Dollar Dullards
INVESTOR'S BUSINESS DAILY
"If the EU were a state in the USA it would belong to the poorest group of states," Timbro, a Swedish think tank, recently noted.
Economics: Europe's top financial officials are screaming for the U.S. to "do something" about its declining dollar. Sorry, but they have it exactly backward.
The euro hit a record high of 1.3467 dollars on Tuesday in London trading, as the dollar's drop continues to send shock waves across Europe. It's all about America's "twin deficits," European officials say — the U.S.' yawning trade and budget deficits that foreigners must now finance.
Austria's Finance Minister Karl-Heinz Grasser spoke for the whole Continent Tuesday, saying, "I think it is unacceptable that Europe is paying the bill for major imbalances" in the U.S.
Sorry, Mr. Grasser, but you and your colleagues are wrong. The U.S. is in fact footing the bill for Europe. And it has been for years.
It's not that we consume too much — it's that Europe consumes too little. By imposing high taxes, too many rules and trade barriers on its own people — and by keeping interest rates at growth-killing levels — the EU keeps its citizens from consuming more.
So the U.S. has propped up Europe's economy by buying its surplus goods. We've done it for so long Europe has forgotten that economic success is measured not by what you make, but what you consume.
That's why Europe is falling further and further behind. If that sounds harsh, just look at the chart.
The U.S. runs trade deficits because it has become the buyer of last resort for Europe — and for much of the rest of the world. Every dollar's worth of goods we buy is one less dollar they consume.
It's all part of the 18th century mercantilist idea, still very much a part of European thought, that somehow consumption is evil — that economic power derives solely from running large trade surpluses.
But consumption isn't evil. Nor are deficits. They're just accounting. Or, as Edward Prescott, this year's Nobelist in economics, put it Tuesday: "I don't see any problems with the U.S. deficit . . . it's for political reasons that people are yelling and screaming about that."
Once, the nations in the EU arguably had a higher standard of living than the U.S. But over the past decade, the EU's GDP growth has been about a third slower than U.S. growth. Today, the average American spends about $9,700 more each year on consumption than the average European Union citizen. And that gap is widening.
"If the EU were a state in the USA it would belong to the poorest group of states," Timbro, a Swedish think tank, recently noted.
Quite an indictment of Europe's failed economic policy — and its attempt to use America's "twin deficits" as a bludgeon to get the U.S. to live like good Europeans and consume less.
Sorry, Europe. The U.S. is letting the dollar fall because it's tired of waiting for you to act. Besides, the weaker dollar will encourage us to buy less from you — isn't that, after all, what you want? |
