Jon Ward Tosses “The Global Imbalance Question” at Obama and Merkel at Same Time


obama merkel.jpg
My friend Jon Ward who blogs at Potus Notes for the Washington Times is traveling in the press pool with President Obama in Europe now. He just showed how good a journalist he is.
Ward attended the conference my colleagues and I helped organize last week on the subject of global economic imbalances and how the world would recover if it deals with the probable reality that Americans will not return to irrational levels of personal consumption.
Jon Ward got the opportunity to put a question to both President Obama and to German Chancellor Angela Merkel about global imbalances — knowing full well that both have pulled in different directions on this one.
I’m so proud of Ward for asking exactly the right question at the right time and was mostly pleased with Obama’s response — though its clear that the Germans need work.
The one thing President Obama needs to understand that in this time of crisis he needs to steward a new era of major, deep infrastructure investment in the United States that not only triggers job creation in the near to mid term but helps generate recurring benefits to the economy over future generations. We have a major “infrastructure deficit” today that should not be left to future generations — and the plans he has outlined thus far don’t go as far as they should.
But overall, Obama’s response to Ward was excellent.
And as Financial Times uber-pessimist economics commentator Martin Wolf said the other day in Washington, Germany does not realize its vital hegemonic responsibilities within the Euro Zone, and I think Wolf’s observation is clear in the Chancellor’s response.
Here is the exchange:

Q Thank you, Mr. President. I’m going to read my question; I hope that’s not too much of a breach in protocol here. I have a question about surplus and deficit countries and trade imbalances. Mr. President, you said in London that the world may not be able to rely any longer on the U.S. as a “voracious consumer market.” Did you talk with Chancellor Merkel about Germany’s enormous trade surplus and its impact on the global economy going forward?
And, Madam Chancellor, some say that Wall Street — Wall Street’s excess was fueled by easy money, supplied from surplus countries such as yourself, and another large bubble and bust is inevitable if Germany and China and others do not move closer to balance. What is your response to that?
PRESIDENT OBAMA: Well, Jon, I do think that even as we are trying to solve the immediate crisis we’ve got to learn some lessons from the previous years to figure out how do we avoid another crisis. And if you look at the U.S. economy, what we’ve seen is a series of bubbles and then busts, much of it having to do with huge flows of capital into speculative sectors of the economy.
Part of the problem that we saw was a lack of regulatory oversight, and so we’re moving very aggressively on that front. And in the short term, my biggest concern is how do I just make sure that people get back to work? So our stimulus package, our efforts to stabilize the housing market, our efforts to remove the toxic assets from the banks so that banks start lending more effectively and businesses can open, people can get hired again — all that is focused on my top priority right now, which is making sure that we’re no longer hemorrhaging jobs and we start creating jobs.
As we emerge from the crisis, though, we’re going to have to take a look at how do we ensure — a term that Chancellor Merkel spoke quite a bit about at the summit, and that is sustainable economic growth. And in order for growth to be sustainable it can’t be based on speculation, it can’t be based on overheated financial markets or overheated housing markets, or U.S. consumers maxing out on their credit cards, or us sustaining nonstop deficit spending as far as the eye can see.
So once we stabilize the economy, we’re going to have to start bringing these huge deficits that our government is running, we’re going to have to start bringing those down.
Families are going to have to start making more prudent decisions about spending, and increasing their savings rate. Businesses are going to be making investments, and we want to spur as much investment as possible, but the whole point is to move from a borrow-and-spend economy to a save-and-invest economy.
Now, the U.S. will remain the largest consumer market, and we are going to make sure that it’s open. One of the principles that we very clearly affirmed in London was that protectionism is not the answer. It’s not the Germans’ fault that they make good products that the United States wants to buy. And we want to make sure that we’re making good products that Germans want to buy. But if you look overall, there is probably going to need to be a rebalancing of who’s spending, who’s saving, what are the overall trade patterns.
And it, by the way, it doesn’t just include developed economies like Germany and the United States; it also means we want to encourage emerging markets to consume more. If you start seeing China and India improve the living standards of its people, now those are huge markets where we can sell. And that’s why the last few days that I’ve spent talking about the international economy relates directly to the jobs that are being lost in the United States.
I know this was a long answer but it was a big question. The bottom line is that as long as the United States and Germany are keeping our open trading relationship, as long as our approach to currency is one that ensures fairness — which generally speaking, the relationship between the United States and European central banks has been very cooperative and very solid — as long as we have proper rule of the road and regulatory frameworks in place, then the key is to have friendly economic competition, the United States making the best products, making the best decisions, making the best investments, and Germany doing the same, and then all of us can do well together.
CHANCELLOR MERKEL: Well, we love competition. We love competition for the best possible products. And I don’t think we’re in such a bad position. And that is what drives us. That is what drives markets, economies — to have good ideas, bright ideas that turn into good products that you can actually sell.
What we — what all of this is about, we need to combat this crisis. We need to fight it resolutely. And I think we’ve done something very good in London. We tried to lend a helping hand to those who are not strong enough to, out of their own resources, combat this crisis. And that we can do this, that we still have a certain leeway to do that, shows how strong our countries really are.
But we have to do whatever we can in order to prevent such a crisis from ever occurring again. And this is what I mean very seriously. I mean, this was a great disturbance. Ever since the ’30s, we haven’t seen this without purpose — such a crisis hasn’t occurred.
So we have to take a very clear look at whether the economy is actually driving our politics and politicians, or do politicians still have the power to shape global economics. And I think we have to regain the ground that we have lost. That was a very important step to prove this to our people. And this is something that we cannot do nationally; we can only do this together and in concert.
If you look at the Federal Republic of Germany, for example, where we have a tremendous demographic change, this is a super — aged society, people getting older. So can we actually afford to incur so much debt? Do we have in a few years’ time really the power to innovate? We are paying an enormous amount of interest on each and every cent that we spend, and at some point in time, if the burden of debt becomes too big, then we lose innovative power.
And standards, for example, that, too, is important for us. Is it really so — that is really necessary, not losing sight of the future and innovation, and research and development.
But we have to emerge from this crisis as quickly as possible, which is why we actually pursued this on two parallel tracks in London. And we have every interest in not only seeing our own country get back on its feet again, the United States getting back on its feet again, but the whole of the world — emerging countries, Africa, Latin American countries. And this is why we will offer to them our help so that this happens time and again [sic].
We’re grateful for the fact that each and every one around the table assured us that we will not resort to protectionist measures. That is something that we were at one about. And this only will make it possible, incidentally, to emerge from this crisis. The fact that this wasn’t done in the ’30s was one of the big mistakes that was made then and that we don’t want to repeat.

Fascinating, important exchange.
I hope the other members of the press corps construct questions with as much weight.
— Steve Clemons


17 comments on “Jon Ward Tosses “The Global Imbalance Question” at Obama and Merkel at Same Time

  1. WigWag says:

    Erichwwk, during the French demonstrations a few weeks back the BBC showed Merkel and Sarkozy being burned in effigy by the crowds. They also showed certain elements in the crowd chanting O-B-A-M-A, O-B-A-M-A. This suggests to me that the French (at least the ones who were in the streets)have more sympathy with the Obama approach to solving the current economic crisis than they have to the Sarkozy/Merkel approach. I guess we will learn more about what the Germans think in the upcoming elections.
    With 2-3 million French citizens protesting in the streets there was undoubtedly a variety of motivations and opinions expressed. But the French trade unions were clear that their goal was to get France to adopt a more expansive fiscal policy including greater governmental expenditures and wage increases. To me, that sounds alot more like what Obama is promoting than what Merkel is promoting.


  2. Sarah says:

    I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  3. erichwwk says:

    Wigwag writes:
    “But don’t take my word for it.”
    I don’t.
    “Just ask a few of the 2-3 million French citizens who demonstrated against French and German recalcitrance in the streets of Paris a few weeks ago what they think.”
    What I heard them say was directed against France alone. And THAT was more directed against lack of SR focus on a safety net,and particularly the bias against younger workers, allowing them to be terminated w/o cause, although the low French stimulus package re jobs was an issue. Last but not least, was the French position towards NATO. Were I French, I would have joined the protest.
    I heard nothing directed towards the Germans.
    As I’ve stated earlier, to me the root cause is income inequality, an issue that does not require global co-operation. When one factors in the German safety net, THEIR stimulus package is as robust, if not more so, than the one put forth by Obama.
    You write:
    “there’s a reason that Chancellor Merkel’s policies are as unpopular in Germany as they are amongst members of the Obama Administration; when it comes to economic policy”
    but it is not what i hear.
    I do not mean to trivialize the currency/ trade imbalances. THOSE, not the savings/ surplus are the true mirrors of each other. If one goes back to the data re the 1930’s, especially looking at industrial output rather than employment one is struck by the fact the the Brits got out first, and never got in any where as deep as the US and Germany, with France, hanging on to gold the longest, suffered the longest. The upturns correlate nicely with getting off the standard.
    The point in all this, is while both adjustment rates and the degree to which one can specialize (create wealth) are a function of the extent of the market, it is absolutely misleading and obfuscating to claim that one cannot act unilaterally. And it gives great cover to sweep income inequality under the rug.


  4. arthurdecco says:

    “To one who has been impatiently waiting for some, any, politician at the Higher Level to jack up public discourse to where it should be, so that all the grunts and slurpings of the invisibles can be amplified to the level Procter and Gamble enjoys, Merkel and Obama’s comments are not unpleasing. But this is no plateau, it’s only a first step out of a deep hole that’s filling with sewage while paid mythmakers argue about the shape of the ladder.”
    Ma lord jaysus(!), James L – how you DO go on!
    Keep it up. That post was fabulous!


  5. WigWag says:

    Good fable, bad metaphor.
    American profligacy and German stinginess are two sides of the same coin; that is to say they enable each other. Without the massive capital inflows from surplus generating nations like Germany, Japan and China, American profligacy would not be sustainable. On the other hand, without the aggregate demand provided primarily by the American consumer the export oriented trade policies of the Germans, Japanese and Chinese would not be tenable. Without the willingness of the United States to recycle their surpluses, the surplus generating nations would have little choice but to increase domestic consumption and investment or face devastating economic downturns. Put another way, Germany, Japan and China are only able to sustain savings rates well in excess of what they spend on domestic investment because the American consumer has been there to utilize the surpluses (although obviously not always to good use).
    Once can at least have some sympathy for the position of the Germans and the Japanese. Both societies have highly developed economies, sophisticated infrastructures, modest prospects for growth, aging populations and low birth rates. In light of these facts its not hard to understand why significant domestic investment isn’t needed. It’s a lot harder to be sympathetic to the Chinese who continue to export capital to the wealthiest economy in the world despite the fact that 800 million of their citizens live in abject poverty. The Chinese are at least as much to blame as the United States for the current imbroglio. Their refusal to float the Yuan or to allow their citizens or corporations to hold foreign currency is at least as important a reason for the current economic difficulties as regulatory failure in the United States.
    And Chinese talk of a new reserve currency is laughable. As Paul Krugman pointed out in his last column, there’s nothing to prevent the Chinese from diversifying its currency portfolio right now. The fact that they complain instead of act is a sign of their own weakness. It’s their own fiscal, monetary and trade policies that insured they would become hostage to American monetary policy. Had they floated their currency and encouraged greater domestic spending and investment they would be sitting on a far smaller pile of U.S. treasuries and the manufacturing base of the United States would have been far less devastated. The Chinese and Americans (as well as the Germans) are merely reaping what they have sown together.
    Despite all of this, there’s a reason that Chancellor Merkel’s policies are as unpopular in Germany as they are amongst members of the Obama Administration; when it comes to economic policy, Merkel is little more than John McCain in drag. Her call for regulatory reform (and President Sarkozy’s) is little more than a smoke screen designed to distract attention from Germany’s own complicity in the current mess.
    To his credit, President Obama has touted the importance of regulatory reform on numerous occasions and in numerous venues; there is little reason to doubt that he is seriously committed to it. But Obama realizes that a failure of regulation was only one of several causes of the current worldwide crisis. And he realizes that the creation of a robust regulatory scheme will not, in and of itself, end the crisis. What Obama understands that Merkel doesn’t is that a world economy where energy producers, Asian economies (especially Japan and China) and the Germans consistently generate savings rates dramatically in excess of domestic investment while relying on the American consumer to provide the necessary demand (especially for Chinese, Japanese and German exports) is, in the long run, not sustainable. It’s Obama who recognizes the need for a new system and Merkel and her conservative ilk who show no interest in change. While she’s right that regulatory oversight needs to be dramatically enhanced, using this as an excuse for inaction in so many other areas (like increasing domestic demand in Germany) is just more of the same old, same old that got us into this problem in the first place.
    But don’t take my word for it. Just ask a few of the 2-3 million French citizens who demonstrated against French and German recalcitrance in the streets of Paris a few weeks ago what they think.


  6. erichwwk says:

    A fable:
    Once upon a time there was a little boy named Oscar, and a little girl named Maria. They both grew up to be healthy adults.
    As an adult, Marie discovered shmoos, an animal, that when eaten, supplied all nutrients the body needed, including supplying that nebulous sense of taste. At an equal cost/pound, there was never a demand for a product other than a shmoo. It had only one drawback – when eaten in excess, one gained weight and became lazy.
    That was the case with Oscar. Being afforded the opportunity to consume to his hearts desire, he became fat and lazy. Oscar claimed it was all Marie’s fault, for her willingness to supply him the universal good for free. Marie wondered why Oscar didn’t just say no.
    The wise men sat around and pondered. They concluded that Oscar was entitled to a lot of credit for his response, and Marie was more a part of the problem than the solution. Some went so far as to say: “there is a tendency for some to say the problem are overconsuming is caused by
    Marie alone, and are recommending that Oscar eat less, but the outcome is the result of policies of both Marie and Oscar”.
    Some of those listening to this discussion concluded: “Oscar gets it and Marie doesn’t”.
    A variant of this fable was once published by Douglass North,in a pre 1971 version of Public issues likely from comments by Armen Alchian in his “University Economics”.


  7. Dirk says:

    I tried to dislike Merkel, being as she is a member of the conservative CDU, but she’s just to damn reasonable in most respects. Sure she has a total nutbag for an Interior minister but all in all she treads carefully.
    Merkel and Sarkozy merely want a reasonable international framework for monitoring the global financial system before giving any ground on further stimulus. I would posit a kind of FDA for new financial products( Finance and Derivatives Association ) that would study and run test trials of new products before handing them over to appropriate national regulatory agencies.
    Stimulus packages are nice to have in Germany, but with an extensive social safety net, modern health care and a very good infrastructure, they just don’t have the same bang for a buck as they would in chronically neglected states like the US or UK.


  8. ... says:

    i suppose you would like a sustainable recovery to get back to a previously unsustainable position… makes a lot of c$….. in a race to devalue ones currency, who will win? the us is leading hands down at this point…


  9. WigWag says:

    I think President Obama is entitled to alot of credit for his response while Chancellor Merkel is more a part of the problem than the solution. Obama has accepted responsibility at the G-20 and in other venues for the economic and financial mistakes of the United States even though these mistakes were made by the four presidents who preceeded him.
    Chancellor Merkel on the other hand (along with the Chinese and Japanese)continues to stick her head in the sand and refuses to acknowledge the complicity of creditor nations in creating the current imbroglio.
    Even more importantly,while Obama seems to have a long-term strategy in mind for getting us out of the current mess (as imperfect or inadequate as that strategy may be), the Chinese, Japanese and Germans refuse to acknowledge or act on the changes that they will need to make if the world economy and financial system is to recover.
    Martin Wolf has it exactly right when he says,
    “There is a tendency among creditor nations to argue that so-called imbalances are caused by U.S. profligacy alone and to recommend smaller U.S. fiscal deficits or a higher level of private sector saving, but the outcome is the result of policies in both the surplus and the deficit countries.”
    Obama gets it; Merkel doesn’t. Until she and her overly frugal ilk begin to see reality, a robust and sustainable recovery is unlikely.


  10. Mr.Murder says:

    A UN worker who had been kidnapped was freed. Some things are shaking loose now that the commitment to Afghanistan is ramping up.
    This is going to sucker them into the CONTELPRO stuff that you note through others is doomed to fail. If only for the simple assertion of background sympathies not exactly siding with western views.
    Is this drip, drip, drip cost benefits model going to match long term institutional support needed to wage true military campaigns?


  11. ... says:

    jamesl – excellent comments from you as well.. thanks..
    one comment from obama that i’d like to isolate and consider is this. “Families are going to have to start making more prudent decisions about spending, and increasing their savings rate.”
    the federal gov’t is doing the exact opposite, increasing the debt, (different excuses every time but always defined as a necessity) so why would it’s citizens do anything different? leadership is about setting an example.. the usa’s level of debt has only gone up over the years and obama is doing nothing to change any of this…
    obama talks with encouraging words for dire times, but he is doing exactly as every other politician has before him… as jamesl notes, the money continues to flow for the war machines continuing escapades now in afganistan, with iraq an ongoing pit for dropping more… it’s nice of obama to suggest americans start saving or his focusing on sustainability… when will he be doing anything similar? where is his leadership on these issues specifically? it certainly hasn’t been expressed yet..
    i think a complete breakdown is necessary.. it can’t be fixed by politicians… the corporates are calling the shots in the usa today and they have been for some time….


  12. JamesL says:

    Good post and good follow-on comments. So good in fact that the competition to name the invisible 3000 pound gorilla in the room is quite apparent. Obama, Dan, Steve (by implication), MM, and erich all name important ones, and I have my own. But Merkel’s may be the most fundamental: “if the burden of debt becomes too big, then we lose innovative power.” Shorter yet: debt creates an inability to innovate. Why that tiny phrase never made it out into the sunlight while Cheney was droning on about how debt didn’t matter is a tribute to greed. One might argue that greed is even more fundamental than the yoke of debt, but the general point is that nations that don’t innovate or live within their means are destined to have a short, violent history.
    A wider perspective would recognize that the room is filled with 3000 pound gorillas, some invisible, some dressed in oddly tailored suits. All of them need to be dealt with because they are so large, mean, and bloodthirsty that it doesn’t do to schedule sequential bouts at our convenience with each over the next 10, 20, or 50 years. The invisible ones are truly dangerous: pent-up demand and savings of a few billion non-Americans who want live as consumptively (in both its senses) as Americans; the coming rapid departure of cheap oil supply and demand; a military industrial complex that has effectively become the fifty-first and fifty-second states of the union, nearly worthless at anything except blowing things up, on the dole full time and out late every night trashing the neighbors’ gardens; the superceding of individual human needs by sociopathic corporate interests; dysfunctional democracy; world and national water supplies, world and national food production capabilities; the drug war money pit; the war on terrorism currency incinerator; the gentle creep of fascism into America; the funding of Israel which has as its apparent national aim to alienate and attack everyone around it forever; the growing accumulation of chemical and radioactive nasties that technology has not figured out how to deal with or even calculate to the biological nth, and that no one wants to pay for or have in their back yard; melting ice caps (it’s just a phase, like acne), the light at the end of the tunnel that may be God, a meteor, or a train, but that every other person is convinced they know the identity, sexual preference, and political persuasion of; and a global extinction rate not seen since T rex and aimed directly at the most dangerous animal in earth’s history: human beings. These problems can only be put off if one is not too attached to the idea of the future,
    The apes in the odd suits are there to distract, muddle, advertise, entertain, and hit one out of the park for us—to stay in continual eye-catching, gut-wrenching, heart-throbbing motion so the invisible apes can munch on human appendages in peace and quiet. List in this column all those ultimately insoluble moral conundra of the current generation: abortion, birth control, the name and address of God, the genome of the nearest extraterrestrial life forms, the oral history of animals, the definition of sensate life, the boundary between freedom and security, the true value of slugs in the forest (the price of their extinction); and so on. The craftsman tailors have Democrat and Republican allegiances, but are fundamentally those of Moneyed Interests who wish to wheedle, threaten, cajole or overwhelm the public with advertising aimed at directing public opinion toward its own enslavement, to the betterment of those entities that have the largest financial-Darwinian cahones.
    To one who has been impatiently waiting for some, any, politician at the Higher Level to jack up public discourse to where it should be, so that all the grunts and slurpings of the invisibles can be amplified to the level Procter and Gamble enjoys, Merkel and Obama’s comments are not unpleasing. But this is no plateau, it’s only a first step out of a deep hole that’s filling with sewage while paid mythmakers argue about the shape of the ladder.


  13. Mr.Murder says:

    As for Germany, they and Japan are building factories or buying up American manufacturing to keep it running.
    Steel mills here come to mind. Nucor Yamato, Tenaris, etc.
    How about you get the infrastructure plan up and running?


  14. Mr.Murder says:

    The London sphere of influence that helped prop the INC and lie us into a war? Laundering scams with energy sectors of the EU like former energy minister from Aznar’s land? Using rumors of Halliburton subcontractors losing track of well heads destined for oil producers in the third world, coming from Eastern Europe?
    Do tell.
    Ahmed Chalabi scammed his share of banks in Cyprus, Jordan, Palestine…..
    why has Barack Obama not gone after the swindler?
    Obama opposed the war but has to win peace with honor now. How exactly does Chalabi and his portfolio fit into this, aside from being on the bailout tit?


  15. erichwwk says:

    Nice catch, Dan.
    If Jon Ward were really a good journalist, he would focus on nationalized bank fraud, and not buy into the latest US/British smokescreen.
    While trade imbalances are not trivial, the real story is that fact that we no longer have either an honest government, or a free market in the US.
    What we have is a kleptocracy, pretty much what the Russians have. As Jay Leno said, when the AIG CEO went through Airport security and had to empty his pockets, out fell Senator Dodd.
    This is precisely what Merkel is trying her best to avoid, despite the fact that she fully understands how economies are linked. She, precisely because she understands how bank fraud enabled by politicians led to Hitler, will do her utmost to stand firm against the American/British partnership/corruption between the political and financial class. Is it really a coincidence that the AIG Financial Services was run from London?
    I suggest Jon Ward spend a bit more time pursuing the real issue Merkel raises – will Obama be able be able regain control over financial elites and the politicians of both parties who are in their pocket, or will this charade of Federal Ponzi schemes continue?
    As Merkel says, THAT is the very important steps Obama and Merkel have to prove to both the American and German people.


  16. ... says:

    dan – i agree with your comments. i was also fascinated by the same comments and really agree with the last comment in your post…


  17. Dan Kervick says:

    I have to say, those were very good and interesting answers. from the two leaders. But I was especially struck by this part of Merkel’s answer:
    “So we have to take a very clear look at whether the economy is actually driving our politics and politicians, or do politicians still have the power to shape global economics. And I think we have to regain the ground that we have lost. That was a very important step to prove this to our people. And this is something that we cannot do nationally; we can only do this together and in concert.”
    If I read this correctly, Merkel is saying that we do not simply face an imbalance in economic trade and finance relations among economic systems. We face an imbalance of power between *political systems* and *economic systems*. The appropriate relationship between the government and the private sector has been seriously disturbed.
    This should be especially clear when we are talking about democratic systems. In democratic societies, people have the right to shape their economic systems, and produce the economic outcomes they want. We shouldn’t regard our economic futures as something that must be left to fate, and to the unfathomable mysteries of individual human desire and the inscrutable invisible hands at work in the world of private, decentralized economic decision-making. It is time for us to reassert the supremacy of the body politic over commerce.
    This feeling for the necessity of controlling our economic destiny, and governing commercial behavior, is something that has been lost during the global ascendancy of the American system, with its extremist zeal for the unfettered private economy and its reckless hatred of government.


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