If we carry on as we are, what is going to happen? It’s one of the simpler ‘what ifs’ we can ask. So lets. Can we get by with what we have spent and the debts we have incurred so far?
If we do nothing in Europe more than has already been done, what will happen?
Well, the ECB has been buying more and more Greek, Spanish and Portugese debt and having to buy it faster as time has gone by. Sadly it has not stopped Greek and now Spanish Banks from being either completely frozen out of the bond market or only able to get loans at prices they can’t afford. Portugal is right on the edge of the same situation. So if things merely carry on as they are, then these three nations are going to get into a worse and worse state.
As those three do so, Bulgaria, Hungary and Rumania will also drift closer to disaster. Hungary because it is broke and can’t grow out of harm’s way. Bulgaria because Greece is their banker – poor sods. And Rumania because its finances too are thin and it too has trouble getting loans. As Greece and Hungary are seen to swirl close to the invisible line over which you can’t paddle back, then Austria and Italy would suddenly become seen as being in immediate and mortal danger of insolvency. That in turn would put France and even Germany in the CDS firing line. Actually they are already. The only recourse at that point would be to close the hatches on the compartments already doomed. To do that I think both France and Germany would have to be willing to accept the loss of 3 to 4 rather massive banks. To survive that shock France particulalry would have to have a plan in which they bailed out what was left of their own banks with money they cannot therefore afford to have commmited, to bailing out other people’s banks.
Which logic means either European nations have to be willing now, pre-emptively, to bail out other people’s banks to stop the chain raction before it starts, OR they have to be ready and be already planning to close the hatches on those who they are going leave to drown.
The US wants the former option. I have argued in the post below why Europe might not be keen on that solution.
What this says to me is that if we do nothing further then we ARE headed for another massive melt down. Which means either another massive bail out is on its way OR a series of European bank and nation collapses. I think these things are moving towards us unseen like a tsunami at night
What of America, if we merely carry on as now? Well America has done very little to rectify its underlying property melt down. It is as if a reactor had gone critical but instead of taking the pain to go in and fix it, take out the fissile material, the government had merely ordered endless pouring of more and more concrete over the melting reactor. Only problem is, inside the containment walls, the chain reaction has not stopped and the pressure is building.
That pressure is coming from Commercial Real estate killing regional banks. And within the Big Banks, Option ARMs are just waiting for rates to go up before they go critical and join the melt down while HELOC’s and of Non-performing and defaulted loans which the Big Banks are stuffed full of are already crtical and out of control. Up to now the Banks and the government have simply denied they exist. However, the reaction has started and the debts are real, and nothing can make them go away. It is just the pressure of the explosions has not yet breached the containment wall. But it will.
And then all this is combined with the fact that the individual States within the US are heading for an almighty and rolling insolvency of their own, starting from the townships and community level combining and feeding into each other until the pressure erupts at State level. The US has as many bankrupt states as Europe does.
This is why Obama is angry with Europe. He is sitting on a reactor he is afraid may already be out of control. He thinks there is a chance of containment but only if Euopre does what it is told. Which so far it is not. (See the post below.)
So for America too, actions so far, have not worked and events are going to dictate and force policy in future, not the other way around.
Our choices are limited. We are not all on the same side. And we are not even all in it together in our own countries. Once this last fact takes hold in people’s minds, – prepare to be afraid.