Bubble Mentality, Now Even In Germany

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

At first blush, the German economy appears to be ailing – at first blush because the stock market, in its omniscient manner, is predicting wondrous developments as it hop-scotches from one all-time high to the next. This relentless optimism has morphed into a breeding ground for projections into outright magnificence. But inconvenient data is getting in the way.

Consulting firm McKinsey, in an exclusive study for Manager Magazin, predicted 2.1% annual economic growth until 2025, a period the report called the “Golden Twenties.” Germany would rack up 80% more exports and create millions of jobs. “The Federal Republic stands before a second Economic Miracle,” Manager Magazin summarized it, the first one having been the multi-decade rise from the ashes after World War II.

There were some ifs and buts in the report. The biggest one: the euro would have to be saved at all cost. So the report proposes a public investment fund that would suck up €20 billion per year from taxpayers in northern Europe – €10 billion a year from those in Germany. It would form the foundation for a €140 billion-a-year investment stream into the Eurozone periphery, a slick transfer from taxpayers to corporations, bypassing governments and their shenanigans altogether, leaving behind austerity disputes, alphabet-soup bailout funds, and stubborn sovereignty-transfer issues. And it wouldn’t be polluted by votes or parliamentary procedures.

Jörg Asmussen, member of the executive board of the ECB and ex-Deputy Finance Minister of Germany, was roped in to endorse the idea. He liked it but added that the additional pot of subsidies alone would hardly be enough for the euro to make it to 2025. “The Eurozone cannot function the way it has been conceptualized,” he admitted. “That’s why we have to systematically develop it further over the next few years.” Hence total integration. The Banking Union would just be the next step, he said.

And so the McKinsey study and Asmussen agreed: total Eurozone integration would be required for the euro to make it; and the euro would be required for Germany to reach the “Golden Twenties” and experience a second Economic Miracle.

Reality is even less rosy. First quarter GDP rose an imperceptible 0.1% from the fourth quarter of 2012, when it had swooned by 0.7%. The lousiness of both quarters surprisingly surprised the pundits, who’d been drinking too much of their own Kool-Aid. Compared to the first quarter of 2012, the economy contracted 1.4%.

They blamed Easter that had wandered into the first quarter, dragging some vacation days along with it. They blamed the winter weather – though in effect, winter weather is a normal occurrence in Germany’s first quarter. And they blamed the leap day in 2012, which gave February an extra day. By now, I can’t remember the excuses for the “surprising” fourth-quarter debacle.

Beyond excuses, there was a reason: while household spending, which had collapsed in December, revived a little, and while the drop in exports was roughly neutralized by a drop in imports, investments, as they’d done in all of 2012, skidded downhill. It had nothing to do with Easter or the weather. It was an ongoing corporate phenomenon: retrenching.

Companies had their reasons: the 30 largest companies in the DAX stock index reported a combined €308.4 billion in first-quarter revenues, down 0.8% from last year – the first revenue decline since the fourth quarter 2009. Another one of those data points with parallels to the financial crisis.

Despite ceaseless emphasis on operating efficiencies and cost cutting, combined operating profits fell 3%. There were some winners, such as E.ON, the world largest non-state-owned utility, and insurer Allianz. But the biggest revenue sinners were the automakers, an industry that has been clobbered half to death in Europe. Daimler, BMW, VW, and tire maker Continental combined surrendered 4% in revenues; their operating profit plunged 26%. Only the booming auto market in China and growth in the US had prevented an outright fiasco.

The report blamed the debt crisis that was worming itself into the income statements of Germany’s corporate crown jewels – for the first time, they could no longer “decouple” from it, explained Ernst & Young Partner Thomas Harms. Because of high unemployment in Eurozone periphery countries, governmental austerity measures, and corporate unwillingness to invest, a recovery appeared very unlikely, he said. Some parts of Europe were still in a downward spiral, and an “end of the crisis is still not in view, let alone a significant upturn.”

Unperturbed, German stocks closed at yet another all-time high. Bubble mentality has set in, focused on central-bank money-printing and asset-buying binges around the world. While they have produced, at best, dubious economic benefits, they have accomplished a fascinating, almost psychedelic feat: overpowering the bad breath of reality and allowing stock markets to float weightlessly in a dream world. At least temporarily.

The last time Vladimir Putin was president, he laid the foundation to pull Russia from economic chaos and elevate it once again to a world power. This time, he’s ready to extend that influence to counter the West. His tools: Russia’s abundant resources of energy, including uranium. Read....  Vladimir Putin’s Power Play.

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CutOut's picture

................... *WARNING* ....................

ZH is being targeted by FedGov spam bots saturating the comment sections with trash and down voting certain posters.

They are not just individual trolls, they are professional operatives attempting to undermine and discredit ZH.

thisandthat's picture

Frankly who cares about votes? Shouldn't exist in the first place - comments should be valued exclusively by their content, not by who posts them or for conforming with some volks consensus.

Bearwagon's picture

 *snore* Huh? Wuh? Trolls on ZH? D'oh! We'll pull them to pieces, don't worry.  ;-)

Sandmann's picture

Wonder which PR firm it is they use ? We know they are trolling various Websites

CutOut's picture

I don't think it's a PR firm

poldark's picture

How long can all this money printing keep going on?

theliberalliberal's picture

graph quantity of money vs deforestation.


dont worry,  they will run out of trees soon enough


GoldIsMoney's picture

You do think they still need trees? Well you're wrong

thisandthat's picture

At the rate they destroy forests to save the enviroment by building wind farms, probably not.

dontgoforit's picture

All digital deposits baby.  '1's & '0's -  like bitcoin

GoldIsMoney's picture

Just much easier do take and to generate. The Bernanke says: "There will be more IOYs, and they are..."

resurger's picture

Mission Accomplished

The Heart's picture

Now here is an interesting development from the British leader David Cameron.

"Oil executives of Britain’s biggest oil companies British Petroleum (BP) and Royal Dutch Shell could face jail penalty if it is proved they conspired to manipulate oil prices, British Prime Minister David Cameron has warned."


One has to wonder if this might reduce the price of oil bubble, and a potential more important positive resultant of this, a lowered gasoline price so Americans can start to freely travel, and prosper again. One of the worst economic impacts on America has been the almost total death of the tourism industry. It would seem that the most immediate good the supposed leadership could do is the same thing here in the USA. Prosecute these people who keep the prices of oil and gasoline artificially high. How much is gas in Venezuela and Columbia? Seems odd a modern country cannot do as well as a supposed third world country, and have very low gasoline prices that inherently effect the rest of the economy when everything is cheaper and easier to afford. There is certainly lots of capped up oil to access.

Because of all the money spent on mercenaries in foreign countries to destabilize those countries, and all the trillions spent on useless baseless useless wars, and all the money spent on the armaments and military hardware to declare war on the American people, the USA is going broke. What would happen if all that money was spent on rebuilding and supplying America with jobs instead?

Sandmann's picture

Downing Street later confirmed it will not happen. Typical Cameron - shoot for the headline and watch it disintegrate

dontgoforit's picture

Aren't the 'fracking' reserves and the recent finds out west and in Canada equal to most of the world's known reserves?  That should stop the oil futures piggies.  Hasn't yet - but we will see $2.00 gas again, possibly.

Bearwagon's picture

These "reserves" and "recent finds" don't even equal Ghawar, let alone "known reserves". (Except 'Ghawar' these are all weaselwords. What are "reserves"? Who knows "known reserves"? That's just bullshit!) We will shirley not see $2.00 gas again.

Oliver Jones's picture

America's tourist industry is probably on its back because on arrival we foreigners are invariably made to feel like common criminals / terrorists. I baulk at the fingerprints but grudgingly accept them, but my wife absolutely draws the line on those "nekkid" body scanners. So America isn't on our holiday list for the forseeable future.

I realise that my disgust is tempered (only mildly) by the fact that many Americans happen to think the same of their own government, but the old adage that misery loves company does not apply to tourism; one doesn't pay to be miserable on holiday when one can be miserable at home for free!

Holidays aside, I can see why the US govenment is fighting tooth-and-nail to retain the "exhorbitant privilege" at all costs: When oil and gas cease to be priced in dollars and the likes of Russia and Iran (with the rest of OPEC following suit pretty quickly) demand payment in gold or other tangibles, American industry will regard even 2013 with wistful nostalgia. The US has had a gigantic free ride on the back of oil-backed currency and rampant QE, and when that comes to an end, the shock will be great for many. China and Russia are already picking the petrodollar apart with gusto.

Your society will certainly have to wind the clock back 100 years and learn to live without oil in anywhere near the same quantity as you do today. I do see one up-side, though: Outsourced labour will be very rapidly in-sourced, because the likes of India and China will be demanding real money in payment for their services, not the Mickey Mouse paper that's being thrown out of helicopters by Mr. Bernanke. Of course, the bean-counters won't want to pay Indian and Chinese prices then - so the work will need to be done by people who have no choice but to accept the local scrip.

DrewJackson's picture

If you were from Dagastan everything would be kosher.  In fact you could even get free government benefits.

RazvanM's picture

Agree. I don't like being interviewed over and over, body-scanned and maybe subjected to random body search or risk being imprisoned. The normal people in US are okay, but this Gov-sponsored violence at the border is plain vicious.

swiss chick's picture

Totally agree, used to go to the US once or twice a year, now I go to the French Med...

toadold's picture

What's that old saying never gamble with "scared" money?

It looks like people with any money left or whose jobs are to manage big lumps of money, are putting it in riskier and riskier  places.  No matter where you put it the governments change the rules so they can grab more than what the return on the money would or will be.  

"If you will send me just 10, 15, or 20 million dollars I'll guarantee a return on your investment.......Honest my IOU is good...just ask my ex-wife...if you can find her."

THE DORK OF CORK's picture

Germany need the euro so that it can extract the capital rations of the other euro former nations.



German energy self suff

(Taken from the IEA OECD energy balances publication for 2011)

Y1960 : 0.881

Y1971 : 0.5744

Y1980 : 0.5197

Y2000 : 0.4012

Y2008 : 0.3990

Y2009 : 0.3990

Y2010e : 0.3897

Its is constant decline – it must destroy other countries to sustain the sale of its “value added products” much of which flows to the UK & France.

So its a industrial country with a declining internal energy ration.
No wonder it seems so pissed off.

The eurosystems role is to push resources upwards beyond national borders into darker and darker entrepots.


dontgoforit's picture

Interestig numbers.  What's the projection for 2020?  0.2?  Where's the tipping point - or are they way passed that already?

THE DORK OF CORK's picture

From the January IEA oil market report.




Italy now consumes less then half of the German oil consumption !!
It also consumes slightly less then Spain despite having a extra 13 and a half ~ million people.

OECD Demand based on Adjusted Preliminary Submissions – November 2012

Germany 2.5 MBD (2.1% PA growth)
France 1.8 MBD (3.9 % PA growth)

Italy 1.24MBD (-11.8% PA growth)
Spain 1.26MBD (-7.2% PA growth)

Who got to eat those Italian & Spanish oil rations ?

UK consumption also down massively
UK 1.47MBD (-7.8% PS growth)



As long as more external oil and gas can flow upwards....even if it means stripping all of peripheral euroland.


Please remember the IEA is in the process of changing its graphs & metrics which make it difficult to compare years & countries data.......




"The IEA is working on new oil market report site which will include interactive charts (and much more). In the meantime we have stopped production of the PDF format charts."


We can get to colour in the pages with different crayons and stuff.....................

falak pema's picture

germany will be top dog when the Pax Americana collapses; only problem its totally dependent on Pax Americana, puppet on a string. Punch and Judy thing. 

So blue angel it stays. 

Fuh Querada's picture

"Pax Americana" ? "Blue Angel"?
could you remind me ?

falak pema's picture

pax americana = the squid's financial web requirements; we sink or swim together. Draghi is chief man in Eurozone. And Mutti has all those banks to think about on home base. She can let the periphery burn but NOT them.


blue angel = having US bases on german soil; means when push comes to shove, there are limits to what Mutti can sing. 

Auw weider sein.

Fuh Querada's picture

merci beaucoup
Deutsche Bank's 55 trillion€ derivatives book (mainly interest rate swaps) I would say is t h e single issue dictating the entirety of Murkle's action and those of her unseen "hintermaenner"
Fekete also talks about the German bases. But don't forget Murkle speaks fluent Russian (unfortunately ZH comments don't support Cyrillic script)

falak pema's picture

whence my comment; if pax americana falls in financial collapse, along with Euro crap house, she or her successor can always play blue angel to Russia! 

Germany has a good real economy model and russia has Siberia. 

Fuh Querada's picture

The DAX is being humped simultaneously by 3 central bank printing machines.

dontgoforit's picture

Yeah - and they're gettin' off pretty good!  When the cum to their senses we'll be fucked silly.

andrewp111's picture

If you have full integration of the EU to save the Euro, Germany as a nation will no longer exist. Germany will be just a state in the 4th Reich.

Sandmann's picture

That was the intention of Kohl and Schauble. Exactly that, to expunge Germany as a nation state. Only Israel is today permitted to have national identity based upon community ties and protect itself from its enemies like some latterday Prussia

Seal's picture

”…the paper mark totally collapsed in value against foreign currencies and gold, which encouraged wild speculation on the foreign exchange and stock markets, during which smart operators and large industrial groups accumulated large fortunes at the expense of small savers and the working class.”



“…..In the meantime, an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyperinflating economies.”


The inflation retarded the crisis for some time, but this broke out later, throwing millions out of employment [emphasis added]. At first inflation stimulated production because of the divergence between the internal and external values of the mark [devaluation — ed. note], but later it exercised an increasingly disadvantageous influence, disorganizing and limiting production. It annihilated thrift; it made reform of the national budget impossible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty. It was a distressing preoccupation and constant torment of innumerable families; it poisoned the German people by spreading among all classes the spirit of speculation [emphasis added] and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbance. It is indeed easy enough to understand why the record of the sad years 1919–23 always weighs like a nightmare on the German people.


Dr. Marc Faber - Reflation, 2003 

Sandmann's picture

You did forget that The Ruhr was occupied by French and Belgian troops in 1923 and a General Strike was under way. That Bavaria experienced a Leftist Coup; that Stalin was sahipping guns into the Communists in Thuringia and Dortmund was under Communist control and had to be liberated by the military.

Why do you think Charles G. Dawes was sent to Germany ?

falak pema's picture

the Squid thinks by printing money it can avoid the liquidity crunch and control inflation with ZIRP; thats the current game plan to avoid Weimar land.

Hoping to kick start economy if the monetary inflation cum commodity price deflation can ease the debt pain and stifle price hikes over ten years.

Big gamble the size we have never seen. And, who is to say these CB plays will stay coordinated with BRIC wanting to opt out of USD reserve status. That is the gun that Pax Americana does not want to hear going POP!

When thieves fall out and Humpty Dumpty cracks. 

MrPoopypants's picture

Thanks for this. Relevant.