JPI Spring 2018

There are various arguments for the reasons behind these indicators. Some economists argue
that this was part of a natural cycle, while others stand firmly behind the idea that there was a great
deal of negligence on the part of the U.S. government. Either way, a commonality endures with
Germany. In the years preceding the financial crisis, increased government spending accompanied a
lower labor participation rate, coupled with increased loan issues. From a moral hazard perspective,
the defining elements are present. Falling labor rates should typically signal tightened monetary policy,
but in both Germany and the United States the inverse resulted. However, one of the most important
differences between Germany and the United States was the ability to print money. The United States
is not part of a monetary union, and therefore has the ability to print its own currency without the
need for accompanying reserves (like gold). This is in part due to policies that, in the past, did not
restrict policymakers from doing so. In the United States, states control their own budgets, and like
Germany, maintain account imbalances in the years ahead of the Recession. As with Germany, policy
and movements by political actors played an integral role in account imbalances and the responses to
JPI Fall 2017, pg. 33