News item
16 Feb 09
Self-interest does not mean for the common good
The new German Economics minister, Karl-Theodor zu Guttenberg, is of the opinion that the German domestic economy will revive by this autumn at the latest. The minister is not alone in this opinion, for in the meantime there is a whole list of economists who expect a clear improvement of the economy in the second half of the year. Companies on the other hand are clearly quite sceptical, especially when reviewing the real-time figures of job cuts, reduced working hours and other radical moves.
The hope is mainly based on the scope of the globally initiated economic programmes, encompassing over 12.5% of the world gross national product. This figure is so high, that it is regarded that it must take some effect. At the same time, the greatly reduced raw material prices should have come as a relief to many companies. The new dangers, however, arising from these gigantic economic programmes, such as the increased danger of rising inflation, will not be expanded upon here, except to comment on a quite remarkable, though not so well-known, approach taken in the USA to finance the economic stimuli.
The public bonds, which the American treasury has to issue in order to finance the huge expenditure, will not be, in the main, bought by interested investors, but by the American Federal Reserve Bank, the Fed, itself. In other words, the money machine will be switched on and new money will be printed in order to cover the financial deficit, or, to put it simply, “robbing Peter to pay Paul”. The risks involved in this, certainly in the medium term, should not be underestimated. This practice is actually forbidden by law for the German Bundesbank and the European Central Bank.