How much Keynes we can still tolerate?

In their recent publication, the Club of Rome made an estimate of how the Earth will appear in 50 years. This, along with the results of two European elections, made me think about our future too, although I don't have much time left 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 emissions, climate change, and the strain on natural resources) has degenerated into lip service.

Recently, I watched Paul vs. Paul, i.e., Senator Ron Paul and Nobel Prize winner Paul Krugman, on television, as they helplessly discussed how to remedy the 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 regarded as a model that still works, primarily thrives on exports. This exacerbates the problem for the euro, as our European trade partners finance their trade deficits by incurring more debt. 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 adhering 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 as Paul Krugman had suggested on television should be done in the United States. Printing euros is easy, but where does that fresh money go? We know that the euros Greece has received so far from the Eurozone bailout fund were used to keep the Greek banking system afloat. I suppose the money François is asking for has already been earmarked to finance the lowering of the retirement age in France from 62 to 60 years, as he has promised. 

In the United States, there is no mandatory retirement age. 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 requested in the United States will be used to create new jobs.

New jobs are also needed in Europe, particularly in Spain, where many young people are currently 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 requested additional savings and reforms, both at home and in Europe. With those differing viewpoints in France and Germany, will Merkollande replace Merkozy? We shall see when François visits 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 they deposit in a savings bank will lose its value, accentuated by the currently low interest rates. What will be the best way not to lose? Do not save your money, but spend it and even incur debts.

I shall end my story with a personal anecdote. When I was young, I wanted to build a house and needed a mortgage, so I 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,  "Oh, you just pay the interest rate. There is no back-payment." I said, "But then my children will inherit my debts." 

At that time, such a situation was unacceptable to me, so I opted for the classical variant with another bank paying interest and amortization. Would I have acted the same in today's situation, knowing that inflation would erode my children's debts?

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