World Economy

Germany Making Mistakes on a Continental Level

Germany Making Mistakes on a Continental LevelGermany Making Mistakes on a Continental Level

In the 1990s, dot-coms and tech companies were flush with IPO cash, but had little in the way of sales. To show growth, some lent each other cash to buy ads on their sites or to buy their wares. But as cash went out the door, many sellers had only bad receivables to show for it, and temporarily inflated share prices, which some used to make acquisitions of each other. Then, the bad loans had to be written off. When the end came, the Nasdaq fell 90%.

Now, Germany may be repeating the same folly on a national level, and, through the European Union, on a continental level: To keep its factories humming, it lends money to pauper countries like Greece so they would buy German exports. In payment, it takes in worthless IOUs, or I owe you. As a result, Germany has been showing ersatz growing sales (GDP) on its income statement, but also ballooning bad receivables on its balance sheet, NewsNow reported.

Or rather, the bad receivables are now mostly on the balance sheet of German banks, to whom these IOUs were sold, just as companies often sell their receivables, in a process known as “factoring.”

German banks considered such “assets” good, and their factoring profitable, against which they could lend more to German companies, so these could produce more stuff to sell to the paupers, for even more bad IOUs.

However, after Greece said it couldn’t pay, some of these loans were allegedly squirreled away in swaps, so they’re now (temporarily) on the balance sheet of other (mainly American) banks. But one day, the swaps will end and the loans will have to be written off.

Debt Write-Off?

Why not write them off now? Because doing so could push Germany and the EU into a recession, just as it happened to the United States when the bubbles came out of the dot-com accounting. That’s why Germany keeps trying to postpone the write-off any way it can, kicking the can down the road.

Here is how it works: The first time the pauper state, Greece, couldn’t pay, its leaders were allegedly given “benefits” so that they’d sign more loans in Greece’s name, to roll over the first bad loans. This avoided a write-off (and a cut in German bankers’ bonuses), but it also saddled common Greeks with bigger debt. The following year, the same was repeated, and Greece’s rolled-over debt grew again. Then it grew yet again, as the poor Greeks suffered even more.

Finally, the International Monetary Fund’s leadership became so incensed at this that it allegedly leaked the names of the corrupt Greek leaders and their foreign bank accounts. The old leaders were voted out and leftist politicians were voted in. “Write it off,” they said. “We can’t pay.”

Germany was in a pickle, because in the meantime, the bogus profit (created by the artificial prosperity) had been used to fund the EU empire. A write-off could topple the entire house of cards and cause a severe slump, perhaps even blow up the EU.

But Germany accounts for just 3.4% of the world’s GDP, you may say. So even if German banks wrote off most of this GDP growth for the past five or six years, say 10% of German GDP, it would still be small stuff for the world.