Economist Jack Rasmus appears
regularly on the Progressive Radio News Hour. He calls Eurozone conditions
today "a bona fide crisis."
It's threefold, he says. What first affected sovereign debt became a
banking crisis. Both reflect two sides of the same coin. Regional recession
followed. All economic sectors are affected. They feed off and exacerbate
Policy measures tried so far failed. Fundamental change is key. Without
it, expect Eurozone countries to slide deeper into debt. A banking crash
will follow. Protracted recessions will affect other countries.
Britain's sinking deeper into double-dip trouble. All 27 EU countries
are affected. So are others globally. Visible slowing affects America,
China, India, Brazil, and other more vulnerable states.
Manufacturing began contracting in 2011. In 2012, it gained momentum.
Eurozone countries are the epicenter of what's spreading globally.
Crisis conditions didn't end in 2009. Stabilization was temporary. Fundamental
problems fester. They've metastasized to other countries.
To avoid debt defaults, troubled nations dug deeper holes. They borrowed
more to meet payment obligations. They restructured old debt without
fixing core problems. They imposed austerity when stimulus is needed.
They raised taxes, reduced spending, laid off public workers, cut pay
and benefits, and sold off government assets. Instead of alleviating
problems, they've grown.
Periphery economies are most troubled. Northern EU nations and banks
are lenders of last resort. Germany bears the greatest burden. At issue
is for how long.
Stronger economies loan to ensure their banks get paid and creditors
aren't harmed. Their outstanding loans are huge. Failure to service
them assures huge losses or worse.
As conditions fester and grow, lenders of last resort may become borrowers.
Who'll help them when all economies are troubled. Currently, in fact,
cumulative government debt way exceeds available resources.
If core EU countries and central banks let the ECB usurp government
lending authority, sovereign debt holders face stiff haircuts. Eventually
it's coming. Conditions are worsening, not improving.
Recession means less tax revenues. Borrowing increases to meet debt
obligations. Austerity weakens economies further. A downward cycle feeds
on itself. Other countries may end up like Greece.
Economist Costas Lapavitsas' new book discusses "Crisis in the Eurozone."
Greece is getting worse in real terms, he says. Continued cuts follow
previous ones. Its huge debt as a percent of GDP gets harder to service.
More wage, pensions, and other benefit cuts are coming. By 2014, another
150,000 civil servants will be fired. Policies this severe are absurd.
Instead of alleviating trouble, it's increasing.
Greece is in deep depression. It's the worst in its history. Its economy
declined five straight years. National income contracted 20%. Unemployment
approaches 25%. Youth unemployment is double that amount.
Leading business indicators are all bad. Meeting budget targets is suicidal.
Ordinary Greeks have been devastated. Everything keeps heading south.
On top of prior forced cuts, additional ones are mandated.
Two years ago, then Greek Finance Minister George Papaconstantinou said
Greece won't need more painful cuts. Recession will be deepest in 2010,
he claimed. Thereafter, expect gradual recovery. "I remain optimistic
and believe we will recover fast."
Instead, unemployment rose another 10%. GDP fell by the same amount.
Greece's debt burden keeps rising. Policies failed dismally. Crisis
conditions are worse than ever heading south and spreading across peripheral
and core Europe.
<blockquote>Lapavitsas calls Greece's condition "nonsense economics.
It's absurd. It's absolutely absurdů.This is the economics of the madhouse.
What is happening now is that everything is going to get even worse."</blockquote>
To service debt, Greece is being dismantled and destroyed. It's on a
collision course with reality. Major parties said they'd renegotiate
better terms. Instead they surrendered to German and French demands.
They'll have to answer to people they betrayed. They're suffering. They're
struggling to survive. Essentials they rely on are disappearing. Their
futures are grim. How long they'll take this, who knows. At some point
They better or watch conditions deteriorate not only beyond what's tolerable
but what's harsh enough to spark revolution.
Lapavitsas calls current conditions "scorched earth," "an absolute disaster,"
an economy that's "prostrate," unprecedented and getting worse. Discussions
are ongoing about how to rise from the ashes.
The moment of truth draws closer. Other troubled Eurozone economies
face their own days of reckoning. So does Germany. It's on the hook
for endless billions in euro aid.
Good money is going down a black hole. Failure to supply it means forced
public sector creditor haircuts. They're unavailable sooner or later.
Troubled Spain also keeps worsening. Revised data contracted more than
previously reported. Sovereign debt approaches unmanageable levels.
Portugal looks worse.
Five years after crisis conditions erupted, all levels of society across
most industrialized countries are worse off than earlier. Debt gets
more unmanageable. Servicing costs keep rising.
Among all OECD countries, sovereign debt exploded from 73% of GDP to
108% next year. It took the prior 15 years to go from 64 - 73%. Economists
call this fiscal insanity.
Economists Carmen Reinhart and Kenneth Rogoff say debt matters. Delaying
resolution assures tougher times. Drawing lessons from history shows
how little was learned. An 80% or higher debt-to-GDP ratio represents
a dangerous tipping point, they believe.
Failure to institute structural reforms brought Japan 23 years of stagnation.
Europe and America face similar conditions. Delaying resolution means
turning crises into disasters.
Pipers get paid. It can be now or much more later. Imagine another decade
or two of deteriorating bad news. Imagine public anger at a breaking
Imagine central bank policies becoming increasingly less effective.
They're pushing on a string more than stimulating growth. As a result,
they're relying more on verbal intervention. Promises substitute for
Bundesbank president Jens Weidmann calls ECB sovereign bond buying dangerous.
Germany shows growing unease five years into crisis conditions. Scrambling
to prevent contagion isn't working.
Repeated claims are heard about economic conditions improving. Reality
shows otherwise. Europe's crisis is far from over. A greater storm looms.
Eventual defaults look certain. So does an eventual Eurozone breakup.
From inception, it was an idea doomed to fail.
Systemic risk grows. No country is immune. Economist Jack Rasmus believes
China's heading for a hard landing. With Europe going down and America
weakening, it'll be harder.
Perhaps next year all pretense ends. Coverup may no longer work. Hard
times may be too hard to hide. Watch out.
Stephen Lendman lives in Chicago and can be reached at firstname.lastname@example.org.
His new book is titled "How Wall Street Fleeces America: Privatized
Banking, Government Collusion and Class War"
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge
discussions with distinguished guests on the Progressive Radio News
Hour on the Progressive Radio Network Thursdays at 10AM US Central time
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