Angela Merkel Sees No Need For More Stimulus

The much ballyhooed G-20 meeting kicks off late next week. The demonstrations started this weekend as did some pre-conference lobbying on the part of the politicians.

Angela Merkel, the Chancellor of Germany, went on the record saying that spending too much money on fiscal stimulus is counter productive. Keep in mind that the American view is that not enough has been committed and that nations need to pick up the pace.

Ms. Merkel is no doubt responding to domestic political considerations. The German public has little patience for anything that threatens long-term economic stability. Inflation and its ravages are something the nation will avoid at all costs including suffering a long and protracted recession. That aside, Ms. Merkel did make an interesting point.

“This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” Merkel said, according to the FT. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”
There is much truth in that argument but, of course, it also fails to advance any ideas about how to deal with the crisis. By just proposing not to repeat past mistakes without suggesting an alternative to solving issues is simply posturing.
I agree with Ms. Merkel that too little thought has been given to what things should look like when we do recover. The approach of the Bush and Obama administrations seems to be oriented towards restoring the status quo. No doubt it has so far relied on leverage, debt and limitless expansion of the money supply. Despite protestations that this will change once we recover, the reality is that it probably won’t and all sorts of new problems will attach themselves to the solution.
But I digress. The point here is to expect little out of the G-20 meeting. One side wants to talk about regulation (the Europeans), one about stimulus ( the Americans) and another about reserve currencies (the Chinese). The challlenge for the participants will be writing a communique at the end that somehow avoids creating the impression that any single agenda triumphed. Expect little of substance and hope that the markets don’t notice.
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