30 Jun 2012 11:24 AM:
Hi ads
Hope you are well and enjoying the hot weather. I have only just seen this and will try and reply soon. In short i think its a good article which is mostly correct, but there are problems which need to be discussed.
The main problem is that when you have too much debt which all the PIGS countries have and the UK and France etc, there is no easy solution. Its tempting to think that you can interviene in free markets by using other people's money (people who have been prudent and not spent too much ) to try and FORCE interest rates down for countries that have borrowed too much.
But this has huge moral and other hazards. Its these hazards that need to be fully understood, because they can and do make things much worse in the long run. This needs some explaination, but essentially its meddeling with the free market processes that work to keep things in balance.
Everyone needs to understand that the financial crisis that we see now in Spain and all the unpleasant side effects that go with it ARE PART OF THE SOLUTION. The problem was always the boom. The unemployment and the recession and the property crisis are all part of the rebalancing of the economy back to a sustainable basis, its the clearing out of the toxic boom. When you drink too much or take too many drugs, the withdrawal as unpleasant as it may be is part of the healing. If you take more drugs or drink to ease the pain, it just prolongs the agony.
The bailout of countries and the buying of bonds or Eurobonds is getting in the way of this healing process and allows overindebted countries to avoid dealing with structural problems that were the cause of the problem in the first place.
Some measures of help maybe appropriate, but only if the fundamental structural problems are dealy with FIRST. This is essentially what Germany is saying and is the reason why they appear to be taking such a hard line.
What is now apparent is that Spain knows that it can be both a beggar and a chooser, because its too big to fail and allow the Euro to continue. In this way it can ask for help but not agree to tough and very necassary painful reform. The problem with this is that it may look like a solution in the short term, but longer term will only do more and more damage.
All the over indebted nations of the Euro need to get back to sustainable living within their means and there is no two ways arounnd this - it means a economic belt tightening and moves that will be very unpopular. If these moves are not taken then the crisis like an addiction will just roll on and on.
Thread:
The coming worldwide credit crunch
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