by Barry Thompson
There are actually fiscal collapses all of the time. The planet sees countries crash and burn on a financial basis all the time. The notion that a Union of countries could do it is sort of stunning, but that is precisely what i am witnessing at this moment. The European Union is doing a face plant that is legendary. The only real question is whether or not there’ll be anything remaining afterwards. It really doesn’t seem like it.
Living in the middle of the fall of the EU is a bit awe inspiring. The reason being it is laying open the reality regarding the world of finance. The fiscal world is more or less constructed on the concept of confidence. Where there is usually an plethora of confidence, there is strong financial development. Where there is not, things break apart. One merely has to look at the nations involved in the collapse of Europe to realize as much.
When Greece was a lost cause, a lot of people worried that Spain was the next nation to go. Spain had, during that time, a joblessness rate of 20 percent, large financial obligations and decreased GDP. Its financial system was shrinking and things didn’t look good. Elections were held and an especially financially conservative administration was voted into power.
The new administration has spent its time trying to resolve things, to wit, incorporating significant austerity procedures. Bond purchasers have rewarded Spain by re-financing the financial debt although the nation still is an economic catastrophe by just about every measure.
At this point, think about Italy as a contrast. It is actually sinking with big debts also and corruption is a big predicament. However, their problems didn’t really end up being the focus of the press and speculators till a short while ago. Even though it is in no worse shape then Spain and has now started instituting similar austerity programs, bond owners have bashed it.
As I write this, world investors are requiring an interest rate of 7.8 percent simply to purchase two year notes from the Italians. Historically, almost any Western European nation that has paid much more than 7 pct has hit a brick wall. Simply speaking, bond holders currently have very little confidence Italy will get out of this predicament.
Exactly how awful have things become? On November 23, 2011, the ridiculous occurred. Germany ended up being unable to sell off 35 percent of the bonds it sold at public sale. Germany! Germany seriously isn’t in any economic difficulty in any way.
So, precisely why wouldn’t bond holders purchase the German debt? The only conclusion which might be reasonably arrived at is the bond holders at this point assume the European Union will certainly fail in one way or another and the European Union will fall into a major recession or major depression. This would ruin Germany’s exports to the nearby countries and crush its economy for all intent and purpose.
Is there any hope for relief? The Federal Reserve Bank in the United States has demonstrated an exceedingly aggressive reaction to such ominous occasions as recently as 2008. The idea the Fed might prop up European countries is the big rumor these days.
The question is whether or not the Fed is going to do so for a second time. Why would they? Well, Ben Bernanke recognizes a single thing for sure. The most significant export market for merchandise created in the United States isEurope. If Europe deflates, it isn’t hard to guess what sort of a consequence that may have on the overall economy of America. Should the United States of America fall back into a serious economic downturn, then the massive national debt of the country may drag it down into a full blown depression. My oh my, don’t you simply love globalization?
Now we get out our magic ball and take a look at whether there is a way ahead for the European Union. No one knows for sure. What is obvious is there will probably be a fewer number of countries within it in the future. Many of the minnows will be given the boot. The question is whether anything survives if big countries like Italy, Spain and France go belly up.
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military budget cuts are the only reasonable way to avoid the a similar problem in the United States.