The Other I

July 16, 2011

Need to know

Filed under: The Economy: a Neophyte's View,Worries — theotheri @ 3:55 pm

I’m afraid there is a difference between needing to know and wanting to know.  Right now the subject on the top of my Need List does not appear on my Want List.  Except that I have this ghastly feeling that it’s terribly important.

I’d like to say the issue is Rupert Murdoch and the International News Corporation.  But it’s not.  As President Clinton so famously said – “it’s the economy, stupid.”

Yes, stupid I do indeed feel.  But there are three things happening on the economic front right now that in my simple way I fear might be revving up to create the perfect economic storm.

  The first question surrounds the charade going on in the U.S. Congress about raising the debt limit.  It’s a game of chicken par excellance in which the Republican are refusing to raise the U.S. debt limit unless the Democrats agree to cut spending but not increase taxes on the rich.  If they don’t blink, the U.S. will be in technical default in less than two weeks.

I have not always understood just how valuable it is to the U.S. economy that the American dollar is the world’s reserve currency.  But living in a foreign country for 25 years has given me a lot of practical insight into just how much it contributes to our welfare.  If the U.S. defaults, even technically, I fear that a good many more people than the millions of people already suffering from the recession are going to gain the same kind of practical insight.

The second problem, which rivals a potential U.S. default in gravity, is the euro.  First it was Greece, then Ireland, then Portugal.  Now it’s Italy, the size of whose economy dwarfs Greece, Ireland, and Portugal combined, and Spain is also under severe threat.   Each of these countries has a sovereign debt which they simply cannot handle.  It is an acknowledged fact that Greece cannot and never will be able to repay the money it has borrowed.  The country is going to default.  The only question is just what name it is going to be given.

The much more critical question is whether the euro is going to survive the year.  If it doesn’t, the fall-out will be world-wide.  Obviously it will hurt all the countries in the European Union.  It will hurt the U.S. because so much trade is done with Europe.  The repercussions will be global because the European market is even bigger than the U.S. market.

And third, there is the question of the banks.  One might think after the catastrophe of 2008 that the banks would now at least be stable after the giant bail outs they received.  Unfortunately, the results of the stress test of European banks released two days ago suggest that fully 8 European banks would fail in the event of another earthquake – like the break-down of the euro, for instance – and another 16 would be in serious danger of doing so.

I understand enough to know that the world is in an extremely precarious economic position.  Could we plunge into another depression?

If we did, would our globalized world mean that the domino effects would be even worse than the 1930’s depression?

I don’t know enough to know the answers.  I’m not sure anybody knows the answer in this complex world today.

But even knowing the answer isn’t enough.

The really big question is whether we can solve the problem.

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3 Comments »

  1. Sorry I can’t help with this one! No idea.

    Like

    Comment by sanstorm — July 16, 2011 @ 7:43 pm | Reply

    • And here I was counting on enlightenment!

      Guess we’re all in this together then, no?

      Like

      Comment by Terry Sissons — July 16, 2011 @ 8:46 pm | Reply

  2. Guess so! *fingers crossed*

    Like

    Comment by sanstorm — July 16, 2011 @ 8:56 pm | Reply


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