Politics

US economy benefits from rising debt, an example for other countries?

A heated debate has flared up in Germany about the usefulness of the debt brake. The current regulation actually offers the government enough flexibility, but they don’t want to take advantage of it. In the USA, on the other hand, the path is completely different, which has led to a significant increase in the deficit in the state budget. In particular, tax cuts and rising social costs have significantly widened the gap in the US federal budget. Above all, the financial relief for companies and private households has provided positive economic impulses. According to estimates, the tax cuts by the Trump government have relieved companies by around USD 80 billion and private households by around USD 120 billion. This alone should have contributed to growth of around 0.7 percentage points. With expected GDP growth of 2.3% yoy in 2019, this is a not inconsiderable contribution. Whether planned or not, with…

The SPD has decided – the beginning of the end of the grand coalition?

  In the SPD, the opponents of the grand coalition win the member survey. This could be the beginning of the end of the government. Germany will suffer, France and possibly the USA could benefit. New elections in the current environment entail many risks, but also the chance for a Schröder effect. The SPD members have elected the new party leaders in a run-off election. With Saskia Esken and Norbert Walter-Borjans, the two candidates were elected who spoke out in favour of a quick end to the grand coalition. Instead, the two chairmen are aiming for a government to the left of the centre. The election itself was close. Esken and Walter-Borjans received 53% of the votes, Finance Ministers Scholz and Klara Geywitz received 45%. This couple had started with the goal of successfully continuing the coalition. The turnout was only 54%. Obviously, the long election process had tired the…

India misses an opportunity

  India has indicated that it will no longer participate in the preparatory work for the establishment of the Asian Free Trade Area (RCEP) and that it will not join at a later date. But even without India, RCEP will be the largest free trade area in the world, accounting for almost a third of the global economy and almost a third of the world’s population. At present, India’s current account balance is relatively stable overall and the slight decline of around 2% in gross domestic product gives little cause for concern. However, if we look only at trade in goods, i.e. the traditional trade balance, there is currently an enormous Indian trade deficit with China, which has almost quadrupled in the last ten years to around 58 billion US dollars – with total bilateral trade of around 95 billion US dollars. The concern that cheap imported goods will continue…

France vs. Germany: More state is no alternative

The French economy has performed comparatively robustly in recent quarters. As in previous quarters, the quarterly growth rate between July and September was 0.3 per cent. By contrast, the German economy grew by only 0.1 per cent and thus barely escaped a technical recession. The reasons for the different development of the two heavyweights of the European Monetary Union need not be looked for long. While domestic economic development has traditionally played a major role in France, the comparatively strong economic growth in Germany in recent years up to 2017 was largely due to a well-functioning export industry. After all, exports in Germany account for almost 50 percent of the gross domestic product, in France only 30 percent. Industry is also much more important in Germany, where it accounts for 24 percent of value added, than in France, where it accounts for 12 percent. The relative dominance of the export…

Emerging markets in upheaval

The trade conflict between the USA and China has had a dampening effect on world growth in recent months. World trade has been stagnating or falling for some time now. Countries whose growth model depends heavily on exports and thus on foreign demand are negatively affected by this development. The pace of growth in these countries, such as Germany, has slowed significantly. Of course, this is not just a problem in the industrialized countries. The once celebrated emerging markets are also suffering from this development. The strong dependence on world trade has also become a problem here. The slowdown in growth and the associated unfavorable effects on the labor market and tax revenues are putting structural weaknesses, corruption and social inequality in the countries back in the limelight. The growing dissatisfaction of the population can no longer be limited or even resolved by a promise of prosperity. As a result,…

Till the jug breaks

Central banks, in particular the ECB and the Fed, are increasingly concerned about the consequences of low interest rates for financial stability. Many asset classes have developed very positively in recent years and in some cases have moved significantly away from their fundamentally justified prices. Valuations have become expensive. This applies to the real estate markets, the bond markets and the stock markets. This development should not come as a surprise, as reference has often been made to this expected scenario. Low interest rates play the most important role. Actually, they are supposed to stimulate investment and consumption. In the current cycle, however, demand for credit has remained quite weak and the expected and hoped-for effects on the real economy have failed to materialise. On the other hand, low interest rates have led investors to take ever greater risks in their search for returns. This was supported by the hitherto…

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