosted the economy and allowed the US economy to recover quicker, instead we have a 10 year recovery that only recently started to provide gains for the most marginalized workers. Also, climate change is a existential risk, I'd rather finance solutions with defecit spending now than finance a war over water in the future.

If I remember correctly, it was a debt crisis that caused this. You basically allowed people who couldn't pay to "own" houses that were so beyond their means that (combined with a couple of financial derivatives) it collapsed the economy.

Now the solution is clearly more debt?

Once again, there is a difference between sovereign debt and personal / corporate debt. Subprime mortgages are subprime because the debtor has a risk of default, the US prints it's own currency, issues debt in its own currency, has some of the strongest institutions in the world, and controls the global reserve currency. The risk of default is essentially nil. When governments spend money on infrastructure and health / education the ROI is positive.

Germany is not in a position to print the reserve currency of the planet.

I'm not advocating for Germany to go all MMT here, but negative bonds are a clear indication that government has ample room for debt financing. Germany has notoriously poor internet service, investing in broadband infrastructure could help them transition into more of a service economy, which would be a smart hedge as the slowdown in Chinese consumption led to a slowdown in consumers buying German cars and a contraction last quarter. Also as mentioned, all the European players are big on tackling climate change -- why not fund solutions? Instead, Europeans leaders like Macron have gone with the politically infeasible route of higher petrol prices.

Germany has invested substantially into tackling climate change. Google "Energiewende".

Maybe also do some research on the internet infrastructure in Germany. It's a cartel. That's why service is so bad.

I'm not saying I'm against good infrastructure investments. But just telling us to "keep spending" because "debt is cheap" won't cut it.

Things may very well be different this time, but there aren't many examples of government backed internet investments working since the 80's.

>> Because government finance is not the same as personal finance.

Not the same but similar. Look at Argentina and Greek to see what happens if countries overspend. Germany is one of the forerunners against climate change without going in too much dept.

That's exactly my problem with the whole idea of "more debt is better". There is obviously a limit. Where is it exactly? How do you know?

Modern Monetary Theory tells us that the important limits are "when you run out of Labor" and "when you run out of resources".

So what nations are facing low unemployment, and what nations are facing resource shortages?

I'd add an additional criteria of: "when inflation is out of control". I don't know about other central banks but The Federal Reserve and Bank of Japan have been trying to raise inflation for years now, interest rate cuts are not as effective when inequality is high because it just leads to asset bubbles. It's time for fiscal policy to direct spending to productive areas.

So MMT says so. So what?

We don't automatically take what every non-mainstream economic theory says as gospel. You need a bit more reason for us to accept this one than "MMT says so".

This is a long discussion, but the gist of it is that you cannot compare an economy with a household. An economy that does not issue debt (mostly to itself!) can't invest and grow and build productive assets (and then pay the debt back (mostly to itself) later).

How does Germany fit into that blanket statement?

My statement was in response to the blanket question "how did we come to the point where not being indebted is bad?". The (somewhat blanket) response was that debt is not always bad.

Second, I second Krugman's conclusion that rebus sic stantibus, Germany should borrow more (very cheaply) and invest more (for example, in fixing the shamefully neglected infrastructure). This a fairly specific statement, tied to a place and time.

Germany's infrastructure is "shamefully neglected"? Compared to what?

(I'm in the US, so maybe my standards are too low...)

Neglected compared to the past. Many bridges and roads are in bad repair. These are all very long term assets, and with rates as they are it seems a good time to repair them now. (Unemployment is relatively low in Germany, but high elsewhere in the EU.)

As I understand it, Germany relies on exports and foreign investment?

It doesn't work if every country does it. In order for some countries to export more than they import (resulting in savings invested abroad), other countries need to import more than they export and pay for it by satisfying international demand for investments.

So, on the one side you have counties like Japan and Germany and on the other you have the US.

The demand for savings is apparently what drives this. People need to invest their savings somewhere. If "safe" investments aren't available, financial markets will somehow invent them. This may or may not actually be safe or productive.

If you can print money to discharge your debt than the debt itself isn't bad, it's just another tool in the monetary policy toolbox. Of course the Germans have a particular aversion to printing money.

> Of course the Germans have a particular aversion to printing money.

They also cannot, the ECB decides on monetary policy with the Euro, not Germany or Germany's Bundesbank (which, if they were, also weren't directly taking orders from the federal government regarding monetary policy).

Of course the Germans have a particular aversion to printing money.

That's not really surprising though is it: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...

In economics there are four parts that can go into debt: the state, the citizens, the industry or the foreign countries.

If the state does not go into debt and the industry doesn't do it then there are only a) the other countries or b) your own citizens.

Just ask yourself - who lends a country money?

So it is considered good for a country to go into debt if it uses the money for infrastructure. With this money people and companies get paid and thus produce GDP. With this GDP growth the debt can be paid.

But this would be in a perfect world.

>> So it is considered good for a country to go into debt if it uses the money for infrastructure

I dont agree. The debt still has to be paid back with interest, and the infrastructure will require maintenance (costs) in the future. If a country or municipality is debt free they can build new with excess revenue. If not, there is little hope of getting the budget under control by borrowing to create more obligations.

If the new infrastructure will lead to a larger GDP growth than the interest and maintenance, then I don't think anybody can argue that taking the loan is bad. No, the municipality can't use excess revenues, because those will not exist if not enabled by the infrastructure.

There is an obvious catch, but this uncritical "debt is baaad" rationale does not stand.

> The debt still has to be paid back with interest

That's true but kinda also not true. There has to be the possibility that the debt is to be paid back. More important: the interests have to be payed. Rest is cashflow management.

Hypothetically more infrastructure would mean more taxes and so one. Like in SimCity.

Just think of it this way: where does the money comes from that the state makes? If it is not spend the state has all the money but no one else.

It's more like activa and pasica on a balance sheet

I found the best way to play Sim City was to take a loan at the start. Then pause the game while zoning a lot and building a power plant. You need the economy to go Fast when unpaused in order to repay the loan. Then play debt free.

That's what debt is for - short term improvement for longer term gain. The notion of continually refinancing debt only serves the lenders.

And who are the lenders?

Aren't the lenders your citizens? You would argue that they are the big banks. Ok but who works there? Your citizens? And yes the pay taxes.

Who do the banks lend money to? Companies and citizens who in turn create tax revenue.

You don't run the state like a company. Where would your profit come from?

You are applying newton's physics to the solar system. It works approximately good - but some things are odd and won't fit until you have a big problem and everything unhinges

Since the whole world economy developed around a monetary system based on debt. It's good not be too deep in debt, but if nobody was borrowing money, the economy would grind to a halt. There is such a thing as a good middle ground when it comes to debt.

Because of sectoral balances[1]. If the public sector doesn’t issue debt, then the private sector can’t accumulate financial assets modulo exports. This is why, incidentally, the Germans want a devalued Euro. Unfortunately we can’t all be net exporters, so Germany is basically defecting in an iterated game.

[1]https://en.m.wikipedia.org/wiki/Sectoral_balances

There is a huge "in nominal values" that has to be appended at the end of that claim. Reality is always more complicated.

Especially when there's nothing about "not being in debt" in Germany. They have barely gotten a "no new debt" once, but that's also with a lot of book keeping (i.e. the bank bail-out doesn't count etc). Germany is heavily indebted on all levels, federal, state, and county.

Well, it's Krugman. Government spending and Fed money printing are his two magic cures for everything that ails the economy. (Note that his column at least used to be titled "The Conscience of a Liberal". He's writing primarily as a liberal, not as an economist.)

Under current conditions, though, he could in fact be right. But there are two problems with government borrowing. First, while there may be very good things to spend the money on, instead the spending decisions are going to be made by Congress, politically rather than economically. That's a recipe for a bunch of wasteful spending, with perhaps some good things done as well, but the good things are almost a result of chance.

Second, Congress may be right to decide to spend money now, but the time comes when it is no longer time to borrow and spend. Will Congress stop when it's time to stop? History does not lead to optimism here.

This time may in fact be different. But it's different a lot less often than people say it is, especially people who say "it's different" in order to throw away rules that keep them from doing what they want.

In both governing parties, SPD and CDU/CSU, many people including government ministers and the chancellor-to-be are now willing to give up on "no debt"[1].

Even fiscal hawks are now playing ball with that new party line.

Expect Germany to make debt again.

[1] This refers to the policy of "Schwarze Null"/"black zero" which means revenue and expenditures shall be balanced. This has only been a policy statement that the former finance minister achieved for the first time in decades and the current finance minister adhered to. This must be distinguished from the "Schuldenbremse"/"Debt Brake" which is actually in our Constitution and limits the amount of new debt the state is allowed to take on.

Germany had a Harvard problem - https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt

  > Realistically, America has no ability to pressure Germany into changing its domestic policies.

This statement is so false. US is already pressing to spend idotic amounts of money for military budged.

Next time in NYT: Germany has too much debt. Us rating agency about to drop rating...

Hacker News has a paywall problem.

Here's a simple fix to getting people to not obsess over debt - eliminate debt. Recognize it as the nonlinear burden that it is, and that, unlike Krugman's belief that ignoring it makes it a'ok, that it needs to be addressed and not kicked to the next generation. Make it unacceptable for politicians to incur debt for anything other than a catastrophe, and absolutely not as a normal way of doing business. Yes, America, I'm especially criticizing you, for 20 trillion reasons and counting. After all, if it's so unimportant, then it should be trivial to eliminate.

>After all, if it's so unimportant, then it should be trivial to eliminate.

I think you would have to scrap nearly every piece of fintek since at least the time of Newton and completely reinvent how modern monetary systems and economies work from the ground up, to eliminate debt.

This reminds me of :

Daniel: Drainage! Drainage, Eli, you boy! Drained dry. I’m so sorry. Here: if you have a milkshake, and I have a milkshake, and I have a straw — There it is. That's a straw, see? Watch it. Now my straw reaches across the room, and starts to drink your milkshake. I. Drink. Your! Milkshake! [makes a loud slurping noise] I DRINK IT UP!

USA asking everyone to give up their milkshakes!

World has the USA problem.

Reply on news.ycombinator.com