Global Financial collapse

[JERRY2KONE]

This is very true. If you have financial problems and seek out any financial planner to help ease your pains they will sit you down and tell you just that. First you have to re-evaluate your way of life and total expenditures. Cutting your overall spending is the first step in any financial planning. The second step is to pay off yor debt one by one until you are fee from it in order to stop the bleeding. The third step is to setup contingency plans for future growth and retirement savings. Once all of this is done you can begin to look at the long term plan and make arrangements for safety and security with emergency funds and financial control from within. Doin this as an individual is hard enough. Imagine trying to do this as a nation? There is no short cut for any of this. Its difficult, dirty, and seems impossible to defeat.

All of the financial problems of our global community are driven by greed. Even from the simplest homefront we desire the latest technologies and strive to keep up with the rest of the world. This will never end, because its in our nature to be competitive and do what ever it takes to be better than the other guy. The biggest problem is that too many people have found ways to shortcut and avoid the hard work aspect of this scinario(or so they think). The only way this can be successful is to rip off others stealing their hard earned dollars, but it all has a trickle down effect that wil effect all of us. It has gotten to the point that nothing is safe anymore. The only way to protect your nest egg is to hold it as close as possible and hope that no one will steal it from you or trick you out of it. The worst is still yet to come before the results of this greed is fully seen and understood. The worlds economy will continue to dose dive until we all hit bottom. Just remember one thing. "What does a drowning man do"? He will do whatever it takes not to drown including grabbing anyone within reach and taking them with.

[JERRY2KONE]

After writing my last post I could not stop thinking about how all of this keeps going up and down as the Gov's around the world try to calm its people telling them that everything is going to be alright, Really? So how? So let me ask this. Is there anyone of you who truly believes that this is all going to be OK? I mean really, what is it that you think is going to change to make all of this get better? I fail to see any political party, or person for that matter that has anything in mind except how to make more money for themselves. Not a one of them cares about the people regardless of what they say to your face through TV or in person. Please just one person share with us with all of the political tap dancing, side stepping, so called wisdom, and lies what aspect of our govermental systems is moving in the right direction that shows even a glimmer of hope for the financial well being of the general population. I dare anyone to come up with and share an idea that is going to permanently resolve the global financial problems. There is only one way in my mind that this is going to go, and that is deep, and biblical depression and recession. We are in for a real Earth shaking experience worldwide and no one is safe from the effects or the outcome of it all. All of the bailouts, spending cuts, and realigning in the world is not going to save us from whats coming. Humanity has tapped all of its financial resources to the point of self destruction through the enormous debt that it has created, and there is no way out of it. There is no magical currency printer that can make enough fake money to avoid the inevitable. Dig in and get ready for the fall out. The riots and demonstrations we have seen up to now are merely a glimps of what we are capable of. People are begining to get desperate just trying to get by. Soon it will become more serious as they try only to survive. This is not going to be centered on just the USA, Africa, Greece, Port of Prince, or any other nation economy. This is becoming a worldwide issue that is going to take down every economic organization around the globe.

[Finnster]

As far inflation goes, inflation can come from printing money. But there is a bigger story.

The question here is what is the root problem, and what are the consequences of different actions? Is there at least a "least bad" option?

The financial crises and the gov't & central bank's responses we've had on the two sides of the Atlantic have been a very interesting experiment of the two different schools of thought on how to deal with a credit crisis and recession.

The USA had followed a school of thought that has favored interventionist philosophies by the gov't and central bank. On the gov't side, by tax cuts and spending increases to try and grow out of the recession and lower unemployment. On the central bank side, willinginess to expand the money supply to maintain liquidity to keep credit markets functioning and borrowing costs low, as well as ease unemployment. The Fed has a dual mandate of price stability and low employment.
Recessions are seen as a malfunction/short circuiting of the market, and intervention can restore order and more quickly restore growth.

The EU has taken a non-interventionist model, following the "Austrian model" of economics, primarily driven by the Germans. (FWIW, Ron Paul is a self-desribed Austrian.) An overriding idea that recessions are neccessary destructive acts, and intervention distrupts this process and leaves the work "undone." Maintaining market confidence and heathly balance sheets are seen as the priority. This translates to tax increases, spending cuts, wage cuts and public layoff policies. Ie "Austerity Packages." This self-inflicted pain is expected to be rewarded with market confidence due to their demonstrated dicipline.
The ECB only has price stability as a mandate. It is not charged to regard employment consequences in its policy decisions.


So, how have the two different systems faired? We both had a large housing bubble that burst, and are now dealing with large private sector and public debt. Both are well delevoped economies of similar scale. The EU is a little bigger, but is not as integrated as the US. Both systems are suffering from intense political quabbling and indecision.

By all measures, the US as a whole is much better off than the EU (everything is relative here.) Overall unemployment is lower. GDP growth is higher (we are weakly growing (+3% for Q4,) and EU is facing likely recession.) US credit markets are functioning better. While we have weak wage growth, many parts of the EU are seeing wages fall.

Regarding the current crisis: US borrowing costs are far lower than everywhere in the EU that's not Germany, and even then still less than Germany. Where is their "Virtue" being rewarded?
10 year bonds for the US are ~2.0%, Ger ~2.25%, ITA boomed to over 7% (+5.5% over benchmark German bonds.) Look at the rates over the last year. ITA spiked, and so has France , and so has Spain.

This spike is what is screwing ITA, FRA, SPA, etc. Some EU states have better balance sheets than the US, but bond markets freaked out over perceptions of risk. The US rates are low as we can never, ever default, as we have the Fed who can always print money to pay investors, and are willing to do so. There are consequences for inflation, but that is not the pressing concern. In fact, inflation has been well below historical avg, despite the FED tripling their balance sheet in since 2008. Ask Ron Paul to explain that.
=> Printing does not always lead to inflation! Its context that matters!

Italy can afford its debt, but because Germany (the EU's main creditor) has been reluctant to intervene, and the ECB has a hands off policy, AND because Italy is on the Euro (a defacto gold std), they do carry a risk premium of default. In dealing with Greece, the EU looks incompetant. Risk premiums push up bonds everywhere. Higher rates make default more likely, so rates go up higher. Now rates are above which Italy can afford, looks insolvent and is threatening default. Nothing has really changed fundamentally in their economies, just their (in)actions have changed perceptions. ===> Self-fulfilling crisis.

Worrying about potential future elevated inflation while your currency is on the verge of collapse is like having your house on fire but refusing to turn on the sprinklers because you don't want the drapes to get wet. Considering the heart of the crisis is to much debt, higher inflation is actually not a bad thing (whole other long-ass post tho.)


Luckily the ECB is pulling its head out of its ass and buying up Italian and Spanish bonds today. They have to be lender of last resort or game over for the Euro. They don't even have to buy a lot of debt, they just need to show they willing to act, and the perception of risk (and bond rates) will begin to fall. Italy is solvent as long as Germany doesn't F it up for them.