A “large current account surplus makes you strong in good times, but weak in bad”

By Edward Harrison On Apr 15, 2018

What to watch for in thinking about Europe’s next crisis

“When the economy turns down, that’s when the acrimony will be greatest. And that’s when I would worry about really bad outcomes.”

That’s how I ended the last post on Friday. The reason I’m highlighting this is because of a link from Wolfgang Munchau at the FT in today’s links post.

Here’s what Munchau wrote that I think dovetails with my Friday post. It was right at the end of his post:

Reformers should exploit the fact that the large and persistent current account surpluses of the northern eurozone countries make them vulnerable to a sudden disruption of trade flows. Only an existential crisis that threatens the very survival of the eurozone has the potential to concentrate minds in the northern eurozone. A very large current account surplus makes you strong in good times, but weak in bad. Now is not the moment to extract concessions from Germany or the Netherlands.

The alternative is wasting scarce political capital on weak reforms. We would also have to accept conditions that might add to financial instability, like Germany’s demand for a semi-automatic debt restructuring or caps on bank holdings of sovereign bonds. If the alternative is a big leap in the wrong direction, standing still would constitute relative progress.

–Germany is frustrating Emmanuel Macron’s grand ambitions

His take on the political economy in Europe is highly recommended.

The End of Trump

As far as the other links go, there was one other one that stood out for me that needs highlighting. It’s this one:

Michael Cohen and the End Stage of the Trump Presidency

I agree with everything Adam Davidson says here. Let me give you what I see as a money quote:

The narrative that will become widely understood is that Donald Trump did not sit atop a global empire. He was not an intuitive genius and tough guy who created billions of dollars of wealth through fearlessness. He had a small, sad operation, mostly run by his two oldest children and Michael Cohen, a lousy lawyer who barely keeps up the pretenses of lawyering and who now faces an avalanche of charges, from taxicab-backed bank fraud to money laundering and campaign-finance violations.

I wouldn’t say the Trump Organization is “a small, sad operation”. However, it has likely cut corners legally. That’s why Trump has seen his corporate finances as a red line. Cohen likely has a treasure trove of information about what the Trump Organization has been up to — the good, the bad and the ugly.

Also let me point out my take from Tuesday:

…with the search warrant on Michael Cohen, the NY investigation is getting very close to the Trump Organization, a private company that has never been open to public scrutiny. Trump won’t even reveal his tax records. He cannot like this in the least.

…while the Cohen warrant is ostensibly related to the Stormy Daniels affair, it does potentially open the whole Trump Organization to discovery given Cohen’s key role in that organization. If the investigators find evidence of other crimes, they will feel compelled to pursue those tracks.

I see this turn of events as important.

My prediction: You’re going to see people connected to the Trump Organization go to jail. And we’re going to look back at the Cohen document seizure as the pivotal event that brought this about.

Links