Which one will the fountain bless?
David Beckworth has a post arguing the Euro is not suffering from a Debt crisis but from an NGDP crisis. He illustrates with a version of this chart:
James Pethokoukis argues that ‘austerity’ in the US, reflected in the sharp drop in government purchases has not made a dent on the economy´s trajectory. He illustrates with a version of this chart (note also that the increase in government purchases did not ‘save’ the economy from tanking in mid-2008):
We know that Japan has clocked high deficits which have accumulated into a gigantic debt over the last 20 years and we also know that hasn´t helped real growth at all.
The next chart shows the “three coins”. They are the growth on nominal spending (NGDP) in the three economies.
The US is doing better because it has maintained the growth of spending stable and at a higher level than the others. It´s certainly not enough to bring the economy out of the ‘hole’ it dropped but allows it to keep rolling on despite public sector retrenchment.
The Eurozone is dysfunctional. So much so that despite the great show of economic weakness in most parts of the region, the ECB thought tightening monetary policy was the right move. And it increased rates in April and July 2011!
Japan may lead the way in championing the rise in NGDP. They should have explicitly stated their level target but it will be interesting to see the results. And there´s hope for the UK after Mark Carney takes over the BoE in July.