In the current issue of the Financial Times, columnist Martin Wolf provides a cogent and timely warning on the credit anomalies proliferating throughout the Eurozone that, in conjunction with feeble policy measures, are contributing to a scenario akin to the credit collapse that unleashed the most virulent stage of the Great Depression of the 1930s. In the column, he observes:
“One would expect feeble demand in such a world. The willingness to implement expansionary monetary policies and tolerate huge fiscal deficits has contained depression and even induced weak recoveries. Yet the fact that unprecedented monetary policies and huge fiscal deficits have not induced strong recoveries shows how powerful the forces depressing economies have been…. Before now, I had never really understood how the 1930s could happen. Now I do.”
In the wake of the unfolding financial and economic disasters unfolding in the Eurozone, the analysis offered by Martin Wolf is must reading for anyone concerned about the global economic crisis. The link to the entirety of Wolf’s piece in the Financial Times is here:
http://www.ft.com/cms/s/0/74f3017e-ac15-11e1-a8a0-00144feabdc0.html#ixzz1x6wGEWSR
It appears that the ECB is abandoning its policy of monetary prudence, and imitating U.S. Fed Chairman Ben Bernanke in running its printing press wildly. Mario Draghi, ECB boss, has made available cheap loans to European banks experiencing liquidity problems. In response, more than 500 European banks stampeded to the ECB discount window, and have borrowed nearly 490 billion euros, equivalent to $643 billion USD at current exchange rates. Clearly, the European banks had desperate need for new capital, while the Eurozone politicos hope the banks will use the newly minted euros to buy European sovereign debt.
Nouriel Roubini I think described this rather nicely as in essence quantitative easing and stealth debt monetization. As with Ben Bernanke’s repeated bouts of money printing, I don’t think this new loose monetary policy by Mario Draghi will avail itself of any meaningful results. Since the global financial and economic crisis was unleashed in 2008, money printing by central banks has been a symptom of the problem, not its solution.
Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.
More developments on the Eurozone sovereign debt credit ratings front. Fitch, one of the big three credit ratings agencies, lowered its rating on Spanish government debt by two notches, from AA plus to AA minus. As recently as 2010, Fitch rating Madrid’s debt at AAA. This credit rating cut follows on the heels of the decision by Moody’s to drop Italy’s credit rating two levels.
With the sovereign debt crisis in Europe cascading out of control, and a severe Eurozone banking crisis now developing, one has to be obtuse to believe that the global financial and economic crisis that began in 2008 has been “resolved.” Sovereign credit ratings are dropping with monotonous regularity, and a growing cadre of economists are suggesting that the Eurozone, U.K. and U.S. are already in the midst of a double-dip recession.
With negative economic growth and growing public debt to GDP ratios, how are these nations going to resolve their sovereign debt crisis?
