If the Government Wants to Model the U.S. After Europe, How About Germany?2014 junenewsletter

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The Newsletter discusses how Germany, since the end of the recession, through pursuing pro-business policies, including producing balanced budgets and reducing its debt to GDP ratio, has created a dynamic growing economy. The Wise Old Owl looks at two of the black clouds on the horizon that could derail the U.S. economy.

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If the Government Wants to Model the U.S. After Europe, How About Germany?2014 junenewsletter

  1. 1. June 2014 Annual subscriptions to our are $250.Newsletter Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. I recently returned from a 10 day visit to Germany. I was in Bavaria and had a chance to talk to a number of people active in business and government. What was most stunning was the contrast to the U.S. of what you see as you walk around in cities like Munich or other parts of Bavaria. Everywhere you look, you get the feeling of an economy on the move. Un- employment is approximately 1.2% in Bavaria, and I am told anyone who wants a job can find one. The stores and shops are busy with shoppers. It is hard to find an apartment in Munich because the growing population has created such a strong demand for housing. The streets are filled with smiling young families moving about. Every- where you see construction of all sorts. The hustle and bustle of a growing economy is abun- dantly evident. The economic data on Press control and click on topic to go to Feature 1. If the Government Wants to Model the U.S. After Europe, How About Germany? 2. Recent Cartoon 3. The Wise Old Owl
  2. 2. [Return to index] June 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 2 Germany certainly backs this picture up. Unlike in the U.S., Germany’s annual in- dustrial production has risen in each of the last eight months, and the pace of growth is accelerating. Retail sales growth in Germany is out pacing the rest of Europe showing that manufacturing growth is increasing consumers’ disposable income. Annual non- residential construction is up 3.0% from last year and is accelerating. Unlike in the U.S., strong accelerating construction is supporting continued future growth. The largest drivers of growth within nonresidential construction are institu- tional construction, which is up 70.4% annually, and office construction which is up 32.3% over last year. All of this data supports the picture of a healthy, grow- ing prosperous economy. Germany is a country that certainly has a social safety net and many of the attributes that one identifies with the European social- ized approach. Germany has also had to shoulder the burden of leading a bailout of many struggling EU economies including Greece, Spain, and Iceland. So what does Germany have that the struggling U.S. doesn’t? Perhaps common sense and a greater dedication, these days, to a free market competitive economy. Germans often talk of themselves as the Americans of Eu- rope. Many tell me they have spent time working in the U.S. in the past to better learn how we do things. For example, I had a client, Otto Beisheim, who died last year. He exempli- fied how Germans looked to the U.S. for business ideas. After World War II left him penniless, he eventually became an electronics whole- saler. While traveling in the United States he observed how goods could be sold from warehouses for cash directly to retail customers, a practice quite different from what was done in Germany.
  3. 3. [Return to index] June 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 3 Learning a variety of American business practices, he returned to Germany in 1964 to found Metro AG which became Germany’s biggest retailer. Although he retired in the 1990s, his fortune, which he left to charity, was estimated at $4.5 billion when he died. On my recent trip to Germany many people told me, that like Mr. Beisheim, they admire Americans’ “competitiveness and dedication to hard work and getting ahead.” Today, more so than Americans, I hear Germans talk in terms of being result oriented. So what does this tell us about how Germany came through the “Great Re- cession” and is doing so well? Certainly, Germany’s social welfare programs are far more pervasive than were the U.S.’s programs in 2007. One of the reasons that Europe (and Germany) could afford to invest so heavily in social programs was that the from the end of World War II until recently, the U.S. has paid the lion’s share of the cost and burden of defending the free world. That began to change with the end of the cold war. Unlike most of Europe, about 10 years ago, Germany began to overhaul its social-welfare system. The purpose of their overhaul was to institute reforms aimed at promoting economic growth that would in turn foster job growth. Some of these changes were similar to the Clinton area welfare reforms that have now been blunted by current U.S. government policy. Unlike the U.S., Germany’s emphasis on business friendly policies has cre- ated the kind of growth climate that permitted them to balance their budget every year since 2012. To the extent they invested in deficits before that, the German finance ministry would describe the aim of such spending as having a “growth-friendly spending structure” with programs that promoted long term economic growth. In choosing what to spend their scarce resources on going forward they remain focused on programs that promote growth. Germany spends heavily on affordable education. But being German, they do not think in terms of
  4. 4. [Return to index] June 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 4 college degrees just for the sake of a degree. Their high schools have much higher standards than ours and at the highest levels are equivalent to our two year com- munity colleges in academic rigor. They do not emphasize everyone going to a traditional college. Rather those who are better suited to learning a trade, such as tool and die making, auto repair, and the like, pursue a different path with programs, equally respected, designed to provide them with fine high paying jobs pursuing skills Ger- man companies need. Unlike in the U.S., Germany’s programs have made all forms of education less costly for students, not more. That means German students begin their productive lives essentially debt free. It is not unusual to find excellent hotel or restaurant employees who decided to follow the trade path with apprenticeships rather than sciences or engineering. They have far more combined study and apprentice programs than we do. All these educational concepts are focused on providing the education and skills that will be most rewarding for the student and provide what the German economy needs to grow and prosper. By controlling its appetite for welfare programs and with it, its debt, Germa- ny believes it can far better finance the programs that produce economic prosperity and growth. In discussing its current balanced budget and their balanced budget for 2015, Germany’s finance ministry emphasizes that by controlling its debt, Germany can create the resources to spend more on research, education, and transportation, as well as maintain the needed growth in spending over the years on social welfare. Currently, Ger- many spends slightly more than half their budget on health and welfare. Much of the rest is spent on quality education that produces produc- tive people ready to advance the German economy.
  5. 5. [Return to index] June 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 5 Germans are generally literate in several foreign languages including Eng- lish. Research spending helps to promote the creation of new products and ser- vices. Their outstanding transportation systems not only support their economy, but have created a mobile society that enhances all aspects of their lives. The cu- mulative effect of all these carefully focused priorities is easy to see. In the view of the finance ministry, “a balanced budget is the fundamental basis on which stable economic growth can strive.” Stable economic growth cre- ates increasing government revenues that permit Germany to maintain and build better programs without incurring greater debt. Germany also prides itself on how “German engineering and efficiency” means a government that doesn’t waste re- sources. What a novel idea! Perhaps our government ought to try it some time. Germany is doing more than just not increasing its government debt each year. By carefully husbanding its resources, Germany’s debt to GDP ratio this year is expected to be at or below 76%. That is not by accident. They have targeted reducing their debt to GDP ratio to 70% by 2017 and 60% by 2024. By careful planning and execution the German finance ministry believes they can continue to grow their economy and serve their citizens. Compare that to the U.S. with our current national debt hitting $17,550,000,000,000. The U.S. debt to GDP ratio this year is 101% and continu- ing to grow. The U.S. debt to GDP ratio wasn’t as low as Germany’s since just before the recession. We have chosen to grow our ratio ra- ther than our economy. Germany has done the opposite. The interest component on our debt as a percentage of our budget is growing while Germany’s is falling. As
  6. 6. [Return to index] June 2014 Put Our Experience To Work For You 803 Sheridan Road, Glencoe IL 60022 ■ (847) 242-1000 ■ Web: www.LRLevin.com ■ LLevin@LRLevin.com © Copyright 2014, . All Rights Reserved.L. R. Levin Consulting, L.L.C. 6 rates eventually rise, that will become an increasingly larger drag on the U.S. economy, while for Germany the funds they do not spend on interest payments will be available to boost their economy. Our strategic partner, ITR, has been predicting the U.S. will not have a serious recession before 2018 or 2019. This month ITR warned of two real potential threats to their forecast that economists have not been able to quantify yet. One is that inflation, while currently latent, when coupled with other “factors” ITR sees as coming together “in the second half of 2015” may cause inflation to move quickly to “catch up” to the heavy mon- etary base increases the Fed has been pursuing. Referring to the Stock market, the second potential near term threat, ITR points out that the duration of the rise in the S&P 500 is unprecedented. Only twice before has this occurred and each of those times it ended with a “crash.” If this happens all their rosy predictions are out the window. To secure a profitable 2015, plan now. Call us, we can help. Recent Cartoon The Wise Old Owl

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