World Economic News
Top German Economist: New 'Black Friday' Yet To Come
In an interview with the Oct. 25 issue of the Koelner Stadtanzeiger daily, senior German economist Wilhelm Hankel said that a crash already occurred in the spring of 2000, when the German stock market index DAX dropped from more than 8,000 points to below 4,000 points. The explosion of this bubble occurred for the same reason as Black Friday of 1929, namely, credit-financed speculation.
As in 1929, the central banks were to blame in 2000, because they encouraged speculation through loans at low interest and through money-pumping. With that, market gains of several hundred percent could be made, in 1929. In the 1990s, the central banks of Japan, the U.S.A., and Germany did the same, creating a bubble that sucked money away from all loans for real investments. "A Black Friday in highly speculative hedge funds or in real estate is probably yet to come." And again, the central banks would likely react in the wrong way, increasing the interest rates, which would explode the bubble, Hankel warned.
The European Union's Maastricht system is preventing Germany from adopting a low-interest, anti-cyclical policy, which would be the only way out of the problem. But instead of being loyal to the German Constitution, which obliges the government to intervene against an "imbalance of the economy," the present Finance Minister is like a slave to the Maastricht system.
By contrast, American Presidents have drawn on the experience of the New Deal approach, Hankel said, and not hesitated to borrow for state programs to "prevent a depression like the one Germany." What should be done in Germany, is to exempt all state expenses relating to investment from the Maastricht system, Hankel said, and if the private sector is not investing, the state should intervene.
Hankel added that he even discussed that with Finance Minister Hans Eichel, but met the same ignorance on his side, which is typical for the entire political left which knows nothing about "money, credit, and capital."
Schroeder Wants To Keep Maastricht, Slightly Modified
As German Chancellor Gerhard Schroeder outlined in an article published in Handelsblatt Oct. 26, on the eve of his Berlin meetings with French President Jacques Chirac, the general thrust of the Agenda 2010 will be kept, as will the Maastricht system as such. The only modification will be exemptions from the strict budgeting rules for defense expenses, and for investment in research and education. How much of that would go to programs of real economic investment, and whether it would be of any substantial scope, however, is left in the dark.
What Schroeder wanted to propose as his "seven-point program for action" at the summit with Chirac, otherwise did not go beyond the main orientation toward the IT and service sector, and included such new atrocities as additional deregulation of financial services, and gas and oil supply.
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