Buying Time.
The downturn which started with sub-prime in 2008 has been like no other recession.
The global effect of the proliferation of highly geared transactions together with a lack of the true understanding of the risks financial institutions were running led regulators and central banks to have to put in place measures that were unimaginable just a couple of years before.
What has characterised these measures above just about anything else that they are not remedies for the situation but simply methods of buying time in the hope that the individual economies will grow their way out of recession.
In the United States we have had three rounds of Quantitative Easing, getting ever larger and now virtually infinite and open ended. The economy is barely responding and the inflationary consequences are now starting to outweigh the benefits.
The dollar is being debased by the amount of money that is being pumped into circulation and while Messrs Bernanke & Geithner can say that there was little alternative, they are simply buying time.
How much time is hard to say; it’s a case of “let’s just get past the election, the fiscal cliff, the winter etc. etc.” No permanent solution is being considered other than the hope that growth will return to the economy, house prices will rise and jobs will somehow be created. This is a myth being swallowed by the American people who are now left with little choice than to go along with this economic catastrophe.
In Europe, it is difficult to know whether things are any better! We have already had bailouts of Sovereign States in Ireland, Portugal, Greece & Cyprus and now Spain looks like the next contender ready to step up to receive international aid.
These bailouts have bought time for those countries to get themselves back on track. It is happening in Ireland and to a certain extent in Portugal but, with all due respect to those two nations; they are specks on the European map. Greece is pretty much shot. There is an inability coupled with unwillingness to comply with what has been agreed. But at least they have “bought some time”!
Spain is the fourth largest economy in the Eurozone! It needs outside help to pay its debts! It has more than 25% unemployment and one in every three unemployed people in Europe is Spanish!
After Spain, could it be Italy?
The bailouts from the EU seem to be having fewer and fewer contributors all the time. It is hard to imagine those being bailed out being able to contribute to the bailouts of others!
I have asked the question “why is a Spanish bailout good for risk and the single currency?” The answer is a familiar one; “It buys them time”.
Every idea, every measure, every declaration is conceived with the same target; “Buying time”.
In the Northern states patience is running out amongst the electorates. The Dutch elected an EU friendly party recently but in Germany, Finland & Belgium, anti-bailout fever is growing. In France, the domestic economy is suffering badly and the new President is busily putting in measures to aid domestic activity. France has taken a very obvious step back from the forefront of the European economy and that is something that could easily be mirrored elsewhere.
Another way of putting it of course is rather than buying time, they are delaying the inevitable.
It looks most unlikely that Greece can survive within the single currency and should be allowed to fail.
The consequences of that are a lesser evil than the slow drawn-out suffering we are seeing now.
The question of austerity and taxation over reflation is dominated by Germany who sees the spectre of inflation and its consequences for their economy in the past.
Domestic political expediency is being put ahead of the common good of the Eurozone as a whole and tough decisions need to be taken, adopted and adhered to if the debt crisis it to be overcome.
Printing money to buy time is not the answer.