Posted on 03/05/2025 9:25:34 AM PST by ChicagoConservative27
FRANKFURT, Germany (AP) – The two political parties expected to form the next German government have agreed to loosen the country’s constitution restrictions on borrowing, enabling 1 trillion euros ($1.08 trillion) or more in spending on defense and infrastructure.
It´s a major change in Germany´s debt-averse political culture, rejecting conventional economic wisdom that long dominated Europe´s biggest economy and one of the world´s wealthiest countries.
Here are key facts about the debt brake and what the changes will mean for Germany and Europe.
The debt brake was passed in 2009, when a global financial crisis led to sharp increase in government borrowing in Germany and around the world. The debt brake also reflected cultural and political skepticism about debt in general that for years left a deep imprint on German politics.
The debt brake limited new borrowing to 0.35% of gross domestic product – a tight limit when compared to European Union budget rules requiring less than 3%, and the 2024 U.S. federal deficit of 6.4%.
(Excerpt) Read more at breitbart.com ...
If the Germans have half a brain, they’ll use any debt to rebuild the Nord Stream 2. They’re going to need it. They need Ukraine like they need Monkey Pox.
Weimar Republic II is on deck and ready to step to the plate as soon as this happens.
Unless things really change here, we’ll still be spending 10x that percentage here on debt.
And our debt to GDP is double theirs...probably worse if the whole truth was told.
WW3 is going to cost money so it’s time to strap on a turbo charger, a supercharger, and a nitrous oxide system to the money printer in order to pay for it all.
At some point, won’t the buyers of the debt demand a higher interest rate for the risk? In the U.S. too?
The economy is, at root, a confidence game—i.e., it is based on the confidence investors have that their debt will be repaid in dollars of the same value as they invested, plus the about 3% that experience has shown is the true cost of borrowing money.
As investors lose that confidence, interest rates rise. Conversely, as interest rates rise, investors lose that confidence. It will be self-reinforcing.
There is only so much the fed can do to keep interest rates from rising. As it continues to “print” money at a rate exceeding that at which the economy is actually expanding, interest rates will rise.
We are currently expending over 1 trillion a year just to service the debt. If interest rates were to double, (and since they are so low, that’s not at all hard to imagine) the amount paid to service the debt would also double.
As that occurs, the government would have a choice. Either massively decrease social spending (which would cause immediate massive social unrest), or expand the money supply quite substantially by “printing” more money.
Politicians will find the former completely unpalatable. (Which is why we have already incurred this huge debt). But the latter choice will cause investors to further lose confidence that their debts will be repaid, leading to a “death spiral” of further inflation, increasingly higher interest rates, increasingly higher debt servicing costs, causing the government to “print” increasingly larger amounts of money, etc.
This is what happened to the Weimar republic. It’s called hyperinflation. German money become worthless. Just as, when it happens here, American money will become worthless.
If it happens to this country, it will make the great depression seem like an afternoon in the park. There will be deprivation of a kind most Americans can’t even begin to imagine. Lawlessness, breakdown of the food supply, starvation.
That’s where our habit of spending money beyond what the expansion of the economy justifies is surely going to lead us. It’s just a matter of how much time it will take to get there.
But once it starts happening, it’s speed will get faster and faster, and will get here sooner than you would think possible.
“At some point, won’t the buyers of the debt demand a higher interest rate for the risk? In the U.S. too?”
not just the risk, but when too much debt is for sale, it’s a buyer’s market, meaning higher interest rates have to be offered to induce debt buyers to buy; this in turn forces a discount to face value of previously purchased debt instruments so their effective yield also equals the higher rates ...
There is much talk about smaller, modular nuclear power to power AI, and more. The massive computer server farms do not just need electricity, they need to be kept cool. (that evil air conditioning that leftist envirowackos hate so much).
At the same time, Germany has turned off, eliminated all of their electricity generated by nuclear power. While they wait/dream of their own Green New Deal, they are increasing their use of natural gas and coal.
Industrial might needs abundant, inexpensive power. President Trump proved during his first term just how much energy (oil, natural gas) is under our feet. Drill Baby Drill drove down our energy and gas prices. If Germany’s proposed new spending does not include more energy development, industry will go elsewhere.
Our debt to GDP is about as high as our debt to GDP was after WW2. Our ability to grow out of it is much poorer, at present. :-(
COVID drove down energy prices. Take a look at what, for example, oil prices did under Trump, month by month, under Trump 45. They rose, pre-COVID.
Now, that said, the economy was generally strong until COVID hit, and increased energy supply prevented even higher energy prices.
IIRC, Germany’s new guy, Merz, is pro-nuclear.
Just so long as that doesn’t include nuclear weapons...
Th practicality of turning the old plants back on has been questioned, so, it could be a while, as new plants would surely take several years to come online.
Merz is NOT going to restore Nord Stream 2, unless it’s part of some sort of reparations deal. But, IIRC, he is pro nuke.
You’re probably right, but I expect that the only way to make it (a gas supply) bomb-proof is going to be to have Germany make it.
Germany, I expect, is going to need that gas.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.