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Exporters and Importers

See an excellent analysis by Kevin Drum of Mother Jones December 9th, 2011 of why the EuroCrisis is all about exporters and importers and not about budget deficits. Until those in power understand the difference and act on the real problem, we are likely to see an ongoing crisis.

The problem in a nutshell is that Germany, along with China, are the world’s two greatest exporters. They don’t buy their own goods but sell them abroad. Neither buys an equivalent amount of goods from others so they get “paid” in euros, in the case of German, and mostly in dollars, in the case of China.

This is no different from a self-sufficient farmer selling her eggs in town on credit — and then complaining because she is not being paid. Putting her customers into debtor’s prison, as Germany appears to want to do with Greece, solves absolutely nothing.

Until the powers that be understand that we have a balance of payments problem, not a budget deficit problem, we will experience an ongoing crisis.

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