Could it happen again? Will it spread? Today is the day to ask. So I am.
And my answer is, it could well do – with a Greek collapse or without.
Today Italy revised its GDP growth projections downward. Now there’s a shock. In January it estimated GDP growth of 1.1% in 2010 and 2% in 2011. Now its going to rise by 1% this year and 1.5% next. Small revisions you might say. But revisions are like lies. They are habit forming.
At the same time Spain found that it can still sell its debt – but only if it increased the interest it pays from 2.8% which was what it cost them in March, to 3.5% today. Now that is NOT a small revision. Also today Spain admitted that most of oits regional savings and loans institutions – the Cajas – are so badly exposed to the property crisis that the Bank of Spain has been pushing to be allowed to start using its ‘orderly bank restructuring fund’ in order to ‘restructure and merge’ failing cajas. These as a group account for about half of Spain’s financial system.
The combination of a debt crisis and the collapse of many Cajas would certainly push Spain to where Greece is now.
It must be clear by now that the “We are going to grow our way out of this crisis’ line is no longer viable except for the congenitally gullible.
The Bad News is sure coming thick and fast !
That's rather odd to you and the few others who've been collating bits of news for a while and joining up those famous dots.
In the end it comes back to that Carmen Reinhart video at the FT. This financial crisis is going to have inestimably more consequences than an old-fashioned Recession, and this one is far bigger than any before in History.
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See my comment under "So, will it happen again?"