Two Waves Collide
One of the persistent features of the Great Recession is that we have not yet undertaken the necessary surgery to correct the underlying problem of how we reached here – chronic over indebtedness amongst developed countries. The deleveraging that should have occurred from 2008 has been continuously delayed.
In some countries, such as Greece, the situation is so dire and the country so hopelessly insolvent that default is the only option. It has now become blatantly clear that whilst monetary union was an idea that arose with the best intentions; the Euro has completely failed as an integrated currency for Europe. Perhaps there is a future for the Euro but amongst a smaller group of nations that can jointly sustain a relatively sound fiscal policy with broadly economic health. Not only is the default of a number of European countries inevitable it is necessary and desirable including all the concomitant ramifications of bank collapses for those that have not practiced risk adverse policies. Only when fictitious global capital has been erased can we start to rebuild the global economy on a sound basis. So as Europe continues its slow grind towards the end of the Euro the United States is playing its own version of Russian roulette with its debt ceiling. Again, the issue is not as simple as it appears. Yes the US should not continue to raise its debt ceiling, and yes and measures to this effect should have commenced a long time ago. However that fantasy argument that you can cut spending alone without addressing taxation suggests the naivety of the political establishment in the United States (read Tea Party).
If these two events occur simultaneously the impact on the global economy is likely to be extremely severe. It won’t look like a day at the beach and if it did, I wouldn’t go swimming in it.
In some countries, such as Greece, the situation is so dire and the country so hopelessly insolvent that default is the only option. It has now become blatantly clear that whilst monetary union was an idea that arose with the best intentions; the Euro has completely failed as an integrated currency for Europe. Perhaps there is a future for the Euro but amongst a smaller group of nations that can jointly sustain a relatively sound fiscal policy with broadly economic health. Not only is the default of a number of European countries inevitable it is necessary and desirable including all the concomitant ramifications of bank collapses for those that have not practiced risk adverse policies. Only when fictitious global capital has been erased can we start to rebuild the global economy on a sound basis. So as Europe continues its slow grind towards the end of the Euro the United States is playing its own version of Russian roulette with its debt ceiling. Again, the issue is not as simple as it appears. Yes the US should not continue to raise its debt ceiling, and yes and measures to this effect should have commenced a long time ago. However that fantasy argument that you can cut spending alone without addressing taxation suggests the naivety of the political establishment in the United States (read Tea Party).
If these two events occur simultaneously the impact on the global economy is likely to be extremely severe. It won’t look like a day at the beach and if it did, I wouldn’t go swimming in it.
(No link to a specific article today as this post has been informed by several.)
posted by Peter at 12:17 pm
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