Something that isn't said enough

Blessed are the creditors, for they shall inherit the earth. This is not in the Sermon on the Mount. Yet creditors believe it: if everybody were a creditor, we would have no unpaid debts and financial crises. That, creditors believe, is the way to behave. They are mistaken. Since the world cannot trade with Mars, creditors are joined at the hip to the debtors. The former must accumulate claims on the latter. This puts them in a trap of their own making.

Three of the world’s four largest economies – China, Germany and Japan – are creditors: they run current account surpluses, in good and in bad times (see charts). They believe they are entitled to lecture debtors on their follies. China, an ascendant superpower, enjoys berating the US for its imprudence. Japan, a US ally, is more discreet. Germany’s ambitions are closer to home. It wishes to turn its eurozone partners into good Germans, instead...

As the poet A.E. Housman wrote: “To think that two and two are four/And neither five nor three/The heart of man has long been sore/And long ’tis like to be.” You cannot keep your surpluses and fail to finance others’ deficits, one way or the other. Yet this is what Germany is trying to do. Germany effectively controls the European Central Bank. It also has the strongest credit rating. So it can decide how the rescue facilities will work. Not well, alas, as Willem Buiter of Citigroup has argued in the FT. Yet even France cannot do much more than moan about the outcome.

People in the US complain all the time about the trade deficit. I would agree that it's probably too high and should be pushed down in the long term. But what people don't seem to understand is that it is literally impossible to have a world composed entirely of creditors. It's of a piece with the (also not understood) point that one person's spending is another's income—that's how you can get the paradox of thrift.

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