By bailing out every nation too big to fail, we have created a monster too big too save. And if the European Union collapses, will it take down the USA and China with it? Asks Ventilator Blues.
What a mess we have gotten ourselves into. Our financial system has been exceedingly well cudgelled by this interminable crisis if not instigated by, then certainly triggered by the collapse of Lehmans. The result of this was a mad rush to prevent the entire economic order collapsing around us and blind dumb governments waving their bailout stick at huge bankrupt straw donkeys because they were too big to fail. This meant, I think, that the governments believed that the whole world would go to pot if Barclays et al decided to diversify into liquidation as the profit quanta suffered catastrophic devaluation – or however Murdoch Jnr would say it.
So, having had Gordon Brown and George W Bush save the world, we are now laughing our merry financial tushes off and swanning into sunlit futures. Ha ha ha. If only. We are now faced with even more blind straw donkey whacking but the donkeys, instead of being poorly run banks, are now idiotically run countries. And the mantra begins again – are they too big to fail?
No. They are too big to save. If Greece and co were just banks they would have been bailed out and controlled long ago by the EU einsatzgruppen but these countries are just too unmanageable for a bunch of delusional ever-closer-unionists to get their grubby mitts around. And the problems proffered by the three possible solutions make the average EU troll whimper quietly over their calvados.
1) Let the buggers go bankrupt. Unfortunately the entire global system then goes to the toilet.
2) Let the south secede and form their own currency block. This will virtually kill the German economy overnight as the Euro strengthens to something akin to a carborundum drill bit. The main reason the German economy has ploughed through this crisis is because of the weakening effect of the PIIGS on the Euro. Cleave off the weaker states and the Euro will go through the roof while Germany PLC goes through the floor. And don’t the Germans just know it.
3) Form a debt union a la the USA. Each state secedes its sovereignty to the Union and there is a true European currency, national reserve bank and government. Politically this is as popular as the clap in a nunnery. Germany would forever bailout the poorer south and the south would lose their democratic sovereignty.
So we have 3 impossible possible solutions.
So we continue the same policy that we pursued from the get go of the financial crisis and that is to throw huge wads of cash at it – most of which doesn’t even exist – and hope and pray that something comes up. Or perhaps I should rephrase that. We stand back and watch our governments throw huge wads of our money at it plus a whole bunch of borrowed money which we will have to pay a whole lot more for – plus a whole of bunch of money that doesn’t exist which we will have to pay a whole lot more for – as inflation kicks in just on the off-chance that the main course of this crisis will not occur while they are in office and can thus blame someone else… while claiming that they did all they could to save their careers, sorry, the world.
For short term efficacy I would rank those options in reverse order for success with 3 being the simplest and quickest way to deal with the problems within Eumerica. Medium term the best option would be 2 and in the long term…Well, in the long term we are all dead but getting shot of these debts for good (or more specifically how they are counted as assets) will be of greatest benefit.
And then there is America quietly cobbling itself out of the Superpower league through economic mismanagement on a truly heroic scale. The hoo-ha over its debt ceiling is the beginning of a very long decline. Even the most optimistic Republican inspired budget sees the debt of the USA soar to $20 trillion (albeit lightweight dollars) by 2020. And who thinks that will happen. The dollar is facing at least a decade long slug against devaluation before probably facing another decade long fight against even worse devaluation. Obama and the US Congress have no real idea of how to fight this particular threat and it shows. The only thing holding the charade of the US currency as the global reserve together is its AAA status. Playing with this is dangerous work.
And then there is China with its $4,000,000,000,000 in currency reserves (mostly of the EU and USA) and an accounting system for money up there with Polly Peck. Wuhan province wants to borrow $150 billion to build a city in the middle of nowhere sooooo they create a private debt holding company and, voilà, the whole thing is off balance sheet. As well as being billions of dollars in debt and not admitting it they hold trillions of dollars of bonds that would be worth nothing if they sold them up.
So the EU in its current format is dead. The USA is sclerotic and the health of the Chinese economy is tied to both. Is this any different to the fall of the great empires of the gold standard? British, French, Dutch and the lesser ones all went the same way all pretty much at the same time – between WWI and 10 years after WWII. Could this be the same? These intertwined new empires begin to fall for the same reason? Only time will tell; but by bailing out everything too big to fail we have created a monster too big to save and with no apparent solution in the offing.
To read Ventilator Blues’s other articles visit Ventilator Blues’s Politics On Toast blog. This article is (C) Politics on Toast and Ventilator Blues.