Whatever Happened to the European Debt Crisis?
Whatever happened to the European debt crisis? Last year it was the talk of the town at Davos, Switzerland, where all the world's "greats" gather to ruminate about the state of the world. (At Davos, economics and markets take center stage, but, as you might guess, politics isn't far from the discussions that take place.)
It seems that in 2013, the Davos folks aren't that worried about Europe - "over there" as the old World War I song described Europe.* Now they're looking "over here" to the U.S. Their theses include the idea that Europe's settled down, the recession there isn't getting worse, indeed economic prospects are improving. As for the U.S., they want things to perk up here. Giving a nod to the fact that the U.S. has not been in recession, their idea has been that if things pick up here, it will spill across the ocean and get things moving in Europe - and the rest of the world - too. So the U.S., so often belittled as a kind of old toothless economic tiger, somehow has morphed back into the leader of the world's economic prospects.
Does this all make your head spin, like it does mine?
First of all, are we to believe that Europe, after being in a life and death crisis, somehow is just fine now - just like that? Based on what? Well, maybe Doug Noland's recent analysis might shed some light on this. While the Davos folks may buy into the idea that Draghi has saved their bacon, Noland splashes some cold water on that idea:
If you haven't followed the European drama over the last couple of years, Draghi, head of the European Central Bank essentially pulled a "Fed" and decided to provide whatever "liquidity" might be needed to - how else to put it? - keep kicking the can down the road. That's of course not what he said, but it is in fact what's going on.
Noland never falls for this sort of phony problem-solving. That's why I like to read his stuff.
You can find the rest of the analysis by clicking HERE.
*Being an opera fan, I was delighted to find this recording of Enrico Caruso singing George M. Cohan's "Over There." Even better, he sings verse 1 in English and verse 2 in French. Very cool.
It seems that in 2013, the Davos folks aren't that worried about Europe - "over there" as the old World War I song described Europe.* Now they're looking "over here" to the U.S. Their theses include the idea that Europe's settled down, the recession there isn't getting worse, indeed economic prospects are improving. As for the U.S., they want things to perk up here. Giving a nod to the fact that the U.S. has not been in recession, their idea has been that if things pick up here, it will spill across the ocean and get things moving in Europe - and the rest of the world - too. So the U.S., so often belittled as a kind of old toothless economic tiger, somehow has morphed back into the leader of the world's economic prospects.
Does this all make your head spin, like it does mine?
First of all, are we to believe that Europe, after being in a life and death crisis, somehow is just fine now - just like that? Based on what? Well, maybe Doug Noland's recent analysis might shed some light on this. While the Davos folks may buy into the idea that Draghi has saved their bacon, Noland splashes some cold water on that idea:
I believe the worst of the crisis is still to come, although the current respite could prove somewhat less fleeting than the others. The economic diagnosis is terrible – and 2013 could see the “core” French economy particularly susceptible. The region – certainly including its bloated banking system - will continue to battle with Trillions (and counting) of suspect financial claims/debt. The political backdrop will continue to deteriorate. Italian politics will make for good drama.Rather than buying into the idea that the worst is past, his macro credit thesis goes something like this:
- We live in a highly over-indebted world, with rapid non-productive debt growth in concert with historic economic and financial imbalances.
- The market place is confident that European officials remain determined to postpone all days of reckoning.
- Global policy makers have made a problematic situation worse.
- As many believed the worst of the mortgage crisis had passed in April 2008, due to Fed action, so to do many believe that Europe's crisis has passed because of Draghi's plan.
If you haven't followed the European drama over the last couple of years, Draghi, head of the European Central Bank essentially pulled a "Fed" and decided to provide whatever "liquidity" might be needed to - how else to put it? - keep kicking the can down the road. That's of course not what he said, but it is in fact what's going on.
Noland never falls for this sort of phony problem-solving. That's why I like to read his stuff.
You can find the rest of the analysis by clicking HERE.
*Being an opera fan, I was delighted to find this recording of Enrico Caruso singing George M. Cohan's "Over There." Even better, he sings verse 1 in English and verse 2 in French. Very cool.
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