Posted on 07/15/2009 1:36:10 AM PDT by myknowledge
Without a radical change of strategy, the ECB risks pushing the weakest states into a debt-compound spiral that can only end in bond crises and/or the disintegration of Europe's monetary union – whichever comes first.
The International Monetary Fund says the eurozone will contract by 4.8pc this year, worse than the UK (-4.2pc) or the US (-2.6pc). The deepest damage will occur next year as Europe remains mired in slump, even as the rest of the world recovers. It is the length of recession that matters most for jobs, social stability, and public finances. I am not easily shocked any longer but I did sit up when Spain's budget chief Luis Espadas said the economic collapse could "easily" push Spanish public debt to 90pc of GDP by 2011. This is up from 36pc in 2007.
Nobody knows where the tipping point lies on public debt, though anything above 100pc of GDP in a currency union is courting fate. Some are already there. The European Commission says Italian debt will jump to 116pc in 2010. Greece is vaulting back to 109pc, Belgium to 101pc, France to 86pc.
Even German finances are falling apart. After screwing down spending to balance the books, discipline has broken down. Berlin says the deficit is heading for 6pc next year, taking debt to 82pc. This is happening all over the world, of course. But the ECB is compounding the effect, whether for reasons of politics, Bundesbank fetishism, or misjudgment. By refusing to join the US, Japan, Canada, Britain, and Switzerland in quantitative easing (QE) the ECB has allowed a contraction of private credit this summer. The M3 "broad" money supply has shrunk since February.
(Excerpt) Read more at telegraph.co.uk ...
I´m no fan of Brussels but Ambrose is a sad old cassandra. I stopped listening to his catastrophism years ago.
If I recall the story correctly, Cassandra was right.
He’s complaining Europe is NOT inflating the money supply, the way the United States is under Obama.
In a downturn, tight money is bad and will worsen the economic outlook. This happened during the 1930s. While the amount of money Bernanke is printing makes me nervous, it's not led to inflation... yet. This is because consumers have bumped the savings rate, banks are increasing cash reserves, and corporations in general are conserving cash. If all of this gets pumped back into the economy, look out. Bernanke is betting that he can ease back in time to prevent inflation. Bernanke is operating as Greenspan would.
If Summers is appointed to the Fed, inflation may become an unstated strategy for reducing government debt. That worries me.
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