"There's something silly about Germany."

Anthony Peters, Swiss investment strategist, tells International Financial Review that Germany's Angela Merkel's balkiness at solutions to the euro-zone crisis are a bit daft given how much the German economy, Europe's largest and world's fourth-largest, benefits from the devaluation of the euro brought on by the euro-zone default panic.

The silly thing is tha the weaker the euro gets, the better Germany does. Not only has it benefitted for the past decade from being able to access the entire European single market without having the monkey of an appreciating currency on its shoulder, but the more the periphery has dragged the single currency down, the more competitive Germany has been on a global basis too.

Mutti Merkel surely knows that without the failing neighbours her country would be in a lamentable and uncompetitive economic condition.

Hmm. By Peters' unwitting logic, Merkel (shown left) has no incentive to see a recovery in the euro, so why on Earth would she be an easy mark for solutions to the euro-zone crisis, as the intelligensia on both sides of the Atlantic are urging her to be? 

If Germany is cashing in on a devalued euro, I expect that phenomenon is exaggerated and certain it's a short-term boon. Merkel, more than anyone, needs a solution to the regional crisis since Germany exports extensively to its fellow euro-zone member-nations. It stands to suffer most if the five most troubled nations - Greece, Ireland, Portugal, Italy and Spain - are forced, as Greece already has been - to impose harsh internal austerity measures in return for bailouts. That will severely constrain consumer spending in Greece and the other trouble nations encouraged to embrace austerity to get the books balanced right quick. Which in turn would shrink Germany's export markets, obviously. Germany, of all nations, needs its 16 fellow eurozone members to recover or not slip into the abyss that Greece so obviously has.

I feel a bit out on a limb here, because just about everyone and his brother - especially the commitariat in Germany - characterizes Merkel is a plodding, quasi-Neanderthal in not getting with the program on throwing a lifeline to distressed eurozone nations that, in the main, have been living beyond their means for years and borrowing the difference.

Any student of Germany will tell you that its acute debt-aversion traces to the hyper-inflation of the 1920s, when it took a wheelbarrel of Deutschemarks to buy a loaf of bread. There are plenty of Germans old enough to remember those times, and its end game of horrific consequences for the world. That sentiment has translated into widespread German unpopularity with bailing out nations rightly perceived as lacking Germany's public and private embrace of finance prudence. Or why don't we use a more down-to-Earth maxim, of embracing delayed gratification and what the economists used to call "future preference" - saving today in preference to spending safely tomorrow. Without borrowing, it should go without saying.

It would be an exaggeration to say the governing coalition Merkel leads is "fragile." But you won't find any party leaders who are members of it who don't share the grassroots German view that spendthrift nations should be bailed out, or "rewarded," for their almost deliberate lack of interest in pursuing productivity gains, applying fiscal sanity to compehensive social programs that are politically more easily financed with copious government borrowing than raising taxes or tax compliance.

Falling back on the old saw about the Chinese coin with crisis on one side and opportunity on the other, my guess is that the chancellor sees this crisis as a rare opportunity - the first since the end of World War Two - to finally put Europe's comprehensive social-welfare society on a fiscally sound footing by playing hardball with would-be recipients of bailout asistance. Or are we just supposed to accept that Italy, for instance, will maintain a debt-to-GDP ratio of 120% forever. (America's ratio is 70%, and fiscal hawks in the U.S. are screaming bloody murder about that.)

Up to a point, I do agree with Peters on this:

A portfolio manager friend of mine I spoke to yesterday bemoaned that there are too many questions and not enough answers. I disagree. There are not too few answers, just too few answers people want to hear or, perhaps more worryingly, with outcomes anyone really want to contemplate and deal with. 

But here again, Peters contradicts himself. The easiest route for Merkel would be accepting something other than a "tough-love" solution to decades-old fiscal bad habits among most euro-zone members, not limited by any means to the five nations cited above that are in an especially tight corner. (Belgium, Lativia and even France these days are having their fiscal probity scrutinized, and the none of them come out bearing resemblance to a well-managed household budget.) Neither does the U.S., of course.

In short, if Merkel was an easier touch, she'd stand a good chance of being the heroine of quickly saving the euro-zone, and end up on the cover of Time in January as 2011 Person of the Year. Obstinate she is, in an unduly frustrating way at times, I readily admit. But her sober assessment of history and current conditions, and her take on deceitful heads of state (Greece faked its books to gain entry to the eurozone) have elevated her in my eyes, at least, above conventional politicians.

It's natural to hope for the most rapid possible solutions to crises which, in this case, affect a European population larger than that of America. But inadequate consideration of unintended consequences, and impulsive conventional reactions to nuanced, devilishly complex problems, is what gets us into trouble. Or am I reading too much into David Cameron's recent retreat on the knee-jerk austerity scheme he quickly sprang on fellow Britons just months ago?     

              

QuickLinx. Friday, Sept. 16.

 
At left, Male, capital of Maldives, population 298,842 (about the size of Iceland), with the world's fourth-highest population density, after Monaco, Singapore and Vatican City. About 200 of Maldives's 1,192 islets are inhabited. (Wikipedia Commons) (Click on left photo for much larger image.)

Residents of Maldives, world's lowest lying nation, forced by rising sea level due to global warming to relocate. (Toronto Star)

Looking for work? Try Canada. (John Ferri, Salon)

Ottawa to fight "Buy American" provisions in Obama's jobs bill. (Les Wittington, Toronto Star)

In one of the biggest opinion polls in Toronto history, residents in every part of the city oppose the Twin Freaks' proposed budget cuts. (Robyn Doolittle, Toronto Star) And yes, that includes Doug Ford's Etobicoke riding.

U.S. banks quietly lending billions to prop up European lenders. (Gareth Gore, International Financing Review) I worry far less about rumored sovereign debt defaults in Europe than the ticking time bomb of that sovereign debt and "toxic waste" from the 2008-09 global financial meltdown that's on European bank books. As is the wont of U.S. business, the American banks, for the most part, took their hits early and completely, in order to start over clean. The chief reason for Japan's "lost decade" beginning with the spectacular 1990 collapse of the Nippon real estate and stock markets - it's actually two decades now; Japan still hasn't recovered - is the stubborn refusal of Japan's biggest lenders to fess up on their bad loans, in which the complicity of the government-for-life LDP was craven. Now Europe's in denial, and when the plug finally is pulled, much of the losses will wash back to U.S. lenders holding euro-denominated assets of dubious value.

FBI teaches its agents that even "mainstream" Muslims "Violent, Radical." (Spencer Ackerman, Wired)

 
Bachmann at the Sept. 12 G.O.P. presidential debate. (Reuters)

Michelle Bachmann's anti-vaccine advice is "toxic," doctors say. (Julie Steenhuysen, Reuters)

Dem-controlled Senate probing G.O.P. "war on voting." (Ari Berman, Rolling Stone)

Matt Taibbi: That UBS employee alleged to have lost $2 billion for the firm was no "rogue trader." (Rolling Stone) "They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.

G.O.P. presidential contenders are a pack of liars. (David Corn, Mother Jones) Hey, if Rep. Joe Wilson (R) can falsely call out Obama as a liar during the State of the Union, let's call the entire other side's genuine mendacity.

Rick Perry's Texas "miracle" - for corporate welfare bums. (Siddhartha Mahanta, Mother Jones) When employers paid by Austin to create jobs reneged, Rick fudged the numbers.

 

Enjoy your day.

 
Wakey, wakey. (Getty Images)

 

My guess on the euro-crisis heroes.

Two heroines, actually.

And they would be Angela Merkel, German chancellor. And Christine Lagarde, newly appointed managing director of the International Monetary Fund (IMF).

   
Angela Merkel and Christine Lagarde, the first women to lead Germany and the IMF, respectively, might also emerge as the key figures in rescuing the 17-nation-member eurozone. (Reuters) 
 
They each have the skills you're looking for - calm, conciliatory and non-impulsive. Forging complex agreements, often with prickly personalities, is second nature for each.

As head of government of Europe's biggest economy, and fourth-largest in the world, Merkel gets invited everywhere and knows the players. As French finance minister immediately prior to her IMF gig, Lagarde summited with fellow finance ministers worldwide during her long tenure in the post to which Sarko appointed her.

Merkel heads the coalition government of a federated nation, which has required her - now in her second term, having been re-elected two years ago - to negotiate constantly with leaders of the other parties in her coalition, and with state-government leaders. (Rather more, say, than Obama is obliged to negotiate with Anthony Cuomo or Rick Perry.)

No resolution to the euro crisis will happen without Merkel; she has effective veto power. But she can't impose a Made in Germany solution that doesn't have at least the appearance of a joint venture, which is where the well-known and widely liked Lagarde comes in. Non-European nations are as aggravated as ever about the European monopoly on the IMF top job, an increasingly disagreeable tradition dating from the inception of the IMF and the World Bank at Bretton Woods. For all that, when Lagarde was lobbying for DSK's job - recall that DSK was set to quit later this year to contest next year's French presidential election - her swing through the Pacific Rim was met with widespread enthusiasm for her IMF candidacy.

My sense is that the ultimate decision-making juice would be with these two in any event. But compounding their prominence is the lame-duck status of Jean-Claude Trichet, the outgoing European Central Bank chief. Sarko is deeply unpopular at home and understandably focused on getting re-elected next year. And while Silvio Berlusconi heads the eurozone's No. 3 economy, his novelty act finally has lost its appeal even at home and there's a sense - harems or no harems - that after a decade or so in power (an eternity in Italian federal politics) his time has passed. It doesn't help that Italy is one of the nations now targeted by speculators driving down the value of Italian bonds on default rumors.

I'm not saying they won't get their hair mussed, as the George C. Scott character in Dr. Strangelove says in a not wholly dissimilar context. But if we get to December with a 17-member eurozone that appears to have a future, after all, Merkel and Lagarde may share cover honors as Time's people of the year. And that won't be the kiss of death it usually is, since they'll already have most of the heavy lifting behind them by that point.

 

LEGO my euro-crisis!

Kudos to Michael Cembalest, chief investment officer at J.P. Morgan, who puts Lego bricks to good use in his latest "Eye on the Market" report on global investing opportunities.

Frustrated as most of us are in assessing the motives and likely actions of key players in the eurozone crisis, Cembalest "consulted Peter Cembalest, who specializes in conceptualization of such phenomena. Peter (age 9) uses Lego Minifigures as a medium." And for me it works, at least as well as the million words on this hot topic I've read so far.

 

For a larger image of Peter's handiwork, and who the above groups are and what all those arrows mean, check out his dad's report here. Keep in mind it's Europe that Peter's depicting. While U.S. conditions are eerily similar - including the blame-game and hot potato aspects - some players in a U.S. version are missing, including Tea Party stand-in Joe the Plumber.

Michael Cembalest is not your go-to guy if you believe, as I do, that the eurozone will survive. He's a euro-bear, long skeptical that the 12-year-old eurozone project is viable. Why that's so, in his view, makes a good story, so have a look.

BTW, Cemblalest recommends for this skittish investing environment large-cap global firms, based in the U.S., Europe and Asia. Those are a fairly safe way of playing the world's growth markets, notably in Asia, without getting burned by currency devaluations. A plus is that stocks he wants you to focus on yield a lofty 5% or so, a big improvement on the less than 3% on U.S. Treasuries.

H/T: EB contributor Cynthia Martin.

 

A last word on Iraq.

The U.S.-led invasion of Iraq will always be for me one of the few outstanding examples of what Barbara Tuchman called "unwisdom in government." And like Paul Krugman, writing below on the 10th anniversary of 9/11, I also will never forgive or forget.

Is it just me, or are the 9/11 commemorations oddly subdued?

Actually, I don’t think it’s me, and it’s not really that odd.

What happened after 9/11 — and I think even people on the right know this, whether they admit it or not — was deeply shameful. The atrocity should have been a unifying event, but instead it became a wedge issue. Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror. And then the attack was used to justify an unrelated war the neocons wanted to fight, for all the wrong reasons.

A lot of other people behaved badly. How many of our professional pundits — people who should have understood very well what was happening — took the easy way out, turning a blind eye to the corruption and lending their support to the hijacking of the atrocity?

The memory of 9/11 has been irrevocably poisoned; it has become an occasion for shame. And in its heart, the nation knows it.

After much neo-con caca hit the fan, Krugman elaborated a bit the next day:

It looks as if I should say a bit more about yesterday’s anniversary. So:

The fact is that the two years or so after 9/11 were a terrible time in America – a time of political exploitation and intimidation, culminating in the deliberate misleading of the nation into the invasion of Iraq. It’s probably worth pointing out that I’m not saying anything now that I wasn’t saying in real time back then, when Bush had a sky-high approval rating and any criticism was denounced as treason. And there’s nothing I’ve done in my life of which I’m more proud.

It was a time when tough talk was confused with real heroism, when people who made speeches, then feathered their own political or financial nests, were exalted along with – and sometimes above – those who put their lives on the line, both on the evil day and after.

So it was a shameful episode in our nation’s history – and it’s one that I can’t help thinking about whenever we talk about 9/11 itself.

Now, I should have said that the American people behaved remarkably well in the weeks and months after 9/11: There was very little panic, and much more tolerance than one might have feared. Muslims weren’t lynched, and neither were dissenters, and that was something of which we can all be proud.

But the memory of how the atrocity was abused is and remains a painful one. And it’s a story that I, at least, can neither forget nor forgive.

[Emphasis added.] 

As EB readers know, I've often been at my wits' end over Krugman's faulting Obama for not being perfect - for not being, well, Paul Krugman. But it was Krugman and Eric Alterman who kept me grounded in the reality-based universe in the years following the botched 2000 "election." No matter what they have to say in future, I'll always be grateful to them for that.

Related

An Inquiry Into the Persistence of Unwisdom in Government. (Barbara W. Tuchman, Journal of the U.S. Army War College) Tuchman's brilliant essay came to my attention when it first appeared as a lecture at the U.S. Military Academy in 1979, reprinted in Esquire.

Paul Krugman's allegation of 9/11 shame - is he right? (Greg Sargent, WaPo)

The miserable decade of lost opportunity following 9/11. (George Packer, New Yorker)

Rumsfeld Tweets that he's cancelled his NYT subscription over the Krugman blog post. (@RumsfeldOffice) This is just too amusing. The NYT''s one anti-Iraq-war editorial was so mushy I had to read it four times to grasp what the paper's editorial board was trying to say. Meanwhile, on the paper's front page, Judith Miller was shilling for the Pentagon on Saddam's vast cache of WMD, with the zealous encouragement of then-executive editor Howell Raines and publisher and close personal friend Arthur Sulzberger Jr. And who knew Donald Rumsfeld read the NYT? (Greg Sargent wonders too, saying Rumsfeld "claims" to have cancelled his subscription.) I pegged Rummy and Cheney as lost in the woods without guidance from the Moonie Washington Times.

Here's Rummy's Tweet: 

After reading Krugman’s repugnant piece on 9/11, I cancelled my subscription to the New York Times this AM.

 

And here's the largest photo I could find of the one man to have served as both the youngest and later the oldest - and forever among the least competent - U.S. secretaries of defense. Gosh, how he's shrunk with age and over-exposure.

 

September 11, 2001.

 
The "Tribute of Light" above lower Manhattan, sponsored by the Municipal Art Society, shown here tested last Tuesday, will light the New York skyline tonight in honor of those who died 10 years ago today in terror attacks on New York and the Pentagon, and in a fourth hijacked airliner crash-landed near Shanksville, Pa., by its brave passengers enroute to another high-profile target almost certainly in Washington, D.C. (AP)

 

Enjoy your weekend.

 

 

 

 

Fallingwater, Bear Run, Pennsylvania, usually described as America's most famous private residence, and about an hour's drive east of Pittsburgh, photographed in August 2011. The cost estimate Frank Lloyd Wright presented to patron Edgar Kaufmann, the Pittsburgh department-store magnate, was $30,000. Final cost: $155,000. And it leaked, always a sign of architectural genius.

Photos by EB contributor Mary Lou Chlipala.

 

On miserable job performance, U.S. is about where you'd expect.

Brad DeLong of UC Berkeley is baffled by the bizarre news-media's surprise that America hasn't yet returned to full employment.

Lordie, the U.S. has suffered three "jobless recoveries" in a row. And this latest downturn has been one for the ages - deeper than any for most Americans, born too late to remember the Depression.

Plus, this is not your usual recession, an industrial downturn caused by interest rates deliberately raised by the Fed to prevent the economy from overheating. And doing the job all too well when Paul Volcker crashed the economy in 1981-82 in order to finally break the back of 1970s double-digit inflation. 

What's transpired since December 2007 has been a wholly unplanned financial recession, triggered by a global credit meltdown that imperiled the banking system, dried up credit for even the most creditworthy individual, corporate and sovereign borrowers, and has worked its way - as financial downturns do - into every nook and cranny of the economy.

If the milder recessions of recent years yielded few new jobs upon recovery in GDP and corporate profits, what on Earth made anyone think this epic downturn would get us back to, say, 3% or 4% joblessness in anything less than a decade?

Here's DeLong:

When you consider that the recession of 1990-1 was followed by a two-year jobless recovery, and that the recession of 2001-2 was followed by a three-year jobless recovery, it is hard to see what empirically-based model of the economy would lead you to think that the recession of 2007-9 would not be followed by a corresponding jobless recovery...

As it is, conditions have modestly improved under Obama, due mostly to a massive stimulus that Republicans now described as failed. Of course it failed, if what one means is that it ended too soon. (What the GOP means is that it shouldn't have been attempted.)

That first stimulus actually was successful, in creating or saving an estimated 3 million jobs, and more important, stopping the sickending downward spiral in GDP when Obama took office.

But it was too small given the horrid circumstances, even at an unprecedented $800 billion, or more than FDR spent in the entire duration of the New Deal. And it ran out after two years - precisely when employment began to decline again after a pickup during the Obama stimulus.

Progressives like Krugman and Stiglitz who at the time, in early 2009, argued for a larger, $1.2 trillion stimulus - and unbeknownst to them, had Christina Romer, then chief of Obama's Council of Economic Advisors, for company - didn't grasp then and still don't that Congress wasn't about to give Obama more than $800 billion in February 2009, widely described at the time as an "astonomical" sum.

And Romer among others has pointed out that the Administration rightly worried there weren't quite enough "shovel-ready" infrastructure projects to take the funds. Injecting the $800-million stimulus resulted in surprisingly few boondoggles given the staggering sum.

In hindsight, the president could have called for a "two-stage" stimulus, accompanied by a long-term plan for deficit reduction to pay for it, that would have seen the initial stimulus succeeded by the "Son of Stimulus" the president finally proposed last Thursday in his address to the joint session of Congress.

Alas, today that $400-billion plus package will be a tough sell with a GOP-controlled Congress. Then again, the $800-billion was a tough sell to a Dem Senate whose filibuster-proof supermajority was a fragile one and lasted but four months before Scott Brown won Ted Kennedy's seat in Massachusetts.

Besides, the Hill in 2009 had just said yes - after first saying no - to a $700-billion bailout package for the banks, pleaded for by Bush treasury secretary Hank Paulson. (I say "pleaded" - the erstwhile Goldman Sachs CEO was on his knees, literally, to Nancy Pelosi for that bailout). By the time Obama was inaugurated, the Hill was deep into "bailout fatigue." Yet it approved the first, $800-billion stimulus and the Motown bailout. With no GOP votes, memorably.

 

Sick.

No, it's not an urban legend. The crowd at the latest GOP presidential candidates debate cheered wildly (twice) as Rick Perry addressed a question on how, having condemned 234 death-row inmates to execution, he has done so more than any modern-era governor (including even Dubya when he occupied Perry's office). See for yourself, Republicans applauding the cold-blooded murder by Americans mostly of fellow Americans in the one OECD nation that clings to this barbaric practice: