EU starting to Implode?

The Apocalypse

Simon Johnson suggests that someone wake up the President, not in the sense that he is really sleeping but rather unaware:

President Obama is wide awake and working hard.  Someone please tell him what is really going on.

Johnson is concerned about the EU and its very survival:

This is not now about Greece (with 2 year yields reported around 20 percent today) or Portugal (up 7 basis points) or even Spain (2 year yields up 27 basis points; wake up please) or even Italy (up 6 basis points). This is no longer about an IMF package for Greece or even ring fencing other weaker eurozone economies.

This is about the fundamental structure of the eurozone, about the ability and willingness of the international community to restructure government debt in an orderly manner, about the need for currency depreciation within (or across) the eurozone. It is presumably also about shared fiscal authority within the eurozone – i.e., who will support whom and on what basis?

The EU is probably going down, and it appears Johnson would like to see some outside action to stop the downfall (read US taxpayers).

The reality of the matter is that the entire world (at least the western democracies) are in the same position as Greece, Spain, et al. The US is no different, only the timing of the collapses will differ. (See Spiraling to Bankruptcy and Welfare States – R.I.P. for the numbers and the mathematical impossibility of escape without enormous defaults.) Once the dominoes start to fall, they may all be interconnected. No one wants to be the first sovereign default. After several, the next declaration becomes easier.

The “extend and pretend” strategy played in the US has been played in Europe. It is not a curative strategy. It does not deal with any of the problems. It buys time. It produces a deferral of the event.

The strategy is clearly political. Kick the can down the road. It may be good politics, but it is terrible economics. The attempt to buy time, via government stimulus, only makes matters worse. An immediate bad event is replaced by an unavoidable much-worse event. This has been the strategy for decades. The string has been played out; the time is now or shortly. It is doubtful that the Rube Goldberg economy can be patched another time.

The EU may disintegrate, but so might the US. We are heading for an economic calamity that is likely to require a different monicker than The Great Depression. This event will be worse than the prior “worst.”

To read more regarding the plight of the EU, Washington’s Blog is recommended.

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  1. True, it is unclear; and people are indeed far less self-sufficient, not to say often stupid or useless–especially the over-miseducated. But what an opportunity for the re-emergence of American self-organizing genius.
    Perhaps the worst curse would be for us to limp through the next quarter-century without resolution and without understanding.

  2. I have begun to suspect–carefully–that the coming catastrophes will not quite put us at or below our state in the Great Depression, even as we are more deserving of such a fate and needful of the lessons than our grandparents and great-grandparents were. There would in any event still be lessons galore.

    And parts of seventy years just cannot be given back–advances in technology, science, farming, efficiencies of all kinds. Also, Canada, Australia, and the US have the advantage of being self-sufficient in food, which disadvantage will cause nightmares to many formerly prosperous places.

    May our nightmares be in proportion to our lives! And may I not regret saying that!

    1. We have a much “softer” life today as a result of the contributions of our ancestors, technology and division of labor. The first can be and is being squandered as we consume capital. Technological advances will not be erased and are an advantage that we have over the folks that lived through the Great Depression. But division of labor that has brought us such great gains also leaves us vulnerable in a way that Depression-era folks were not. During the Depression most people lived on or close to farms. Today, if markets fail (which they would in an hyperinflationary scenario), specialists will be unable to feed themselves, repair their vehicles, etc. In that sense, we are much more vulnerable to a catastrophe than we were in the 1930s. It is unclear that we are better off for such an economic tragedy than we were eighty years ago.

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