Friday Movie Night - European Crisis and the Wall of Denial

hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

Signs of Europe disaster are growing stronger by the day. What's the answer now to avoid yet another economic Armageddon? Honestly the answers are not clear or easy, even when removing special interests. While we can blame all for bailing out banks in the first place, the question is what now? With that, we went on the hunt to have someone explain the big European picture. We found these economic talks on Europe, which do help in understanding what's going on and what are the problems.

The first is a lecture/talk with two Wharton School professors, their lecture title, not ours.

 

The Euro Zone of Denial Hits the Wall

 

The next video is a Yale University interview with their European political expert, Professor Cameron.

 

Eurozone debt crisis

 

Both of these lectures/interviews are recent, up to date. There is a lot of misinformation and hype out there on Europe and these seem to be fact filled. If you know of any other documentaries which enlighten the rest of the class, please share them in the comments.

The real Black Friday huh?

Meta: 

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"at a minimum, another 2008"

Excellent videos! Kudos all around!

The professors from Wharton provide a very clear picture, including differences from one country to another -- which are substantial. They agree that there's an inevitable global contraction to result from the Euro crisis, and the size of the inevitable contraction is "at a minimum, another 2008."

Considering such liquidity holes as the Fed's mysterious $88Billion (see, Saturday Reads Around the Internet, 11/26/2011) ... can there be any doubt as to a global double dip? And, as I have suggested before, "a recession here, a recession there, pretty soon it adds up to a Second Great Depression." (Whatever the technical definitions may be.)

I found very interesting Professor Cameron's remark that leaders of the core member-states are considering a two-tier or three-tier Euro zone or EU. The Wharton professors appear to agree that only the Germans believe that now is the time for their "more Europe" solution. Rather, the professors report, some kind of two-tier or three-tier solution is not only something being considered at top levels of EU policy-makers, but is actually inevitable in one form or another. (Probably the Euro zone or EU "in its current form is a jump to far.") That's because of cultural differences from north to south, plus endemic trade imbalances and failure of member-states in southern Europe to collect taxes from the rich. ("There's a social contract of some kind [in italy and Greece] that the rich don't pay taxes.")

I had not realized how large, how central and how crucial the debt problems of Italy are. The game comes down to that if Italy stabilizes economically -- and it definitely can, assuming political stabilization, say the professors -- then probably Spain will be manageable. THEN, with Italy's and Spain's bond prices stabilizing, it would be possible for Greece (at that point) to do an Argentina. The Wharton professors apparently believe (although stopping short of actually saying it) that Greece ultimately may leave the Euro zone, issue a new drachma and default, even though it seems likely that Greece will take the latest deal offered by the ECB.

(Is that contradictory, that Greece will take the deal in December, only to default eventually anyway? -- maybe not since, after all, the rules of investment in junk bonds are not the same as the rules of investment in "risk-free" bonds! Anyway, nothing is certain, and Greece's fundamentals are evaluated very differently by the two Wharton professors, who are not agreed on prospects for Greece in the event of a default.)

The problem is in the timing -- if Greece defaults in the current context (December 2012), that could easily destabilize Italy and cause the great melt-down that everyone sees as the dire risk. On the other hand, even that would not mean that the Euro is going down, because it seems unlikely that QE will or can be done by the ECB -- even it Italian bonds tank, resulting in nationalization of French banks. However, we did hear last Thursday that the ECB "is considering a dramatic extension of its longest loans to commercial banks." (See, Wall Street Journal online story by Stephen Fidler, 25 November 2011.) My presumption is that these long-term loan extensions would be mainly for French banks, allowing them to amortize their exposure at least to some of their holdings in Italian bonds.

IMO, that's what goldbugs are waxing enthusiastic about (see, Saturday Reads Around the Internet, 11/26/2011) ... namely, possibility of runs on French banks due to collapse of Italian bonds due to a default by Greece in December. That seems to be the narrative at half-time for this latest bulls vs. bears game.
 

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"What Euro crisis means for US"

"There is a lot of misinformation and hype out there on Europe." -- Robert Oak

Yeah, that's for sure. I wish I had a Euro for every media piece I've seen or heard on "what the Euro crisis means for the USA."

Generally, the idea promoted by US corporate media is that Europe's problems are due to high taxes, especially on the rich "job creators," and overextended social safety nets -- public education, medical care for all, and so forth. In other words, the fault is laid at the feet of what in Europe is called "social democracy" and in the USA is called "Communism." (Exactly how that relates to corporate media's endorsement of the People's Republic of China, which continues to be ruled by an autocratic Communist Party, is one of many political peculiarities of the USA.)

Of course, European nations are regularly involved (have been for years) in a tug-of-war between those who want to reign in the institutions of social democracy and those who seek to defend them against erosion. (The socio-political conflict during the last decade also involves immigration issues.)

Americans are not told the whole story that when a "conservative" party or coalition is successful in an election in Europe, that never means that the institutions of social democracy are going to be dismantled and often means people are rejecting further immigration. But the institutions of social democracy are generally much too successful and popular to be scrapped by popular demand!

Something that goes unnoticed in USA corporate media is that the countries with the great problems are NOT those with the most entrenched social safety nets!

Germany, for example, is heavily laden not only with high taxes on high income groups (taxes actually paid), national medical insurance, free higher education for all, amazingly liberal unemployment benefits and a very dense regulatory system ... yet the German economy is doing so much better than the US economy that the idea that we should avoid social democracy in order to avoid a financial meltdown ... is absolutely ludicrous!

The real lessons for the USA that can be drawn from the current European experience (per what the professors explain) are (1) the rich must be effectively taxed to avoid deficits, (2) social democracy can be very effective in promoting long-term growth, and, (3) economic integration across national borders is a very tricky and dangerous process which must be conducted very slowly and carefully. The opposite is what US corporate media seeks to push on us as accepted "conventional wisdom" as to what we can learn from the current European experience.

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