German and US eocnomic policy at odds

We are getting much clearer signs that the G20 is all over the map with respect to economic policy. UK and Japan are following an austerity program of cutting government expenditures. Now Germany is weighing in with e export driven fiscal austerity program. As stated by Chancellor Merkel in a press conference and call to President Obama,

• cutting government debt is “absolutely important for us,”
• “But what we certainly can’t do is influence our export strength,” she said. “It’s a fact. It’s the right thing.”

President Obama is right to be concerned about global imbalances caused to a high degree by the export engines in Germany and China. He also is correct in noting that a cut of stimulus at this time could hurt the fragile recovery, but we are in an especially complex time where rules of the past may not apply. This comment is not trying to be cute and avoid the issue. The fact that we are still in a debt bubble that has to be adjusted. Switching public for private debt while adding more structural deficits is not gong to solve the problem. It just changes the debtors.