Worse Than 2008
I have thought for some time that those predicting another recession are overly optimistic. We are about to see a collapse of the world financial system and there is nothing anyone can do about it. The banks that were bailed out are still insolvent – zombie banks.
Well IMF adviser Robert Shapiro has said what anyone paying attention knew already.
In an interview with IMF adviser Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone’s mind: “If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serious than the crisis in 2008….
Watch it:
7 Responses to “Worse Than 2008”
Ron, they are talking about Europe. As the man said, we, (the U.S.), have been dumping our stake in European Banks since 2008. Our banks will not be affected in any meaningful way.
Furthermore, they are talking about Italy and Spain defaulting on debt. Germany will weather it out because Germany is very sound. Countries who’s banks are not involved in sovereign lending will also not be affected. Big hit on other nations though, but not the end of the world for us.
If you notice, the countries defaulting are southern European countries. The most corrupt countries in Europe.
I wish you were right Allen but you are not. The Plutocrats got the global economy they wanted and the world banks are all connected and when they start to go under in Europe banks in the US, which are already insolvent, will follow. And yes, China will suffer – they have a real estate bubble that’s about to burst – they have an export based economy that is going to have fewer customers. At he same time China must import food and oil. The US may actually come out of this Apocalypse better than anyone else but the transition to a new economy will be painful. The new economy will be less centralized – more local. Even in the US areas that can’t feed themselves will suffer.
Ron, I see Dr. Shapiro’s point, but I think he’s giving, more than anything, an overly pessimistic view. I think that, like the US, France and Germany will ultimately do what they need to do to avert a sovereign debt crisis on the parts of Greece, Spain, and Italy, at the moment, and Ireland in the longer term. Yes, there are dangers, but the necessary actors will act, if only for the purposes of self-preservation.
Furthermore, the Eurozone Sovereign Debt Crises are the creation of the Eurozone for not having a political union when a monetary union came to be. Unfortunately, because of that, solid, relatively stable economies, like France, Germany, and the Netherlands are tied to unstable economies, like Spain, Italy, and Greece. They bet the house that there would be no sovereign debt crisis ever, given the EU’s relatively stringent rules. What happened, however, was entirely foreseeable. Sovereign Debt Crises, like these in Europe, will continue to happen more frequently because major debtor countries can no longer monetize their debts. If the Greeks, the Spanish, and the Italians were still on the Drachma, Peseta, and Lira, respectively, they would not have this issue. They could, and would, monetize the debt away, and then ratchet down hard on inflation.
What worries me more, since Britain, the US, and Japan are relatively insulated, is what happens with China, who, while not a major player in the Eurozone, will probably not be able to weather the storm. The inflationary pressures on China, plus the soon-to-happen bursting of the property bubble, as well as Eurozone instability, are going to send China into a tailspin, and, quite possibly, will cause China’s economic collapse in a way we haven’t seen since we started trying to control the boom-and-bust cycle. I do not foresee China weathering, or even surviving, another major economic collapse such as is being threatened.
I think the Eurozone Sovereign Debt Crisis can, and must, be solved by a mixture of increased liquidity, along with a harsh austerity program. Yes, the only actual solution to a debt crisis is to grow out of it, but, and this is a major caveat, there comes a point where the debt burden is simply too high, and, even at the cost of jobs, a harsh austerity needs to be imposed. The Greeks rioted in the face of such austerity, but, since the government basically caved to those protesters, the result will be much worse, and, in countries where the debt is so great, we will, I expect, see a significant ratcheting down of the welfare state, because that is where the major costs lie in most economies.
That being said, I want to reiterate my earlier point, and say that I think the Eurozone will do what is necessary to avert a sovereign debt crisis in any of the member nations, but will only do so at the very last second, when it’s either act, or let the Eurozone go over the precipice.
Shapiro is correct. And so is Ron.
The only way that I could see the Euro surviving is to eject Greece, which isn’t technically possible, at least not quickly, but rules can change during a crisis. The problem is that Greece isn’t the only sovereign in trouble, merely the first to hit the crisis level.
That said, the western world seems to be well on its way to a major collapse, if history is any guide. But history also shows that while such times are painful and scary, countries do survive and eventually recover from them.
I remember at the time, I thought the EU would collapse and break up, because that’s what happens when you saddle solid economies with crappy ones. At the time I didn’t think it would work, and that was fine with me because this was the early 90′s and if the EU fell apart its their problem. Now, I’m a little more concerned because I agree with Ron, the banks are no separated by a wide gulf anymore. Our banks will suffer when EU banks suffer.
Yeah, this is big. There is no ostrich that can weather this sandstorm.