What is going on in Europe is catastrophic.
If, as it looks like it’s happening, Italy follows the same path as Greece, and investors continue to ditch not only Italian bonds, but also Irish, Spanish, Portuguese, Belgian, and French bonds, the euro is very likely to disappear.
While Greece can still be taken care of, no one has pockets deep enough to rescue larger economies like Italy (in the words of Ezra Klein: “too big to fail, too big to save”). Last week, banks agreed to take losses on Greek debt. It helps, but they do not have the wherewithal for much more. The issue? As The Economist reminds us, Italy is the world’s third-largest bond market. Imagine the consequences if it were to default on its debt: we would be facing a second financial collapse of epic proportions.
Can governments handle another round of bail-outs? Probably not. At least not without getting even deeper into debt. Pundits everywhere are already calling the end of the monetary union. I have been in denial about the whole thing, but the more it goes, the harder it becomes to ignore. Until now, it’s been easy to shrug off warnings as too alarmist, but the reality is, we’re close to the brink again.
Were the worst to happen, the economy of the western world would hit bottoms it never knew it had. This concerns you, too, here in the U.S., because the next step in this scenario is contagion. Friend Saschka sent me this interactive chart, published by the NYtimes. I urge you to take a look, read, and brace yourselves.
Whatever’s ahead, it ain’t pretty.
— From SF.
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