On the Global Minotaur’s Recycling Loop: An elementary comparison of US-German and Intra-Eurozone trade & capital flows

This post was occasioned by a reader’s (Alejandro Calve Seferian) query: Why do I presume that an accelerating US trade deficit required an offsetting tsunami of net capital flows, from the Rest of the World to the US, in order to ‘close the loop’ and, thus, provide long term aggregate demand to the Rest of the World (which is the hypothesis of my Global Minotaur)? Taking my cue from Alejandro’s question, this post compares and contrasts the relationship between trade and capital flows between (a) the US and the Rest of the World and (b) within the Eurozone.

Alejandro’s question: I am aware that the media continuously bemoans an assumed US dependence on foreign capital, but a recap of the actual transactions involved seems to reveal the reverse. Take the example of a US consumer buying a German car. If the consumer pays cash for it, the consumer’s checking account in a US bank is debited and the German carmaker’s account is credited, thereby increasing foreign savings of USD financial assets. Total deposits in the US banking system remain unchanged. If the consumer borrows to buy the car, the bank makes a loan to the consumer, which results in a loan on the asset side of the bank’s balance sheet and a new deposit on the liability side (loans create deposits). After the car is paid for the German car company has the new bank deposit. Consumer borrowing increased total bank deposits and funded foreign savings of USD. That’s what the finance behind the trade gap is all about – foreigners desire to net save USD financial assets and sell goods and services to the US to obtain those assets. Following the above transaction, the foreign holder of USD bank deposits may instead desire to purchase US Treasury securities. At the time of purchase, the seller of the Treasury security becomes the new holder of the bank deposit, and the foreigner the new holder of the Treasury security. (If the foreigner buys securities directly from the Treasury the result is the same.) The US government is now said to have foreign creditors, and the US is said to be a debtor nation. While this is true as defined, a look past the rhetoric at what the US government actually owes the holder of the Treasury security is revealing. What the government promises is that at maturity the foreigner’s security account at the Fed will be debited, and his bank’s reserve account at the Fed will be credited for the balance due. In other words, the US government’s promise is only that a non-interest bearing reserve balance will be substituted for an interest bearing Treasury security. This is not a potential source of financial stress for the government. Moreover, there is no foreign cash that flows into Wall Street for the loop to close. Your thoughts and comments on the above would help me as I am not an economist and admire your work very much. What I am missing?

My answer: What I think Alejandro missed is the role played by Central Banks, in the case of this example the Fed and the Bundesbank. Let me explain:

Suppose that Jill, a US resident with an account at BoA, buys a VW for $20k. This is how the transaction will be effected:

  1. When Jill buys a VW for $20k Jill’s BoA account is debited $20k
  2. BoA’s liabilities in BoA’s Fed account is reduced by $20k
  3. BoA instructs the Fed to deduct $20k from its account, with the Fed, and send the funds to VW’s Bank in Germany
  4. Reduction in BoA’s deposit account with the Fed reduces the Fed’s liabilities by $20k
  5. The Fed increases its liabilities with the Bundesbank
  6. The Bundesbank receives either a $20k credit to its $ assets or a $20k reduction in its $ liabilities depending on which of the two central banks has a deficit with regard the other
  7. Offsetting this $20k improvement in its balance sheet, the Bundesbank credits VW’s Bank’s reserve account (with the Bundesbank) a sum in DM equivalent, at the given exchange rate, to $20k in this manner increasing the German bank’s assets in DM.
  8. VW’s Bank finally credits VW’s deposit account the relevant DM sum.

From the point of view of Jill and VW something simple has happened: $20k went from Jill’s BoA account into VW’s German account, after the sum was converted from $ to DM. It is, of course, quite true that the Fed’ assets have not changed but the liability side shows $20k less in reserve accounts and the equivalent more in DM liabilities to the Bundesbank.

For the $-DM exchange rate to be in equilibrium, the Fed’s total liabilities and assets vis-à-vis the Bundesbank must balance out. For this to happen, if the US is in a trade deficit with Germany, it must be in surplus regarding the capital flows. Thus my Global Minotaur metaphor is predicated upon the parallel ever-expansion of (a) America’s trade deficits and (b) the net capital flows that came into the US in order to close the ‘loop’.

A note on the peculiar Eurozone arrangement

The fact that the Eurozone is a common currency area does not mean that when Maria, an Athens resident, buys a VW, the financial process resembles what would have occurred within a unitary country, with a single Central Bank. Instead, the same steps as above are followed, except for a ‘small’, rather peculiar, difference coming in after Step 5.

Indeed, Steps 1 to 5 are identical, as above, after substituting the Central Bank of Greece (CBG) for the Fed, dollars for euros and, say, Alpha Bank for BoA. The difference comes at Step 6 where a new category of CBG liability comes into play, one called Intra-European Liabilities (IEL):

6. The Bundesbank receives either a €20k credit to its assets or a €20k reduction in its liabilities depending on which of the two central banks has a deficit with the other – thus, we can take it for granted that the Bundesbank realises an increase in its assets!

7. Offsetting this €20k improvement in its balance sheet, the Bundesbank credits VW’s Bank’s reserve account (with the Bundesbank) a of €20k in this manner increasing the German bank’s euro assets.

8. VW’s Bank finally credits VW’s deposit account with the sum of €20k.

The difference with the US-German trade deficit case above is that, within the Eurozone design, the market-based, exchange rate mediated, balancing out of $ and DM liabilities  is replaced by an administrative balancing of IELs, also known as Target2. Eurozone countries with IEL liabilities are charged interest on these liabilities at a rate reflecting the ECB’s overnight rate of refinancing (currently 0.75%) and these interest payments pile up with the ECB and then sent to the Eurozone Central Banks whose IEL accounts are in the black.

Conclusion

Trade imbalances require offsetting capital flows regardless of whether the trading nations have their own currencies or whether they are part of the Eurozone. In both cases, free marketeers hope (against hope) that the financial system will provide these flows automatically.

In the case of US-German trade, for instance, mainstream economists’ hope is that a persistent trade deficit will cause the dollar to fall, as capital will be demanding an increasing high return to flow into the US, thus limiting the deficit. Similarly, in the case of intra-Eurozone trade, a persistent German trade surplus with a Peripheral country, like Spain or Greece, should, in theory, automatically be limited  by offsetting capital financial flows occasioned by sound banking decisions both in Germany and in Greece. .  

Alas, neither happens in reality. In the case of the US trade deficits, for reasons that I try to explain in the Global Minotaur, the deficit can grow and grow without any counteracting forces limiting it from the side of capital flows. (And what a boon that proved to be, per-2008, from the perspective of net exporters, like Germany, that it did not, as the growing US trade deficit kept their factories humming!) 

Alas, neither happens in reality automatically. In the case of the US trade deficits, for reasons that I try to explain in the Global Minotaur, the deficit can grow and grow without any counteracting forces limiting it from the side of capital flows. (And what a boon that was from the perspective of net exporters, like Germany, that it did not, as the growing US trade deficit kept their factories humming!) Similarly, in the Eurozone periphery, capital kept flowing in as if there were no tomorrow, oozing out of Germany’s and France’s banks which were, in City and Wall Street fashion, minting their own toxic money for years. And when the Credit Crunch hit in 2008, these capital flows were instantly reversed, causing the asset value bubbles that had built up in the Periphery to burst, thus giving rise to the so-called sovereign debt crisis – which of course is a pure banking and trade imbalance crisis.

52 thoughts on “On the Global Minotaur’s Recycling Loop: An elementary comparison of US-German and Intra-Eurozone trade & capital flows

  1. Pingback: Saksan tehdastilaukset alas – miten niin yllättävää? | Arjen polku

  2. Yani:
    For an US accountant trying to understand your “eco” terms.

    … For the $-DM exchange rate to be in equilibrium, the Fed’s total liabilities and assets vis-à-vis the Bundesbank must balance out. For this to happen, if the US is in a trade deficit with Germany, it must be in surplus regarding the capital flows. Thus my Global Minotaur metaphor is predicated upon the parallel ever-expansion of (a) America’s trade deficits and (b) the net capital flows that came into the US in order to close the ‘loop’

    Does above statement “It(US) must be in surplus regarding the capital flows” mean that Jill has used her capital to purchase a VW (asset)?

    Hence US continues to pile up assets/investments with its trade deficit.

  3. So, Yani here is the deal. You are advised to be circumspect when you talk about the weapon of “Greek primary surplus” and how to use it against austerity.

    Because the other side has figured it out too and here is what they will do. They will drag out the last disbursements into April, or May or even beyond. They will give nothing to Greece until Greece performs further austerity.

    These aloud “strategy sessions” of what one should do or not to do with Merkel need to go underground.

    You have a formidable opponent (the entire euro bureaucracy) and you need formidable tactics to win. And a ruthless strategy to boot.

    And here is a ray of hope. Poor Anstasiades didn’t win in the 1st round today. So, Malas now has a real chance. If Malas (AKEL) gets elected, expect all hell to break lose. This could be the end of Frau Incompetentus as we know it.

    http://www.bloomberg.com/news/2013-02-17/greece-may-get-cruel-reward-for-its-success.html

    • Dean – Nice article. It really exposes the utter stupidity of the “tax increases aka austerity”. As I have been saying from the start. The bailouts of the Greek government only result in one situation. Greece experiences all the negative aspects of an actual default with none of the upsides.

      And to extend the article slightly further. This “primary surplus” is a nonsense number when you have the Greek government’s debt servicing costs well on their way to absorbing 10% of Greek GDP. To ignore the servicing costs is pure propaganda.

  4. Yanis – Thank you for posting this in response to a question I raised on another thread. It is a privilege to be able to exchange this sort of information with you and the people who, like I, follow what you write and say.

    Turning to the steps that you outline involving central bank operations, my understanding is a bit different. Whilst this difference of understanding does not necessarily lead me to disagree with the essence of your Global Minotaur metaphor, it does result in my humbly raising some questions about the metaphor and the future of the world economy.

    These questions include: is capital from abroad a must-have, or a nice-to-have in relation to the US’s ability to finance its twin deficits? Does a capital flow reversal imply the end of the twin deficits, and therefore the end of a world system and a major crisis, or could the system continue with reduced deficits, or even sustained deficits but with something else, not necessarily a “flow” per se, replacing the tsunami of capital? Taking a step back, how are these twin deficits operationally financed? Similarly, how does Wall Street create money, and again, what has been the impact of foreign capital inflows in determining the size of the US’s private credit expansion?

    These are some of the questions that I have… too many perhaps, but I find it helpful to begin addressing them with an outline of my understand of the actual steps relating to your US$20k VW example:

    1. The buyer goes to his or her local VW store, writes out a check, and his or her account at BoA is debited by US$20k.
    2. VW-America’s account in the USA is credited with the US$20k. The likely fact that VW has an account in the US is not mentioned in your example. It is a silly point, not really important, but I include it to help with another point (I hope useful) I will try to make later. If VW-America has an account at BoA, there will be no changes in the amount of US dollar reserves at BoA. The deposit money will have just gone from the Buyer’s to VW-America’s account at BoA. Let’s assume however that VW-America has a US dollar account elsewhere, say Citibank. In this case, all other things equal once the transfer is completed from the account of the Buyer (BoA) to that of VW-America (Citibank), BoA will end up with excess reserves, and Citibank with a reserve shortfall. There is a two-week time lag that exists for banks in the US to correct any such shortfalls, and so eventually Citibank will either borrow those reserves from the inter-banking market (including BoA who has a matching excess reserve position), or directly from the Fed via its discount window. The Fed does not control the level of reserves. The Fed reacts to whatever reserves are required by the banking system, and given its interest (Fed) rate target. Loans create deposits, and banks, after the fact, seek the needed reserves. In any event, and going back to the example, the private banking system in the US, taken as a whole, will not have experienced any changes in terms of Fed reserves, all other things equal, and assuming BoA does not wish to hold excess reserves because they are relatively low yielding.
    3. Subsequently, VW may wish to send the funds to the parent company’s account in Germany, converting the US$20k into Euros or DM (depending on when we position ourselves historically in this example). It will be able to do so by entering the FX market. Let’s ignore for a second the FX market and assume that we deal directly with the Bundesbank, as you have done. Let’s further assume that the Bundesbank only has an account in the US at the Fed. What will happen is that the Bundesbank’s account at the Fed will be credited with the US$20k amount when VW-America’s (Citibank) account is debited. In terms of reserves (itself just a fancy name to denote a checking account at the Federal “Reserve” bank), the situation will be in part similar to that described above in point 2. Citibank will eventually want to get rid of the low yielding excess reserves that it holds, and all other things equal, those reserves will be exchanged for something else (say Treasury Securities) resulting in a drain of reserves within the “private banking” system in the US. We know that these excess reserves correspond to only a fraction of the US$20k, given fractional reserve accounting. In terms of the actual US$20k, they will be sitting on the Fed’s balance sheet and as a result of the Bundesbank holding that sum at the Fed (in this example). Importantly, and this is one point where we do not seem to entirely coincide (if I understood you correctly), the Fed’s net position will have remained unchanged in terms of this US$20k. Yes it will have a corresponding liability vis-à-vis the Bundesbank, but offsetting that liability will be the asset resulting from the credit originating from Citibank.
    4. To complete the picture in the US, the Bundesbank will very likely not want to hold money in a low yielding checking account at the Fed, and one thing it may do is to switch the funds into a Fed “savings” account (i.e. buy Treasury securities). Going back to reserves, they will have gone down until the Bundesbank one day switches back its funds into the Fed’s checking account, and finds it convenient to enter into a transaction that results in someone wanting to actually spend the US$20k to purchase a US good, service, financial security, etc.
    5. In Germany, the Bundesbank will credit VW-Germany’s account with DM (you use the old currency in your example, so I follow suit), and created the equivalent of what in the US is know as “reserves”, or central bank created money. The original US$20k will have never actually left the US. Also, the impact that these transactions may have had on the US Fed’s “reserves”, will not have per se affected exchange rates.

    What does all this mean? I go back to my original point: an analysis of the operational realities of trade related money flows, overlaying or not central bank involvement, reveals to one that the US is not borrowing money from the likes of Germany or China to finance its trade deficit.

    The same applies to the US’s budget deficit. When the Treasury deficit spends, operationally what is happening is that the Fed is mainly creating money out of thin air, albeit in a convoluted manner using primary dealers as intermediaries… but that whole dynamic would be beyond the scope of this post.

    All monetary operations by the issuer of a currency are derived in government liabilities. All liabilities by that issuer create a corresponding asset for the currency user as a matter of accounting. The issuer’s debt is a digital resource – a digital account corresponding to all the savings of currency users’ in banknotes, deposits, and treasuries.
    Currency issuers do not “borrow” money, they create it. The way I like to think about it is to say that issuers create the currency that users either save or spend. In other words, Germany or China do not lend to the US government. These countries save in the currency the US government produces. This is not a theory… this is double entry accounting. As the foreigners pile up $US financial assets they can certainly decide to eventually buy real goods and services from any willing sellers at market prices.
    With this I am not saying that trade deficits are a good or bad thing, all I am saying is that there is no funding issue for governments spending their own currencies. Nor is the US in any way dependent on foreigners lending to it in its own currency. Therefore, when one sees US politicians warming up to China because they think they need them to buy US treasuries, they have it all wrong.

    Back to your post, you write: “For the $-DM exchange rate to be in equilibrium…if the US is in a trade deficit with Germany, it must be in surplus regarding the capital flows. Thus my Global Minotaur metaphor is predicated upon the parallel ever-expansion of (a) America’s trade deficits and (b) the net capital flows that came into the US in order to close the ‘loop’.”

    I think it is clearer if one were to start by saying that “For the $-DM to be relatively FIXED”, instead of in “equilibrium”. A floating exchange rate can be in “equilibrium” at different rates. Also, I think it is helpful to point out that the “loop” only needs to be “closed” under a fixed exchange rate regime.

    You also write “Trade imbalances require offsetting capital flows regardless of whether the trading nations have their own currencies or whether they are part of the Eurozone. In both cases, free marketers hope (against hope) that the financial system will provide these flows automatically.”

    Here too I think a clarification can be helpful. It’s a key difference whether a country has or not its own currency, and whether that country opts to allow that currency to float. It is not so much a question of whether the financial system will provide “flows automatically” (as there are no needed “flows” per se), as much as whether policy makers will indeed allow the currency to truly float.

    In your book you write about periods of fixed exchange rates, including Bretton Woods, and in those cases it is easy to see the logic underpinning the need for a surplus recycling mechanism. In the VW example above, we know that in reality there is an FX market, and VW wanting to exchange US dollars for DM will in isolation place downward pressures on the US dollar, all other things equal. Over time, and again all other things equal, this sort of pressure on the US dollar in a fixed exchange rate regime, if strong and continued, will distort the system.

    However, and as we know, since 1971 the US is the issuer of its own fiat currency. Under a system of floating exchange rates, the above-mentioned pressures will tend to help balance the exchange rate, and therefore reverse the trade deficit. Again, whether politicians and policy makers will allow or not an exchange rate to truly float is a separate matter. The point is that the US since 1971 has the “policy space” available to it to continue with a trade deficit by just allowing the exchange rate to adjust and act as a shock absorber.

    I therefore am not so sure that the current crises is so dire because of capital flows that may have ceased or reversed, and that were before helping to feed the beast (referencing the Minotaur example). I totally agree with you regarding the severity of the crisis, but maybe more for other reasons, ones that do not relate so heavily to trade deficits and world flows of capital, but instead have to do with other things that you also mention including private sector overleverage, lack of banking regulation, excessive austerity when it comes to budgets, etc.

    In terms of Europe, I see the case there to be completely different when it comes to intra-continental trade. As you have pointed out in other posts or in speeches (I don’t remember), the situation there is almost like a sort of gold standard. European governments are therefore users of the currency more so than issuers, and it’s a completely different ball game.

    In conclusion, my sense if that foreign capital has not directly helped finance the US trade deficit. In my opinion, it has however allowed the exchange rate to be more stable, but then I ask: could the system not continue with a less “stable” exchange rate, where for example, the US dollar is allowed to gradually depreciate? In theory, I think that it could, although I am not sure whether policy makers would allow that to happen… but wouldn’t that be a separate point? I think it is hard to predict what politicians will do, and therefore I ask whether it is not hard to make the argument that the end of the tsunami type flow will necessarily, going forward, mean a further collapse of the world’s economy, or the inability of it to properly recover? When it comes to the other part of the Minotaur that have to be fed, the US budget deficit, the role of foreign capital is similarly not that key in my opinion. The US government does not actually need to “borrow” from foreigners to deficit spend. Given that, can it not continue to do so whether or not there is a reversal in the tsunami of foreign capital? Finally, turning to Wall Street, banks do not need deposits to lend and create credit bubbles. Loans create deposits. Banks will lend depending on capital requirements (not reserve requirements), and the availability of credit worthy customers off of whom they can earn a credit spread. Demand from foreign nationals to buy US financial instruments, including CDOs, etc., helped US banks sell the loans once they were made, and therefore, eased the pressure on banks in terms of capital requirements, so here too the tsunami of capital helped, but again, I question whether it was key? In any event, we agree for sure that the current crisis is a big one, and it is time for the private sector to de-leverage, amongst other things!

    Thank you again for this post, and thank you in advance in case you wish to make further comments.

    • Alejandro – Big comment, ill focus on this “Therefore, when one sees US politicians warming up to China because they think they need them to buy US treasuries, they have it all wrong.” – okay, who is going to buy the treasuries?

    • The primary dealers.As they ALREADY do.China is buying Treasuries because by having a surplus vis-a-vis US it accumulates dollars.Simple.

    • Richard wrote: “okay, who is going to buy the treasuries?”

      The answer is anybody or nobody. Governments don’t need to borrow to deficit spend. Government borrowing serves only to influence the Feds Fund Rate.

    • Alejandro – “The answer is anybody or nobody.” – Somebody has to buy them or the government cannot borrow.

      You say the government does not need to borrow to deficit spend. Okay, where does the money come from to cover the deficit?

      “the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other,” – Federal funds rate is between banks it is not directly connected to government borrowing.

    • A government that issues its own fiat currency does not need to borrow that same currency in order to spend. Imagine the example of a home where Mom and Dad give business cards to their children each time they perform a chore (e.g., wash the dishes). Government spending would be Mom & Dad proposing these chores and paying these cards. Mom & Dad may also decide it is in the interest of the household to mow the lawn, and the Children will be paid business cards if they do so. However, Mom & Dad also require kids to hand back a few cards per week, and in as a quid pro quo for living at home, being fed, getting clothing, etc. This would be like taxes. One week, the kids may decide to do a lot of chores and to save. Other weeks, they may just rest or go on holiday and earn nothing. However, taxes would be owed every week. For Mom & Dad to spend, they would not need to ask the kids to lend them some of their business cards back. This silly example is actually quite close to the way part of an economy functions when it issues its own fiat currency. Hope that helps.

    • Alejandro – I like simple examples because fundamentally we are talking about something quite simple.

      Using your example. “Government spending would be Mom & Dad proposing these chores and paying these cards. ” Where is Mom and Dad getting the cards from? And remember in your example cards are the currency which is universally accepted throughout the world (and at least the neighbourhood if you want to keep it closer to the spirit of your example)

      Basically government spending is based on debt. The government is not profitable, I mean god forbid the government should start paying us dividends for being their shareholders/investors in the form of taxes.

    • Alejandro – To finish my point. Yes the money is fiat but the money is not interest free to the government. Just because it is fiat does not mean it is “free”.

    • Richard – Not sure why you bring in the term “free” into this debate. Yes, when a Gvt with a fiat currency issues securities there is an interest associated to those debt instruments, and yes, if some entity has bought those securities, it will earn interest. However, that does not change anything in terms of what we are reviewing here.

      How does the Gvt pay for things? This is the key question, one almost no one gets right. Start with taxes. When you write a check to pay your taxes, and the Gvt deposits it, all it is doing is changing the number in your checking account “downward” as it subtracts the amount of your check from your bank balance. The Gvt actually does not get anything real. So if the Gvt doesn’t get anything real when it taxes, how does it spend? The answer is that it simply changes the number in the bank account of whoever is meant to get paid by the Gvt; e.g. a citizen receiving a social security payment or a bondholder receiving interest. Gov spending is all done by data entry.

      To your question in another post about the cards example, and where does the Govt get its money (where do Mom & Dad get their cards), you can get the answer directly from Fed Chairman Bernanke.

      (See as of minute 7.50).

      As he explains, the Fed gives out money simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.”

      Bottom line: The US Gvt is not dependent on “getting” dollars from any foreign central bank, or government. All it takes for the US Gov to spend is for it to change the numbers up in bank accounts at its own bank: the Fed. This is not to say that excess Gov spending is a good thing. We are just covering here the operational realities of how things work at this level.

      What happens when the Treasury borrows? When a Treasury bill is purchased by one of the primary dealers (PDs), for example, the Gov makes 2 entries: i) it debits the PD’s reserve account (a.k.a checking account) at the Fed, and then ii) it credits the PD’s securities account (a.k.a. savings account) at the Fed. And when the day to repay arrives, the Fed again simply changes two numbers on its own spreadsheet, this time reversing the previous entries. That’s all! Where did the PDs get the money in the first place? From the Fed. If the PDs don’t have reserves to buy the Treasuries (the private sector cannot create reserves) the banks have overdrafts in their reserve accounts. An overdraft is functionally a loan from the Gvt. If it weren’t for this loan, the funds wouldn’t be there to buy the Treasuries in the first place… so either way, the funds used to buy the Treasuries come from the Govt itself.

      Conclusion: One should not worry about the US having to get foreign funding to continue operating. One realizes that when one understands how it all works at the operational, nuts and bolts (debits and credits) level. Yes Germany for example has a big US dollar balance in its checking account at the Fed, as well as lots of Treasury securities. If Germany wants cars, buildings, other currencies, it has to buy them at market prices from willing sellers who want dollar deposits in return. If it wants to get the debt “paid back”, what will happen is the same as what happens when all U.S. Gov debt comes due, which happens continuously. The Fed removes dollars from savings accounts and adds dollars to checking accounts on its books. Ergo, “paying off” China, Germany, etc. doesn’t change the wealth that these countries have in $U.S. And if they want more Treasury securities instead, no problem, the Fed just moves the U.S. dollars accordingly as part of the data entry exercise. These transfers are non-events for the real economy.

    • Alejandro – Wow. I mean no offense but you have completely lost sight of what money is. ie a representation of labour and property. Bernanke does not acknowledge this so I do not expect any sense from him.

      Ill point out one example which I happen to find insulting

      ” When you write a check to pay your taxes, and the Gvt deposits it, all it is doing is changing the number in your checking account “downward” as it subtracts the amount of your check from your bank balance. The Gvt actually does not get anything real.”

      The government is not getting anything “real”? In my case the thing that is not “real” is over half of my working life.

    • You are going off tangent with your comment. The Fed’s data entries are not “real”. It is not like you are getting a gold coin dropped in a bucket. Sorry that you find “insulting” this part of the description of how the monetary system works. Nice exchanging comments with you and good luck.

    • Alejandro – So I am not misunderstanding your position.

      You say- ” It is not like you are getting a gold coin dropped in a bucket.” From this, would I be correct if I understood your sentence to mean the following?

      The balance sheet of the central bank has no connection with the physical world?

    • Damnit Richard, there you go again.
      The Central Bank moves the Fed Funds rate by conducting Open Market operations.And the way it does that is by buying and selling gvt securities.Make sure you have at least a SLIGHT idea of the topic instead of writing nonesense all the time.

    • Crossover – And so there is no confusion if that is possible I was responding to “Government borrowing serves only to influence the Feds Fund Rate.” From what I read the borrowing is first and the rate is adjusted daily after the fact ie on what has already been borrowed. The Fed Funds rate is based on inter bank activity not a government-bank activity.

    • Im neither willing nor able to break down such a vast topic on a comment.
      If you are really interested in learning how government debt and the federal funds rate are connected then go here: http://pragcap.com/understanding-modern-monetary-system

      go straight to the chapter: “The Federal Reserve and How Monetary Policy Works” and start reading from there and below.
      The main point stands.The Central Bank affects the federal funds rate through open market operations which are mainly conducted with the purchase and sell of government securities.And no the federal funds rate is not based on interbanking activity.The Central Bank has total control over it through adding and draining reserves in the banking system.

    • Crossover – Thanks for the link. “the Fed attains the overnight Federal Funds Rate through activities mainly with depository institutions.”

      You say “The Central Bank affects the federal funds rate through open market operations which are mainly conducted with the purchase and sell of government securities.And no the federal funds rate is not based on interbanking activity.The Central Bank has total control over it through adding and draining reserves in the banking system.”

      Agreed to everything except the interbank part. Your source states “depository institutions”. It means banks does it not? And it is talking about securities already in existence not new securities. At least that is my understanding.

      So to take it back to the start ““Government borrowing serves only to influence the Feds Fund Rate.” ” This is incorrect is it not? The Fed Fund Rate has no involvement with the issuing of new government securities, it deals with securities already in existence. If not, I was mistaken. Sorry.

    • You obviously didnt combine what Alejandro said with the source i gave you.Alejandro correctly said that a sovereign currency issuer does NOT need to borrow money it can already issue in order to spend.This was not the case with gold backed currencies.There was a real constrain then because the amount of gold was mainly fixed (meaning that obviously more gold was being extracted from time to time but the money supply was fixed to the gold that was available).

      The only constrain now is inflation and not insolvency.With that said, one can consider government borrowing as a relic of the gold standard.The only actual thing that government debt is nowadays usefull for is helping the central bank conduct its monetary policy in order to meet is policy goals.

      I’ve provided this paper for you before but i guess you didnt have a look at it.
      Here it goes again: “Can Taxes and Bonds Finance Government Spending?”

      http://papers.ssrn.com/sol3/papers.cfm?abstract_id=115128

      It gets technical but it answers all your questions.

    • Crossover – You referred to this author before didn’t you? MMT? My previous comment about the author stands. Also, if you believe all the article you just linked to is reality I do not understand why you are commenting on this blog. The IMF, ECB, EU are all in agreement with you so what are you complaining about generally? That the German government/Bundesbank are “possibly” the only barriers to massive inflation? If so why don’t you just say that instead of beating around the bush?

    • I give up ! Claiming that eu imf and ecb are in agreement with mmt, is completely ridiculus.
      If you lack the critical thinking to recognize that the policies mmt advocates are nowhere close to the ones proposed by the imf or the eu or the ECB (which is proved by facts !!!) how the hell am i expecting to make a meaningful conversation with you.I just give up.

    • Crossover – I give up also.

      I give you direct quotes (using your own sources) in response to your points. And then you simply state I am wrong without addressing said quote at all.

      I will bring up another quote for MMT (yes Wiki) “Chartalism is a descriptive economic theory that details the procedures and consequences of using government-issued tokens as the unit of money, i.e., fiat money. ”

      The key word here being “fiat”.

      You say “recognize that the policies mmt advocates are nowhere close to the ones proposed by the imf or the eu or the ECB ”

      Before talking about policies can we agree that mmt, imf, eu, ecb, central banks generally believe in fiat currency.

      Can we at least recognize that all the parties/philosophies listed above are built on the same foundation?

    • Discussing whether a fiat or a commodity backed currency is better is one thing.And this isnt what we’re discussing right now…is it?

      I dont know what you mean by “believe” but even Germany that according to you is the only entity that stands against inflation (while others are in favor of it? why? because you say so without making sense economically?) is one of the 2 major designers of the euro which is…..a fiat currency.And even before the euro, the DM was also a fiat currency.

      With that said, this is not a matter of whether MMT believes or doesnt believe in fiat currencies.MMT was “created” exactly in order to describe a macroeconomy under a fiat free floating currency regime.Talking about “MMT believing in fiat currencies” is like talking about Physics believing in electricity.It doesnt.Electricity exists and physics explains it.If you like electricity or not is a whole different matter..yet it still exists.
      Similarly, fiat currencies exist and the reality under a fiat currency is way different from the reality under a commodity based currency.Thats where MMT comes in and explains this reality and how its different..

      Anyone having the slightest idea about MMT would find your argument completely funny.And the reason for this is that actually MMT accuses mainstream (and Austrian) economists (and the ECB,the EU,the Governments aswell) of not having realised the changes that arose when we got rid of commodity backed currencies.It accuses them of treating the economy as if its still under the gold standard.

      Having said that, one has to wonder how MMT agrees with the EU the IMF or the ECB’s prescribed policies.

      PS. Instead of using wikipedia to argue against MMT, better try these:

      http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html

  5. I believe the accounting entries for the eurozone case are incomplete, since by the end of the day, National central banks must also settle with each other.

    All the debits and credits are netted on the books of the ECB, where each national central bank then acquires a net position vis-à-vis the rest of the European System of central banks (ESCB).

    There would thus be the following steps to complete the process:

    8. The Bundesbank acquires an asset (credit position vis à vis the ECB) and simultaneously cancels its credit position versus the Bank of Greece; the reverse happens with the Bank of Greece (it cancels its debt position vis-à-vis the Bundesbank and acquires a debt to the ECB).

    9. The German commercial bank will likely use the positive clearing balances (or excess reserves) that it now has vis-à-vis the Bundesbank – as a consequence of the VW export to Greece – to reduce its overdraft position vis-à-vis the Bundesbank: it will credit its reserve account and debit its advance from the Bundesbank position. The Buba will do the reverse.

    The important thing to note here is that there is no limit to the debit position that a national central bank can incur on the books of the ECB. Thus, within the eurozone (as opposed to what happens when international trade takes place between countries using different currencies) there can never be an impossibility for a country to keep importing goods and services from another. Trade or current account deficits are essentially limitless within the eurozone.

    And Greece could benefit from this clearing and settlement process of the eurozone by deciding to roll over its public debt held abroad while eschewing the private markets. This would be an operation very similar to the one described above for a VW export to Greece, since a payment of Greek debt held in Germany is the exact accounting equivalent to a Greek import from Germany.

    How could this be done? Simple: the Greek government would use a publicly-held commercial bank (or nationalize a commercial bank if no publicly-held ones are left) and direct said bank to acquire Greek public debt at the price of its choice. The proceeds of these sales, initially held as deposits at the Greek bank, could be used to redeem the securities that German banks decline to roll over. Throughout this process, the T-accounts would look very much like those described in steps 1 to 9, above.

    In order to guarantee that the payments can flow out of Greece (as they must, since it’s all happening within the same currency area), the Bank of Greece would provide an advance to the Greek commercial bank with the government debt as collateral; and would simultaneously increase its liabilities towards the Eurosystem. As long as the yield on securities is higher than the main official rate of the ECB (0.75% at present), this would be a profitable operation for domestic Greek banks (unless the government defaults).

    The Greek government would be thus redeeming its debt abroad and transferring said debt to the balances of the ESCB clearing and settlement system. The debt can stay there basically forever and in limitless amounts.

    Suggestion: would a Syriza government be ready to take that step?

    • From the look of it, the bank you are describing would do the job Primary Dealers do in the States. (while Primary Dealers exist here as well they replicate the markets regarding gvt debt pricing)

      Unfortunately i believe the Maastricht Treaty prohibits such a scheme

    • Jose – “The important thing to note here is that there is no limit to the debit position that a national central bank can incur on the books of the ECB. ” this cant be correct, if it were no countries would have problems there would just be rampant inflation.

    • Crossover – the European Treaties don’t prevent commercial banks from buying government debt. In fact, banks have been doing it since 1999 to the tune of hundreds of billions of euros (or more) every year. Neither do the Treaties discriminate between nationalized and private sector banks. So, the scheme would be perfectly legal (also, notice that there would be no financing of budget deficits – the scheme would simply provide for the payment at maturity of already existing public debt. It would even help in maintaining the solvency of the banking sector of the creditor countries).

      Richard – the balances are really unlimited. They have to be in order for there to be a guarantee that an euro from Greece or Spain can circulate all over the eurozone. That’s what a single currency area is about. Also, notice how the credit balances of the Bundesbank vis-á-vis the eurosystem increased from zero to some 800 billion euros as an automatic accountIng consequence of massive deposit flight from the Spanish and Italian banking sectors to Germany. This movement can go on and increase said balances for ever and without limit if need be. It’s all a simple and inevitable consequence of the existence of a single
      currency area.

    • Jose – ” the European Treaties don’t prevent commercial banks from buying government debt. – In fact, banks have been doing it since 1999 to the tune of hundreds of billions of euros (or more) every year.” – Banks have been buying government debt for hundreds of years.

      “They have to be in order for there to be a guarantee that an euro from Greece or Spain can circulate all over the eurozone.” – what guarantee? Sure they are guaranteed by the ECB and why does that mean anything? Because you have to use its product (the Euro) to pay taxes in all the Eurozone states).

      “This movement can go on and increase said balances for ever and without limit if need be. It’s all a simple and inevitable consequence of the existence of a single
      currency area.” – Yes okay, agreed but I do not see what your point is? Your saying this is a bad thing? It is not. This is what makes German labour more expensive, Greek labour less expensive which in turn balances the trade between the countries. Of course it would be better if the Greek government reduced taxes and regulation so Greek wages did not have to be so low but that is another subject.

    • @Jose

      You are correct but i think i misunderstood you and you also misunderstood me.

      You said: “the Greek government would use a publicly-held commercial bank (or nationalize a commercial bank if no publicly-held ones are left) and direct said bank to acquire Greek public debt at the price of its choice.”

      By this i thought you meant that the gvt would somehow determine the price at which the bank would acquire the debt.Which i believe is more or less restricted by the treaties.But reading it again, you probably mean that the bank can choose the price.

    • @Crossover

      Or the government sets a coupon rate – say, 3% – and then the bank buys the bond at par. 3% minus 0.75% will provide a nice profit for the bank.

      I don’t think any of this is contrary to the Treaties.

    • @ Jose

      “Or the government sets a coupon rate – say, 3% – and then the bank buys the bond at par. 3% minus 0.75% will provide a nice profit for the bank.

      I don’t think any of this is contrary to the Treaties.”

      Thats exactly what i was talking about:

      Article 124
      (ex Article 102 TEC)
      Any measure, not based on prudential considerations, establishing privileged access by Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States to financial institutions, shall be prohibited.

    • @ Crossover

      The Treaty article makes an exception for measures based on “prudential considerations”, that is measures that are made necessary in order to preserve and guarantee the stability of the financial system of the eurozone.

      That’s why bank nationalization is considered an acceptable measure in order to prevent a bankruptcy that would hit other banks badly, for instance.

      So a government facing market pressure on the yields of its public debt would provide for the rollover of the part of that debt held on the accounts of foreign banks via new debt sold to its own commercial bank. And it could perfectly well defend that measure by arguing that it is necessary to guarantee stability of the financial system.

      Absent that measure, the government would either need a bailout or default. And a default would have grave consequences for the balance sheets of said foreign banks.

      If Greece or Portugal had done that during the weeks preceding the bailout packages they would have reduced the pressure on their yields (because the markets would observe the foreign creditors being nicely and neatly paid at bond maturity). Once the yields started to come down said countries would be better placed to avoid the troika aid packages that are now hurting their economies so violently.

      @ Richard

      That the TARGET2 balances can rise forever and without limit is a great thing. I’m arguing that the periphery countries should take advantage of that reality by eschewing the private markets when rolling over their public debt held abroad. That would have rendered unnecessary the ill advised and destructive interventions of the Troika in southern Europe.

    • Jose – TARGET2 from wiki “The main subjects of criticism are the unlimited credit facilities made available since the establishment of the TARGET system by the national central banks of the Eurosystem on the one hand and by the ECB on the other.
      The issue of the increasing Target balances was brought to public attention for the first time in early 2011 by Hans-Werner Sinn, president of the Munich Ifo Institute. In an article in ‘Wirtschaftswoche’ he drew attention to the enormous increase in Target claims held by Germany’s Bundesbank, from 5 billion at the end of 2006 to 326 billion at the end of 2010, and to the attendant liability risk.[3] In the German daily Süddeutschen Zeitung he put the entire volume of the Target liabilities of Greece, Ireland, Portugal, and Spain at 340 billion euros at the end of February 2011. Moreover, he pointed out that if these countries should exit the Eurozone and declare insolvency, Germany’s liability risk would amount to 33% of that sum, or 114 billion euros, relating these sums to the other rescue facilities of euro countries and the International Monetary Fund. Before he made them public, Target deficits or surpluses were not explicitly itemised, being usually buried in obscure positions of central bank balance sheets.[4]” – Its not sustainable. At some point Germany is going to say enough is enough.

    • Jose,
      I have no doubt that you are correct.But, since the situation is subject to the possible interpretation of the european authorities, then i wouldn’t be as hopeful as you seem to be.

      They can just declare that they do not consider the Greek (or Portugese – or you name it – for that matter) problems as systemic to the eurozone and the measures will right away be considered as not based on prudential considerations.Dont forget that even today they like to say that “Greece is an exception”.And they also like to pretend that after every Summit the eurozone is safer than before.

      Else, they could have similarly adopted the Modest Proposal already !

    • Crossover,

      The question is: what could the ECB do against a periphery government determined to use new bonds sold to a nationalized bank in order to rollover debt held abroad?

      I´d guess the answer would be: not much.

      In theory, the ECB could order the European System of Central Banks to cease funding to the NCB that is advancing the funds (reserves) to the nationalized bank.

      But that would mean that the country in question would be expelled from the eurozone, since their commercial banks would henceforth not be able to send their depositors’ euros abroad.

      And because expulsion from the euro is not allowed in the Treaties, the ECB would be effectively powerless to react.

      My point is that the periphery governments are much more powerful than they pretend to be. They could use the system’s own rules in defense of their countries’ interests. But they choose to meekly obey the diktats from the troikas instead – under the pretext that they can do nothing against them, being monetarily non sovereign. Public opinions then swallow these arguments and accept destructive austerity.

      This mechanism of financing via nationalized commercial banks is totally dependent on choices to be made by periphery governments. It’s entirely and firmly within their present competencies.

      Whereas the adoption of the “modest proposal” would depend on the exercise of powers that are held by European institutions, not periphery governments – a very different situation.

    • Jose – interesting things you bring up. “commercial banks would henceforth not be able to send their depositors’ euros abroad” This is possible but with today’s technologies the effect on the people would be much less than before. PayPal, BitCoin(?), Western Union etc etc

      Basically all the points you highlight expose the stupidity of having a monopoly on the currency system. There is no way a single system should be able to effect the lives of 500 million people so much.

      If it were a car/oil company it would be broken up.

    • “Its not sustainable. At some point Germany is going to say enough is enough.”

      No politicians do not have the balls. The Bundesbank will say “enough is enough”.

      The ECB is nothing without the NCBs. If the Buba does not buy bonds of the PIFGIBs, the ECB cannot do anything. Compared to the NCBs the ECB has no people, no gold and no credibility.

    • “Its not sustainable. At some point Germany is going to say enough is enough.”

      Well, the TARGET2 balances have to be limitless otherwise there would be no guarantee that the euro may survive massive capital and deposit flights, trade imbalances among member countries, etc.

      Thanks to the way that payments system is designed (in large measure), the euro did survive the turmoils of the last 5 years.

      So if Germany says “enough is enough” then the euro will be toast.

      I don’t think Germany wants the collapse of the euro project.

  6. I am moving onto thin ice when I comment this article because I am not an economist. I am commenting as a retired banker whose retired brain cells have trouble following the above accounting steps (in my opinion, the US/Germany steps would only be correct if banks had to handle all their foreign currency transactions through a Central Bank; in actual fact, banks deal directly with other banks).

    There is too much focus on the trade balance in this article because the trade balance is only part of what really matters, i. e. the current account balance. The current account balance is something like the ‘cash flow from operations’ of a country. Any surplus/deficit there must be offset by an identical net deficit/surplus in the capital account. That is mathematics and not economics because the Balance of Payments must balance.

    Surely it would be nice if a country had a balanced trade account because it would mean that the country is adequately competitive internationally. But even if it has a huge trade deficit, that is not necessarily a problem from a funds flow standpoint if the country can achieve a huge surplus in services which would bring the current account into balance. Put differently, there would be nothing wrong with Germany’s huge trade surplus if Germans compensated for it by spending the entire surplus as tourists in the rest of the world. There would be nothing wrong with a huge Greek trade deficit if Greece could compensate for it with a huge (much larger than it actually is) surplus in services like incoming tourism.

    The qualitative difference is probably that the trade account has more to do with employment than the services account (my guess). The trade deficit probably kills more manufacturing jobs than the services surplus creates, but that’s my guess.

    The formula to remember is: current account surplus = net export of capital. This is why Germany had to become such a huge exporter of capital (as Michael Lewis wrote so nicely: there is no international bubble which Germans could miss because of that, with the exception of Bernie Madoff…).

    In my opinion, Greece will/should have a structural current account deficit for years to come. Why? Because such a deficit triggers the necessity of importing capital and I believe for the Greek economy to grow as fast as it should/could, it requires the savings of other countries because it doesn’t generate enough savings on its own to finance that growth.

    Even though Greece’s current account is now approaching balance, that is misleading because the principal driver behind that was a reduction of imports due to the drop in demand. As long as Greece does not have the supply side structure to satisfy the needs for products and services of Greeks, it will have to import. Put differently, as soon as demand returns, the current account will deteriorate. The question is only what Greece should import (capital goods or consumption goods?).

    As I said, it would be good for Greece to have a structural current account deficit for years to come (provided the imported capital is spent well) because that brings foreign savings into the country and they can finance growth. Thus, the question is how one can envisage an import of capital when no one wants to lend Greece money.

    I would argue that the answer to Greece’s growth challenge is foreign investment. The more foreign investment, the greater a current account deficit Greece can carry without needing to borrow money abroad.

    Foreign investment can come in different forms. Remittances by Greeks living/working abroad would be in character a foreign investment (from 1950-74, this was BY FAR the largest source of foreign currency for Greece). If Greeks brought back some of their Swiss deposits it, too, would have the character of foreign investment. But the best foreign investment is that which not only brings money for Balance of Payments purposes but, above all, know-how transfer. From the distance, I would say that the Cosco investment in Piraeus should be viewed as a prototype of what Greece needs for reasons outlined above.

    • Klaus – If I can contribute my limited knowledge. I think the whole situation is easier if it is thought of in terms of a gold standard. If a country has a deficit the amount of gold in the country decreases. This leads to less gold per person which in turn means lower wages, lower prices, less imports, more demand for domestic production.

      If this does not happen in the real world ie the example of the USA there is only one thing that can be happening, the USA is printing money to fill the shortfall in the amount of gold.

      So why is this not creating inflation worldwide with all the countries holding dollars. Of course it is, prices of commodities are increasing and this is only the start. When the crisis in the dollar comes ie when people lose confidence in it which has to happen, then the inflation is going to go ballistic as the foreign holders of dollars start dumping the currency why it can still buy something.

      Going to Greece. Why is Greece not seeing lower prices, lower wages and more demand for domestic production?

      Lower prices are not happening because the government has increased the cost of living massively with fix taxes.

      There are lower wages in Greece but you could argue nowhere near where they should be. The Greek government has created a catch 22 here, wages cannot go as low as they should be because people would not be able to pay the taxes.

      And little or no difference in demand for domestic production. Because Greeks are struggling to pay their taxes, they are trying to save, business regulations have not changed, the future is uncertain, the capital does not exist because the banks refuse to lend, investments are too risky because of the free falling GDP.

      In short, the system would work as it is in Greece. The government simply has to have keeping the gold in the country as their number one priority. And this would have meant lower taxes, lower regulations. Unfortunately the government could carry out measures which increases the outflow of gold because foreigners have an IV feed of “gold” directly & exclusively to the government in order for it to destroy the economy. And make no mistake, I do not blame the foreigners I blame the people on the ground putting the plans into action.

      To sum up. If the Greek government had defaulted in 2008 Greeks would have adjusted, pensioners & savers would have been okay in the long run as the value of their savings would have been increasing over time.

  7. “It is, of course, quite true that the Fed’ assets have not changed but the liability side shows $20k less in reserve accounts and the equivalent more in DM liabilities to the Bundesbank.”

    I believe thats not correct.The liability side is unchanged also.The Fed simply moved $20k from the reserve account of the BoA to the reserve account of the Bundesbank.Then its up to Bundesbank on what to do with it.It can maintain this amount on its reserve account at the Fed where it will earn nothing, or exchange the reserves for other currencies in the market which would simply change the holder of these reserves at the Fed or invest this amount in interest bearing dollar denominated assets, mainly gvt debt.
    In the above example,the Bundesbank will most likely exchange the reserves for DM and then credit VW Bank reserve account with the equivalent amount.
    The effects of this are a possible change on the usd/dm exchange rate and a change of the holder of the $20k reserve balances.Thus Fed’s liabilities are unchanged.

    This also highlights the difference between having a trade deficit with your own currency and central bank and having a trade deficit while being a member of the eurozone.In the eurozone a trade deficit can cause base money reduction in the domestic economy (just like the gold standard): Money that leaves the Greek economy through its trade deficit can be then spent/invested anywhere in the Eurozone.In contrast the Drachmas could only be spent/invested in the Greek economy so you had no base money reduction.

    Apart from that, i believe what Alejandro implies is that the US gvt can finance the trade deficits (thus create demand) with no significant difficulties in doing so.I’ve also asked you the same thing before and you replied that the gvt. deficit is simply not enough to help maintain this level of demand.I agree but then again, the Gvt can deficit spend at any level no matter how high or low it is, with its only constrain being inflation and not debt.With that said, the gvt can generate the needed demand if it CHOOSES to do so.In other words if it chooses to get rid of stupid technicalities such as the debt ceiling and/or the fiscal cliff.

  8. Mostly plausible, except the implicit accusation Germany being sort of a predatory net exporter. Because nobody FORCES Jill or Maria to buy a VW. They can buy Peugeot, Fiat, Toyota, or whatever non German car, there are probably hundreds of car makers outside of Germany.

    Would be more convincing if the other net exporters in Europe and the World would also be mentioned in your pieces from time to time. Especially since the elephant in the net exporter room is China, not Germany.

    BTW, the ridiculously flawed design of the eurozone was and is indeed the source of a lot of evel and can’t be ended w/o dismantling this unsustainable currency union. The sooner, the better for all involved.

    • OK.And nobody forced ME to buy Siemens security systems for the Olympics.I was never asked actually.
      Nobody forced ME to buy non-functioning German submarines.But i was never asked actually…See the whole damn picture for once.
      Can you imagine how many VWs are the equivalent of ONE submarine or the C4I Siemens system?If you can…maybe things will start making sense for you.

    • You have the chance to vote for or against the people who did. Germans cannot vote in greece to change it to a normal country.

    • Pedro – it is a nice idea but people can only vote for what is put in front of them. It takes real effort to see through the constant media propaganda and I am afraid this effort stops 95% of people in their tracks.

    • άρες μάρες κουκουνάρες…
      @Pedro, NO we don’t even have that chance anymore.
      Just a gentle reminder: when in June’s elections there was evident that there is a very high possibility that SYRIZA would be government, the Germans freaked out and started their propaganda and threatening Greeks that if they do not vote for this government that we have now (who, btw, is the SAME that was involved all that scandals, surprisingly ONLY with German companies), the gates of hell will open upon stupid Greeks that vote for SYRIZA and not for the most “sensible” solution…
      How else can Germans do their business and sell crooked submarines at the prize of 10bn Euroes and then refusing to return the money?
      Does that rings a bell?

    • Oh is that right Pedro? Then why is Germany still in the eurozone? I thought the majority of Germans didnt like the euro…Whats up? Dont you vote? Or you arent a normal country either?

  9. great post! thanks for the succinct and complete overview of the finances behind international trade. hugely important for our, today’s, concerns.

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