Scary bad if you believe these three articles:
!. From the Telegraph – Debt crisis: tensions mount as Angela Merkel attacks French economy:
Mrs Merkel warned the policies of the new Socialist president could destroy the eurozone by bringing the sovereign debt crisis to France itself.
The bleak assessment came on the eve of an important weekend that will see elections in Greece and France and a key G20 meeting of world leaders in Mexico.
“Europe must discuss the growing differences in economic strength between France and Germany,” she said.
Tensions are running so high that Jean-Marc Ayrault, the French prime minister, was forced to deny that Paris had broken off the Franco-German partnership, following Berlin anger at a Franco-Italian summit in Rome on Thursday.
2. From Bloomberg Businessweek – Fitch Downgrades Egypt on Political Uncertainty as Vote Looms:
Egypt, which is still struggling with the aftermath of popular unrest that last year toppled President Hosni Mubarak, had its long-term foreign currency issuer default ratings downgraded by Fitch Ratings on the eve of a run-off vote to choose a new head of state.
“The downgrade and negative outlook reflect increased uncertainties surrounding the political transition following yesterday’s ruling by the Supreme Constitutional Court to annul parliamentary elections and dissolve parliament,” Richard Fox, head of Fitch’s Middle East and Africa sovereign ratings, said in an e-mailed statement today. The long-term foreign currency rating was cut to B+ from BB-. The outlook for this and the long-term local currency rating were negative, the company said.
3. From the Associated Press –
How shock washes will hit the US if Greece drops euro: Bankers, governments and investors are preparing for Greece to stop using the euro as its currency, a move that could spread turmoil throughout the global financial system.
The worst case envisions governments defaulting on their debts, a run on European banks and a worldwide credit crunch reminiscent of the financial crisis in the fall of 2008.
A Greek election on Sunday will determine whether it happens. Syriza, a party opposed to the restrictions placed on Greece in exchange for a bailout from European neighbors, could do well.If Syriza gains power and rejects the terms of the bailout, Greece could lose its lifeline, default on its debt and decide that it must print its own currency, the drachma, to stay afloat.
No one is sure how that would work because there is no mechanism in the European Union charter for a country’s leaving the euro. In the meantime, banks and investors have sketched out the ripple effects.
They think the path of a full-blown crisis would start in Greece, quickly move to the rest of Europe and then hit the U.S. Stocks and oil would plunge, the euro would sink against the U.S. dollar, and big banks would suffer losses on complex trades.
But wait – there’s more:
A Global Perfect Storm - Nouriel Roubini, Project Syndicate
How Spain Got Worse in Less Than a Week – Lisa Abend, Time
A Global Perfect storm begins: Dark, lowering financial and economic clouds are, it seems, rolling in from every direction: the eurozone, the United States, China, and elsewhere. Indeed, the global economy in 2013 could be a very difficult environment in which to find shelter.
That’s about the size of it. Be careful what you wish for, Mitt Romney.
H/t: RW
Well, there’s bad news. And good news.
The bad news is that the sophisticated system of international finance and currency is on the edge of collapse. Damnfool banksters have been stealing from it, and damnfool politicians have been poking holes in it.
The good news is the sun will continue to rise in the east, the world is not short of food, water, oil, cash, iPods, bandwidth, automobiles, farm equipment, fishing boats, shoes, cotton, polyester, or silk. Materially, the world is in FAR better shape today than it has ever been.
Not at all clear that if we woke up tomorrow with no banks and no politicians, if anything much would have changed.
There’s an adult demeanor for you.
Yes, the wealth of the world will remain but the fiat currencies used to measure that wealth will have to be redefined. Things could right themselves in short order but the odds are the learn-nothing politicians will take a Hoover-FDR approach to the situation and prolong the fiasco.
A United States of America, under a President Romney, would be uniquely positioned to take actions that would get us out of this mess – actions not really available to the leaders of most other countries. WHile reducing the regulatory burden on business is something that most world leaders cannot conceive of doing, Mitt Romney not only has the ability to do so, he has the motivation.
There is a lot of American ingenuity and capital sitting on the sidelines just waiting for an administration that is not hell-bent on crucifying them.
America has pulled the world out of recession before. We’ll do it again.
It’s not in Mr. Simon’s main points, but buried in that article by Roubini is a discussion of China. I’ve been a China-watcher for a long time now (my favorite pundit is Patrick Chovanec), and I find myself fascinated by the combination of massive misdirected spending, corruption and impending demographic disaster that’s unfolding over there. It’s a joke to think China will ever overtake the US, but I just wonder what kind of impact it’ll have when that house of cards collapses.
I do find myself agreeing with Josh and Rubicon, however. Things are going to be very bad in the short run, but the US will come out of it first and we’ll be in pretty good shape- IF we get new leadership. I think the country has woken up just in the nick of time to prevent us from becoming a socialist failure like most of Europe. I’m actually kind of optimistic- I’m still about 55% in stocks so I guess I’ve placed my bets.
You may have seen the PBS show about Niall Ferguson’s six “killer applications” (competition, science, democracy, medicine, consumerism and the Protestant work ethic) that led to the rise of the West. I’m not convinced, though, that those six can’t be condensed into one – Property Rights.
For the past 50+ years Property Rights have been under assault, whether by regulations taking or limiting the use of your land or higher taxes confiscating your work product. The West is falling back into a Heinleinian Period of “Bad Luck” because our Lords and Masters have determined that freedom is too precious a commodity to be shared with the masses and the vast Multitude of Mediocrity has decided that being free is just too much work. It’s far better, they say, to live in abject poverty for a known crust of bread than toil for the possibility of 50 loaves. It’s far easier to take the wealth than create it so let’s all just take it while the taking’s good. Don’t worry, they say, somebody, somewhere will pick up the slack and keep the wealth machine rolling… oh no, it won’t be me because I’m not a fool but somebody will…
You’d think that the politicians would have learned the lesson of Plymouth Bay – socialism doesn’t work. Or, maybe they learned that a free and prosperous people don’t have much need for government and it’s better to rule an impoverished and destitute nation than govern a wealthy and growing nation.
” Things are going to be very bad in the short run.”
Two questions come to mind.
1. What constitutes the ‘Short Run’?
4 years? 5? 10? 1914 – 18 and 1939 – 45 could be called a ‘Short Run’.
2. Just what happens if (when) some elected rabble-rouser decides that the time is ripe to apply a time tested and classic remedy to his domestic financial problems. To wit, a rousing game of ‘Invade/Plunder Thy Neighbor’.
And you can ‘poo-poo’ that scenario all you want. Just like they did in 1913/14 and ’38/39! I believe the relative reasoning runs something like:
‘But these are CIVILIZED Western Nations. Major Trading Partners. etc. etc.’
All I can say is hang on to your hats. It’s gonna be a bumpy ride.
I just hope that my kids and grand kids come through it.
One of the things that allowed the US to become so wealthy was that we did not originally have taxes and rents to pay to the nobility/government. Taxes have gone up, and the US is in trouble.
The regulatory load does not help, either.