04/19/2017 - Hans-Werner Sinn On The Spreading Of Financial And Economic Risks Around The World

“The US president has criticized Germany’s enormous current account surplus and claimed it is the result of German currency manipulation .. There are two reasons for the undervaluation of the euro today. One has to do with the ECB’s quantitative-easing program, which over three years will have flooded the euro zone economy with €2.3 trillion of freshly-printed money through bond purchases. Part of that money flows abroad and leads to a devaluation of the euro. One has to admit this is indirect currency manipulation. However, we should also remember that this program, as well as the ECB’s other expansive measures, were decided by a majority on the ECB’s governing council over fierce opposition from Germany’s Bundesbank .. President Trump should look more to Wall Street than to Germany when he complains about the high exchange rate of the dollar,
The other reason for the undervaluation of the euro is to be found in the United States itself. By pushing the dollar as the world’s reserve currency, the US financial industry was able to offer global investors a potpourri of attractive financial products. This drove up the dollar exchange rate to a level that undermined the competitiveness of US exports. That is why President Trump should look more to Wall Street than to Germany when he complains about the high exchange rate of the dollar, which has cost America so many manufacturing jobs. And he should also bear in mind that the attractive financial products, which came from his country and damaged the US export industry, occasionally seemed more like fool’s gold than serious investment products .. With their Community Reinvestment Act, Mr. Trump’s predecessors Jimmy Carter and Bill Clinton made brokers help the country’s poor buy homes with generous loans, although it was clear they would not be able to repay the loans. The brokers sold their credit claims to banks, which repackaged them in opaque asset-backed securities and sold them all over the world. The game was up with the 2008 financial crisis .. As a result, in the year 2010, the German government had to inject €280 billion into its banking system to finance two ‘bad banks’ that had taken on these problematic financial products from America. So, in this sense, a considerable number of the Porsches, Mercedes and BMWs delivered to America have not actually been paid for. That is what the new American president should bear in mind before starting a trade war, or spreading unjustified accusations via Twitter against other countries.”

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