In hopes of stopping investor panic about Europe’s fiscal crisis, the world’s major central banks just announced that they will do whatever is needed to ensure financial markets don’t freeze up.
This could be an appropriate and relatively benign use of the lender-of-last-resort powers, or it could signal another round of reckless easy money and quantitative easing.
I’m skeptical of the Fed and other central banks, but I don’t want to play back-seat driver on monetary policy. Instead, I want to focus on the underlying issue, which is whether there is any alternative to immediate – and real – spending cuts.
Maybe there is some way to muddle through, but I think the answer is no. Easy money from central banks is not a solution. Bailouts from the IMF or some other entity are not the solution.
In this interview with Neil Cavuto, I explain that more bailouts won’t work and that Europe’s welfare states should copy the Baltic nations and shrink the burden of government spending.
One point I made deserves to be emphasized. We wouldn’t be in the current mess if the political elite at the IMF and in Europe and the United States had followed my sage advice and rejected the original bailout for Greece.
The Wall Street Journal agrees. Here’s a passage from today’s editorial page.
Europe’s original sin in this crisis was not letting Greece default, remaining in the euro but shrinking its debt load as it reformed its economy. The example would have sent a useful message of discipline to countries and creditors alike. The fear at the time was that a default would spread the contagion of higher bond rates, but those rates have soared despite the bailouts of Greece and Portugal.
Sadly, I expect more bad policies. Politicians are addicted to big government, so they’ll always take the primrose path of bailouts and easy money as an alternative to fiscal restraint. Especially when the United States is a source of laughably bad advice from the clowns in the Obama Administration.
[…] Nope. […]
[…] Nope. […]
[…] But this is more than a lesson about monetary policy. What’s happened with the euro may have created the conditions for another European fiscal crisis (for background on Europe’s previous fiscal crisis, click here, here, and here). […]
[…] The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed. […]
[…] The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed. […]
[…] As I explained a few days ago, the Federal Reserve’s recent announcement that it will provide dollar liquidity to Europe is not necessarily objectionable. After all, the Europeans have to pay us back if they borrow dollars, with interest, at current exchange rates. […]
[…] As I explained a few days ago, the Federal Reserve’s recent announcement that it will provide dollar liquidity to Europe is not necessarily objectionable. After all, the Europeans have to pay us back if they borrow dollars, with interest, at current exchange rates. […]
[…] still spending like there’s no tomorrow. I just hope American politicians won’t be foolish enough to provide a bailout when the house of cards comes tumbling down. Rate this: Share […]
[…] As I explained a few days ago, the Federal Reserve’s recent announcement that it will provide dollar liquidity to Europe is not necessarily objectionable. After all, the Europeans have to pay us back if they borrow dollars, with interest, at current exchange rates. […]
That’s the problem, they don’t have the discipline for fiscal restraints. Nor do we as it were. It’s a vicious cycle, the bigger and more dependent they become the harder it will be to ever make the deep spending cuts necessary. Or maybe I should have just commented, “yeah, what you said!!!” Sorry for the redundancy!
Great post.
Curious that every economic advisor EXCEPT Geitner has already seen the writing on the wall and bailed out of the government post while they still had enough of a shred of credibility to be able to wangle a teaching post somewhere.
So is Geitner just a slow learner?
Or is he so obviously bad that he couldn’t even get another job like the other advisors? (Surely there must be SOME little podunk college SOMEHERE that hasn’t caught on to how bad his economic knowleger really is.)