Greece is just the beginning of the collapse and despite all the assurances in the news media for the last 1 1/2 years that Greece's problems were being solved, and all the run ups in the stock markets with those assurances as is happening in the markets now, Greece will fall. So will Portugal, Ireland, Italy and Spain for they are all insolvent. England is also insolvent and it too will fall. Many of Europe's and the U.S's biggest banks will need new bailouts for they are all interlinked in the huge magnitude of financing they conduct and without those bailouts or government guarantees, a credit crunch is coming, as happened in 2008-09.
The Euro Zone is appealing to Germany, France and to China for gargantuan bailouts but the Germans don't have the resources for such a bailout and the German people would never allow it, knowing they would have to bailout a group of nations. France is no pillar of financial strength, its banks have huge European exposure and their credit ratings are already being sharply downgraded. As the industrial world's economies decline, so will China's manufacturing boom and China's economy will also be impacted by a domestic real estate bubble.
Meanwhile, the U.S., by far the biggest debtor nation in the world, has bought time because some panicked investors seeking "safety" are buying Treasury Bills. But the U.S. has no economic policy, its job market and home foreclosures are disasters growing worse, its government and trade deficits are mounting and its biggest bank, the Bank of America is reeling and will layoff 30,000 people. In addition to all of its corporate bailouts, the U.S. had two huge stimulus programs. Some say the bailouts and stimulus programs prevented another Great Depression, while others argue they failed to rescue the global economy. But in any case the bailouts and stimulus were extremely expensive and the U.S. and other nations didn't have the money to conduct them. They wound up printing and borrowing the money, hence the debt crisis of today, which has left Washington in gridlock as to what to do next.
The President's proposed "jobs program" is just more stimulus and the Democrats and Republicans can't agree on that. But while they dither, the U.S. economy is rapidly falling. According to the U.S. Census Bureau, average family income has fallen to 1996 levels and the average man earns what he did in 1978, adjusted for inflation. And 22% of America's children now live below the poverty line. In fact the number of U.S. poor has jumped to 46.2 million people, the worst since the Census Bureau began tracking those numbers in 1959.
9/16 Update: In another sign of how desperate the situation is becoming, on Thursday (9/15/11), the U.S. Fed, the Bank of England, the Bank of Japan and the Swiss National Bank all rushed U.S. dollar deposits to panicked European banks so they would continue to loan money, rather than start a credit freeze. This desperate approach was last used during the 2008-09 global financial crisis, the worst since the Great Depression.
So yes, the death spiral has already begun and the economies as we've known them will crash and burn. But do take heart. This is a natural cycle, repeated many times over the centuries and out of the ashes a rebirth always takes place, a Renaissance. In this case, hopefully a rebirth without all the U.S.'s wars and its military industrial complex behind those wars, which have drained so much of America's financial resources, its moral integrity and its compassion for humanity.
Dick
To learn more, please see "This Time Is Different: Eight Centuries of Financial Folly," a 2009 book by Carmen Reinhart and Kenneth Rogoff. "Census 15.1% of all Americans live in poverty," the Daily Breeze http://www.dailybreeze.com/latestnews/ci_18887429, "Income Slides to 1996 Levels," The Wall Street Journal http://online.wsj.com/article/SB10001424053111904265504576568543968213896.html, "Europe Lending Woes Deepen," The Wall Street Journal http://online.wsj.com/article/SB10001424053111904491704576570913474242974.html "Economy Clips Factories: Growth Prospects Shrink for U.S. Manufacturers Whose Profits Powered the Recovery," The Wall Street Journal http://online.wsj.com/article/SB10001424053111904491704576570900742148500.html and "Central Banks Pour Dollars Into Europe," http://online.wsj.com/article/SB10001424053111904060604576572442555810356.html
Personal Writings Of Love
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Be a seeker of inner-peace. When your life becomes more harmonious, so will
the world around you.
With Love To All - Dick
9 hours ago
4 comments:
Good post Dick. I think your analysis is right on. The question remains "Who is happy about this?” When we look at Quantitative Easing 1-2-3 etc. raising taxes, expanding gov't regulations, moratoriums on drilling, stopping the Boeing plant in SC, increasing gov't bureaucracy and all the other economic negatives our government has employed, you might think there is another agenda.
I hate to be a conspiracy theorist, but having read Soros’s books, Saul Alinsky and Clouard and Piven (hopefully spelled correctly) there appears to be a pattern developing here. Collapsing capitalism and replacing with collectivism could be happening in front of our very eyes.
Dear Coop, Thank you for sharing your perspective.
My analysis starts like yours but leads to a different conclusion. It is one of enormous financial benefit for the relatively few at the expense of the many.
Many European banks and likely some U.S. banks as well took heavy risk for a high rate of return in European debt. At first, that risk paid off well in dividends and executive bonuses. But now those investments in Greece, Italy, etc. are going bad and they don't want to face the consequences.
So if the peoples of Greece, Italy, etc. can't bear all of the burden, these banks are going to appeal for bailouts, much as they did in 2008-2009.
Dick
This is a major drawback to the globalization of finance which has taken place over the last 30 years. Sort of "we are all in the same boat now." During good times movement of capital is not limited by natural borders. It has helped move capital investment into the developing nations in Asia and South East Asia, sure the motivation was huge profit, but there was also huge risk.
Now that there is a global recession the country risks are making themselves much more apparent. Most investors downplayed the default risk on a nation level and probably significantly underpriced the risk. The only thing that will get us out of this global spiral in my opinion is a significant improvement in the US Economy. This is the engine that drives much of the Global Economy.
Dear Coop
As we saw from the U.S. Fed's new $400 billion stimulus program, the situation is becoming desperate as the U.S. economy crumbles and the Fed is out of good options.
Because of the flood of money into U.S. T-Bills from panicked investors, the U.S. for a time can continue to borrow huge amounts of cheap money. But all that does is send the U.S. ever deeper into debt and without an economic recovery.
Imagine what will happen when interest rates on all that debt rise to normal levels. The burden on U.S. taxpayers will be staggering.
Dick
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