First, a round-up of a few important stories on the long-festering economic crisis in Europe:
Frau Merkel, it really is a euro crisis: Ambrose Evans-Pritchard is someone to take very seriously. He identified very early on what was happening in the US.
Finally, this story by economist L. Randall Wray. A quote:
The economies of the West (at least) are stumbling. In addition to the residual (and growing) problems in US real estate, the commodities speculative bubble appears to have been pricked. Since fools rush in on the belief they can take advantage of sales prices, the air will not rush out quickly. But with prices at 2, 3, and even 4 standard deviations away from the mean, the general trend will be down. That leads to vicious cycle margin calls, which will have knock-on effects as those with long positions in commodities have to sell out other asset classes. The stock market will be next””and there is plenty of reason to sell bank stocks, anyway.
And US and European banks are already insolvent. When Greece defaults and the crisis spreads to the periphery that will become more obvious. US money market mutual funds will break the buck””again””and this time they will not be rescued (Dodd-Frank makes that difficult). Further, US banks are beginning to lose civil lawsuits on their rampant fraud””securities fraud, mortgage lending fraud, foreclosure fraud, insider trading fraud. Fraud is essentially the only business that big US banks know””the only thing keeping them in business. If that line of business is taken away, they are toast. In GFC 1.0 it took $29 trillion to prop up Wall Street’s banksters. They are not going to get a second chance.
As Ian and Stilring and Numerian and I all argued in late 2008-2009: they were trying to reflate the economy without restructuring the banks and making bondholders suffer like stockholders. Now everyone will suffer. This won’t end well.
And the Euros are repeating the same mistakes we made in the US. The bondholders need to take a haircut like the rest of us.