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.