On the Math of Politicians

Georgia peaches are fabulous, arguably the best in the world. Peach farmers in Georgia produce lots more peaches than they or their fellow Georgians can eat, and peach farming is very important to the economy in Georgia so, to keep the industry healthy, peaches Georgians don’t eat are shipped to Florida.

Now, imagine this: Floridians love Georgia peaches, but can’t pay for them, so the State of Georgia lends money to the State of Florida so Floridians can pay for Georgia peaches. This is fine, but the Sate of Florida doesn’t have the money to pay off the loans from the State of Georgia. How long can this go on? As long as the State of Georgia feels like it’s a good deal.

Obviously, the above does not happen, but if you follow the illogic of the narrative, you can apply it to the predicament in Europe today. What would seem like a simple issue–a sovereign nation lending money to another sovereign nation if the borrowing nation puts up good collateral and pays on time–is complicated by the fact that the lending nation–Germany–is a nation of extremely efficient manufacturers who produce three trillion euros worth of automobiles, machinery, chemical goods and other items annually and consume only about two trillion domestically.  Therefore, they need consumption “partners” like Greece, Italy, Spain and France to be steady buyers of a good chunk of the trillion euro excess production and to pay for the goods in a stable currency.

The problem, as we know, is that these countries are advanced social welfare states who regularly spend more than they take in. Hence, Germany’s charade: Prime minister Angela Merkel scolds the debtor nations for their profligacy, said nations thumb their noses at the prime minister, and Germany bails the deadbeats out again and again.

How long can this dance go on? Anybody’s guess. What we do know is that, if Germany refuses to send money, the offending countries will be unable to import German goods which will put Germany into a depression, which will put the Germans in a very bad mood.

And we all know what happens when 80 million Germans get pissed off.

For an expanded explanation of the issue, click on:
http://www.mauldineconomics.com/outsidethebox

Hope this helps.

Cheers,

Rod

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