How much Keynes we can still tolerate?

In their recent publication, the Club of Rome took a guess at how Mother Earth will look in 50 years. This and the result of two European elections made me think about our future too, although I do not have too long to go anymore, and I am an absolute layman in economics. For me, the world economy is running wild in an egoistic manner. Reciting the mantra that our grandchildren should not pay for our sins (debts, CO₂ output, climatic change, straining of natural resources) has degraded to lip service.

Recently I watched Paul vs. Paul, i.e., Senator Ron Paul and Nobel Prize winner Paul Krugman on television, helplessly discussing how to remedy our economy. Their debate only confirmed my conviction that there is no cure for the economic situation the world is suffering from. The German economy, often taken as an example that still works, mainly thrives on export. That makes the situation worse for the euro because our European trade partners finance their balance of trade deficits by making more debts. And what to think about my country that will loan 20 billion euros on the money market in these fat years of low unemployment and high tax revenues to keep this year's federal budget in balance?

That even Germany is not keeping to the strict norms of the European fiscal pact, has given newly elected French president François Hollande the idea of asking for fresh, i.e., borrowed money to stimulate the European economy just like Paul Krugman had said on television that it should be done in the States. Printing euros is easy, but where does that fresh money go? We know that the euros Greece has received so far out of the Eurozone bailout fund were used to keep the Greek bank system afloat. I guess the money François is asking for he has already earmarked to finance the re-lowering of the age of retirement in France from 62 to 60 years as he has promised. 

In the States, there is no age for retirement. Contrary to me, who was forced to retire at the age of 65, many of my American friends continued working beyond that age. Let's hope that the financial stimulus Paul Krugman has asked for in the States will be used to create new jobs.

New jobs are needed in Europe too, especially in Spain, where many young people are unemployed. Their No future outlook is social dynamite! So again, with all the pressure building up, the end of Merkosysm is near, and public spending will heap more debts on the already unbelievable accumulated amount. 

Hastily our finance minister declared: It is the wrong way to take money to stimulate economic growth. Instead, he asked for more savings and reforms both at home and in Europe. With those different viewpoints in France and Germany, will Merkollande replace Merkozy? We shall see when François will visit Angela in Berlin on May 15.

François pouring his Hollandaise sauce over Merkel's fiscal piggy bank pact (©Haitzinger)

The apparent result of an increase in printed money is inflation, meaning that for the average person, the money he/she deposited in a savings bank will lose its value, accentuated by the presently low-interest rates. What will be the best way not to lose? Do not save your money but spend it and even have debts.

I shall end my story with a personal anecdote. When I wanted to build a house in my young years, I needed a mortgage and consulted several banks for offers. One was particularly advantageous. When I asked the guy why my monthly installments would be so low compared with the proposals of the other banks, he answered,  "O, you just pay the interest rate. There is no back-payment." I said, "But then my children will inherit my debts." 

In those days, such a situation was unacceptable for me, so I chose the classical variant with another bank paying interest and amortization. Would I have acted the same in today's situation, knowing inflation would water down my children's debts?

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