“Bland” Ben

Bernanke´s blogging is still travelling along “side streets”, refusing to go on to the “main street”. What I think everyone is wants from him is a series of monetary policy posts covering his time as Governor and Chairman of the Fed.

Even so, he could have done something much more interesting with his (GSG offshoot) when talking about Germany´s Trade Surplus. It comes out as a boring “senior class lecture”:

Why is Germany’s trade surplus so large? Undoubtedly, Germany makes good products that foreigners want to buy. For that reason, many point to the trade surplus as a sign of economic success. But other countries make good products without running such large surpluses. There are two more important reasons for Germany’s trade surplus.

First, although the euro—the currency that Germany shares with 18 other countries—may (or may not) be at the right level for all 19 euro-zone countries as a group, it is too weak (given German wages and production costs) to be consistent with balanced German trade. In July 2014, the IMF estimated that Germany’s inflation-adjusted exchange rate was undervalued by 5-15 percent (see IMF, p. 20). Since then, the euro has fallen by an additional 20 percent relative to the dollar. The comparatively weak euro is an underappreciated benefit to Germany of its participation in the currency union. If Germany were still using the deutschemark, presumably the DM would be much stronger than the euro is today, reducing the cost advantage of German exports substantially.

Second, the German trade surplus is further increased by policies (tight fiscal policies, for example) that suppress the country’s domestic spending, including spending on imports.

For a theoretical underpinning of the argument see here.

For a more lively discussion of “The economic Consequences of Germany ”, see here.

Update? Scott Sumner says “Germany is balanced“. I don´t think that´s correct. “The Economic Consequences of Germany” within the euro system has many of the same implications of Keynes´”Economic Consequences of the Peace”, when Germany was on the “wrong end of the stick”!

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