Thursday, September 29, 2011

How to Ruin the World

The Wiz
I remember well back in my teaching days I was leaving the parking lot of my gym when I heard a report that Alan Greenspan had just told Congress in one of his regular appearances that adjustable-rate mortgages were a good product for some consumers.

Knowing that at the time interest rates on 30-year mortgages were at historic lows, ARMs had only one way to go -- up. So, my immediate reaction was -- and it became my mantra -- that if I, a high-school teacher in Napa, knew that the idea was preposterous, surely a Fed chairman should. Guess not.

Okay. ARMs might work for some people, but for a whole lot more ARMs are a short plank over a deep ocean of hurt. But Alan Greenspan's well out of it now, and left to debate with himself where his models failed him.

So here we are in 2011 and the political leaders of the world are hellbent on AUSTERITY as the only way to solve our difficulties. UK and the Conservative-Liberal Democrats coalition went all in on austerity, and both UK institutions and its economy have been slowly crumbling ever since.

Greece had gotten into quite a bit of sovereign debt -- with banks in the eurozone and the U.S. holding the bag -- so Germany and the rest of the "good economies" of the EU demanded severe austerity or they'd pull the plug on Greece -- by which, arguably, they meant themselves.

There's a clear equation regarding using austerity to cure economic difficulties on the country scale (macroeconomics) and that is:


If a high-school teacher in Napa... Anyway, during the whole trumped up debt crisis in Congress this summer, I kept waiting for the media to say, "Wait a minute, we might choke off the recovery if we...", but no, they were busy covering the "If both sides refuse to compromise, then..." trope. Now we finally get the New York Times to agree that maybe the austerity glide path leads to the wrong Never Neverland.

Watching the markets over that last couple of months has really amounted to watching the media and the "experts" talk back and forth about how Germany needs to, Germany finally gets it, Germany is doing too little too late, Germans hate bailing out the slacker southern countries, Germany will hold its collective nose and, Germany will blah blah blah.

In the end, Germany and the ECB will have to give in and change or watch the eurozone implode, which it might now anyway because Germany did too little too late.

Oh well, at least we helped the slacker southern countries, or PIIGS as we call them, avoid moral hazard! You know, like we did with the banks...

God, I wish I knew how to quit you!

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