I hope the title to this blog post is completely wrong, but the news out of Europe is very grim. Politicians have been over-spending and going deeper and deeper into debt. This negatively affects the private sector in the usual ways (higher taxes, unproductive allocation of resources, etc), but also creates instability in the financial sector since many banks and other institutions have naively lent lots of money to corrupt and inefficient governments. And as this story from the Telegraph indicates, the European Central Bank has been forced to surrenders its independence and is now monetizing government debt. In theory, the ECB is taking other steps to compensate, but the problem is so large (and the political willingness to solve the problem by radically shrinking government is so small) that it is difficult to see a good ending to this saga.
Fitch Ratings has warned that it may take massive asset purchases by the European Central Bank to prevent Europe’s sovereign debt crisis escalating out of control. …The ECB agreed to start buying Greek, Portuguese, and Irish bonds in April to help buttress the EU’s `shock and awe’ package, known as the European Financial Stability Facility. Total purchases so far have been €47bn (£39bn). It has focused its firepower on Greece, mopping up some €25bn of government bonds. This has prevented a collapse of the Greek debt market but at the high political price of letting banks and funds dump their holdings onto the EU taxpayer. ECB council member Jose Manuel Gonzalez-Paramo said it was “not entirely correct” to assume that the ECB was the sole buyer of the debt. “We will continue buying bonds until the situation has stabilized,” he said. …Fitch said European banks must refinance nearly €2 trillion of long-term debt by the end of 2012 in an unfriendly market. “There’s an awful lot of debt coming due in 2011 and 2012, and that is becoming a concern,” said Bridget Gandy, the agency’s banking expert.
[…] agree. Indeed, I wrote way back in 2010 and 2011 that the euro lost a lot of credibility when the European Central Bank surrendered its […]
[…] agree. Indeed, I wrote way back in 2010 and 2011 that the euro lost a lot of credibility when the European Central Bank surrendered its […]
[…] then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor […]
[…] then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor […]
[…] been worried for quite some time that the European Central Bank was losing its independence, thus undermining the long-run prospects […]
[…] then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts. Because European politicians have decided to create an […]
[…] then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts. Because European politicians have decided to create an […]
[…] then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts. Because European politicians have decided to create an […]
[…] nations such as Greece, Ireland, and Portugal already have received direct bailouts. Moreover, the European Central Bank has been engaging in indirect bailouts of other welfare states such as Spain and […]
[…] nations such as Greece, Ireland, and Portugal already have received direct bailouts. Moreover, the European Central Bank has been engaging in indirect bailouts of other welfare states such as Spain and […]
[…] warned last year that this was a big mistake and I’m glad to see that the issue is now getting more attention. Here’s some of what […]
[…] Different nations are doing their own bailouts. On top of that, the Europeans have set up something called the European Financial Stability Facility, which does bailouts across the continent. And then there’s the International Monetary Fund, doing bailouts on a global basis. (and we’re not even counting the indirect bailouts from the Federal Reserve and European Central Bank) […]
[…] received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most […]
[…] to stop him from engineering a back-door bailout by having the Federal Reserve buy state bonds? The European Central Bank already is using this tactic to bail out Europe’s welfare states, so a precedent already exists for this type of misguided policy. To make matters worse, there’s […]
[…] received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the […]
[…] received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the […]
[…] received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most […]
[…] received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the […]
[…] to stop him from engineering a back-door bailout by having the Federal Reserve buy state bonds? The European Central Bank already is using this tactic to bail out Europe’s welfare states, so a precedent already exists for this type of misguided policy. To make matters worse, there’s […]
[…] to stop him from engineering a back-door bailout by having the Federal Reserve buy state bonds? The European Central Bank already is using this tactic to bail out Europe’s welfare states, so a precedent already exists for this type of misguided policy. To make matters worse, […]
Will the Euro Turn into the Argentinian Peso or the Zimbabwean Dollar?
No it won’t. That is an exaggeration. It will simply become the currency of a continent, which, growing at 1-2% in a world that, on average, grows at 4%, will be gradually marginalized into economic irrelevance over the next 50 years – political extinction will go hand in hand (ironic as Europe’s unification is, these days, being sold to Europeans primarily as a means to increase collective worldwide influence)
The US did not become the most prosperous nation in the world by growing at below average rates. But it now seems poised to permanent long term below 4% (=average world) growth. Having lost its American exceptionalism it will revert to growing at below average rates. How do Americans plan to grow at above average rates? Through higher taxes to enable more centralized economic planning? More expensive energy? Preventing others from growing through protectionism? Another path to economic marginalization in the works, albeit slower than Europe’s.