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Wednesday, 30 October 2013

Keynes & germany today!

The best investment a country of the rich, if they are not planning to leave it, is Pay higher taxes and wages - provided healthy and honest operation of the State.

The Keynes was undoubtedly a very smart man - a fact that at least we do not conclude that the extremely valuable financial work, but since he managed to get along great fortune , mainly investing the money properly , remaining honest and patriot .

What of course we are interested in this case , it is not his wealth or how to obtain it, but he knew and respected the concerns of the rich - one of which is the safety of their money , in the sense of proper placement.

In this case , it is certainly interesting thoughts , based on which the best investment of a rich country, if not planning to leave it, is Pay higher taxes and wages - of course subject to the existence of a stable and sound fiscal framework , a " friendly " non-bureaucratic business environment, as well as a non- corrupt political leadership , which has the confidence of the citizens .

At first glance , of course , the thought seems silly - since both taxes, and wage increases for workers , reduce the net income of the rich. However, if given as much importance to the fact that the excess money, ie they are not used to meet the daily needs, have no value ( itself) , while a secure investment is not at all easy , perhaps we understood this thought.

In particular , the " attitude" in the state (taxes ) , as well as to employees (wages ) has a significant advantage , which ultimately multiplies clad money : that both the state and the working poor , not saving the additional money received , but instead consume almost immediately.

Thereby increasing general demand , which makes profitable investments in production - the real economy then, instead of the stock markets , where ordinary bubbles caused mainly destroying the rich. This not only deficient states, but the surplus - which face major problems of their own surpluses .

To better understand the issue, we will refer to the example of Germany - interpreting simultaneously the cause of the increase of its own stock index (DAX), a record .


Only in 2012 , the surplus of Germany reached 188 billion € - and since the beginning of this millennium has risen to a total of 2 trillion €. Essentially course , surpluses are savings - after one sells goods abroad , taking against them money, but not spending .

Further, when the surpluses increase their savings in Germany, the deficit countries the opposite is true : because they introduce more products than they export , they are forced to borrow from abroad to pay.

In this case, one of the major creditors were Germany - which compelled somehow to lend money to spare from the surpluses accumulate each year to have the potential deficit countries to continue to buy products .

At some point , both Member abroad, and their businesses yperchreothikan - so they can not repay their debts towards Germany. In this context , the German individuals have lost the amount of € 600 billion between 2006 and 2012 - that is, nearly a third of total surpluses of their country by the year 2000.

This amount may increase even more if countries like Greece , Italy , Spain etc. defaulted payments of bond borrowing - unable to turn to cope when their private sector collapses .

Continuing the Germans individuals , realizing the risk of losing even more money, have ceased to lend abroad. Therefore diminished their exports , so the country's GDP , their revenues and so on.

On the other hand , the money remains within Germany must either be invested or loaned to other firms or households - which of course is difficult , since

( a) no one invests when growth slows due to restriction of exports - the German economy growing at just 0.5 %

( b) the interest rates on the inside is too low ( hence unprofitable ), due to the large supply , while

( c ) the German citizens are almost fanatical savers , preferring to bank deposits in cash, than anything else.

Your result, German banks are forced to take high risks, having available a lot of money.

Without elaborating on details , the money ends up either in the property market , creating bubble (in the country's central bank , the bubble is calculated at 20% of the value of the property ) or on exchanges.

Precisely for this reason , the main stock index (DAX) has reached a record 9,000 units - but not due to packages liquidity the central bank, as in other countries (Italy, Spain , USA etc. . ) , since borrowing is almost zero.
Sometime we will explode and both bubbles ( as much long before , the bigger will be ), so losing too much money - especially of course those of the rich , since in Germany income disparities are huge , with the percentage of poor to grow continuously.

So if Germany increased its domestic consumption with the help of " targeted " tax ( partial redistribution of incomes ) , as well as to increases in wages of its employees would lose much less money - since there would need to export surpluses nor invested the savings derived therefrom , in internal bubbles .

It will also increase exports of other countries in the Eurozone to the German market , thus re-created the conditions repayment of debts to Germany and its businesses.

These facts indicate the position of Keynes, according to which the best investment of a rich country, if of course they are not planning to leave it, is Pay higher taxes and wages.

Despite that , however, the economic model of Germany is not working properly, while the eurozone is in danger , the government insists on austerity policy follows closely from 2000 (Agenda 2010) - while income powerful Germans continue to deny the higher taxation of profits or increases in employee wages , although constantly losing money.

They fail to understand is that , except that they will lose more money from abroad , sometime the bubble economy (stock , real estate ) , which feeds the ever-increasing profits, will explode - not ' by sharing ' to Keynes neither like economist, nor as an investor. The arrogance but this will be paid too dearly - though unfortunately will pay and those who are not to blame at all.

writter of article is Mr. vasilis viliardos from analyst.gr