With the Euro Falling, US Recovery, Exports Threatened

Professor Simon Johnson, of MIT has an interesting piece in Huffpo today: With the Euro Falling, Us Recovery is Under Threat. Read the Article at HuffingtonPost

Johnson warns that debt problems of some of the European Union’s members is exerting downward pressure on the Euro, and that France and Germany though not facing debt problems of their own would welcome a weaker Euro to boost their exports.  So we can expect no help from the European Central Bank to keep the Euro strong. The professor notes that increasing exports have been one of the few bright spots in the US economy, and that a weak Euro will cast a dim over them.

With all of the narrative setting histrionics coming from the right over the weakness of the Greenback, I doubt most of the media talking heads will see this problem coming. When our exports are reduced and our growth correspondingly slowed they will finally see too strong  a dollar as a detriment during a recession. And It will never dawn on them that the right-wing talking point  about the weak dollar dooming us was absolutely wrong. It will not weigh on their conscience, that the talking point that they swallowed whole, and regurgitated endlessly, adding to the great pool of American unease, was absolutely wrong.

One bone I have to pick with the article was about a single line: “There may be direct effects on the US, as our banking system remains under capitalized.”

How does he define under capitalized? What would be the proper measure of capitalization? I would really appreciate some free education from an MIT Professor.

From fall of ’08 to present our nation’s money supply as measured by M0* has increased 139%. The great bulk of this increase comes from the BANK RESERVES portion of the M0 as a result of the FED flooding the banks with money to avert bank collapse .

It seems to me like banks are not under capitalized right now, so much as they are not lending. Banks seem to be holding on to their tax payer supplied reserves as shield against impending waves of loan defaults.

*( M0 consists of the currency in circulation, the liquid deposits in banks , and bank reserves.)
Read the Article at HuffingtonPost

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