German Orders Surge Mae West Strategy: Depending On the Demand of 'Strangers'

German orders rose unexpectedly on surging foreign demand. German domestic demand weakened as domestic orders fell by 1.2% and are off by 4.6% year-over-year. Meanwhile foreign orders are now up by 0.4% year-over-year. As a result overall orders are off by a tiny 0.1% Year-over-year. Orders from fellow EMU member countries rose by 7% while orders outside the e-Zone fell by 0.4%.

Ponder this result for a minute...

Germany: The Oxymoron Germany is supposed to be the STRONG economy of EMU. But it is certainly no locomotive. But it may have 'loco'-motivations...

Germany's role reminds me of that of a dementor in the Harry Potter stories. They sucked all the happiness and eventually life out of you. Germany sucks out all your demand leaving nothing for the factories at home to satisfy and leaving its fellow EMU members holding the bag in terms of getting their manufacturing sectors to spur their respective economies. Weak demand means weak output

I had a science professor once who noted that it is a bad parasite that kills the host. Yet, that is one way to view the impact of Germany's actions on the weakest members of EMU since the currency Zone was constructed. Aggressive exporting inside the Zone supported by German bank lending and periphery nation over-borrowing is one of the ways the debt crisis came into being.

Reverse Stimulus from Ynamreg ( 'Germany' spelled backwards) Now this imagery of Germany may seem a bit unfair. But the point is that Germany does have a stable economy and it is doing much better in just about all respects than its European counterparts but it is not using that strength to invigorate the Zone. Instead, it is making life more difficult for its fellow members. Germany uses its highly enhanced competitiveness to exploit demand conditions INSIDE the Zone with the Zone itself as protection for Germany from outside competition. Germany does not give back much in terms of domestic demand to fellow Zone members. We can see that orders from German entities placed with German firms are being reduced even as Germany grabs more business from its fellow EMU members. It is the rest of the Zone that is stimulating Germany, not the other way around!

So when we look at aggregate EMU data what we see is that EMU is doing better largely when Germany is doing better, but not necessarily BECAUSE Germany is doing better. That's because many of Germany's gains are at the expense of other EMU members so Germanys rise is offset by someone else's fall within EMU. Germany is doing better by making its fellow zone members worse off.

While some will want to use these new German data as reason to trumpet the turnaround in in Europe, as the above discussion suggests, I will not blow that horn. What I see is the same old pattern of exploitation.

Past transgressions repeat but with more restraint In the pre-debt crisis days German and French firms enhanced their competitive positions Vs countries in the periphery by lending to them and enabling them to buy things they should not have been able to afford. That got the periphery into debt trouble and explains why German and French banks are still struggling with legacy assets. Perched on the very precipice of the onset of the Greek debt crisis Germany pushed one last deal to completion for refurbished submarines sold to Greece before Greece went down. Now Greece can use those submarines to keep an eye in its debt.

What I describe in the paragraphs above is exactly WHY the Zone is not getting better and is continuing to be torn apart. What is still fundamentally wrong in the Zone and is not fixed is the Zone's competitiveness: Specifically, competitiveness differences. Mario Draghi has ruled out traditional devaluation (ruled out the possibility that a member state would leave the Zone to devalue). Instead, some idiot has coined the term 'internal devaluation' which is a bit like renaming a 'cyanide pill' as a 'sleeping pill.' Internal devaluation is nothing more than deflation which has plagued Japan for nearly two decades and is something that Fed Chairman Bernanke is fighting with all his might and resources to avoid in the US. Why is this 'disease' suddenly the magic elixir for Europe?

It isn't.

Lie to me...no, not the TV show Just as US politicians LIE to the US people about their true policy choices and the tax consequences of those choices (think Obamacare and the Afghanistan-Iraq war, just to name two recent 'bipartisan' lies), so too the Europeans lie about their economic options and the likely economic repercussions of holding the Zone together at all costs without a real plan for mending what is wrong. We, the people, are being lied to so it is no wonder we the people are making bad choices in electing our politicians or, they are getting away with kicking the can down the road from election to election. Man may not live by bread alone but politicians do live by elections alone- still, that bread is important and it is in increasingly shorter supply, at least for the people. Sooner or later the bread will run out and the lies will not be nourishing enough and change will come.