"The current government debt bubble is the last of all possible bubbles."


Der Spiegel's study of the global government debt crisis wins every "If You Only Read One This Year Blah Blah Blah" honor you can think of. It is something our own MSM never seems to pull off: an intelligent, comprehensive and disturbing take on the crisis in the PIIGS countries, the danger to the non-PIIGS countries, and the uncomfortable truth that in the long run, we are all PIIGS:

The financial crisis isn't over by a long shot, but has only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts which were run up rescuing banks just a year ago.

The banking crisis has turned into a crisis of entire nations, and the subprime mortgage bubble into a government debt bubble. This is why precisely the same questions are being asked today, now that entire countries are at risk of collapse, as were being asked in the fall of 2008 when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a crisis based on debt be solved with even more debt? And who will actually rescue the rescuers in the end, the ones who overreached?

The multi-author article doesn't have any easy answers, but it takes in stride many ideas that should be obvious even though they are currently treated as heretical. In response to the absurd notion that ratings agencies and "speculators" are to blame for telling the truth about the Greek bankruptcy, Spiegel brings in a Scottish hedge fund manager to point out that we should be thanking people like him for cutting short what might have been years of further debt accumulation. As expelling Greece, Spain, Portugal and maybe Ireland from the euro zone becomes a clear option in all but name, the authors quote German officials recommending just that, with one suggesting the Greeks sell off their islands to pay down debt and another thumping the tub for the EU to give Greece back "the option to devalue its own currency." And the very high probability that Greece will fail to meet the "austerity" goals its rescuers have imposed gets a full hearing:

If that happened, the rescuers themselves would be at risk. Even Germany, in international terms a country with relatively sound finances, has amassed enormous debts. If it became caught up in the maelstrom of a euro crisis, the consequences would be unforeseeable. The credit rating of Europe's strongest economy would be downgraded and Germany would have to pay higher and higher interest rates for more and more loans. Future generations would shoulder an even greater burden as a result.

But what is the alternative? Should Europe simply allow Greece to go bankrupt instead? In that case, the possible future scenario would happen right away instead.

One might argue that it is better to get things over quickly, even if that is painful, rather than prolonging the agony. But one can also hope that everything will turn out for the best in the end.

Lest this seem like gloating over the fate of the losers on Europe's margins, the article concludes by throwing the United States into its already full drunk tank. In a classic example of here's-why-they-hate-us arrogance, Treasury Secretary Tim Geithner shot off his big, fat, punchable mouth to some German finance officials recently, but in a confidential IMF report on creditworthiness, Germany has apparently outscored the United States by a wide margin:

The US budget deficit has now reached $1.6 trillion, or 10 percent of GDP. The national debt is now over $12 trillion and is forecast to expand to more than $20 trillion by the end of the decade. At that point, Americans will be paying $900 billion a year in interest alone…

Today, only four areas consume almost all government revenues: defense, social programs, health care and interest on debt. Americans must pay for everything else with new debt.

Finally, given how our own mainstream media treat negative interest rates and broken debt ceilings as just normal stuff that happens when the government is busy "rescuing" the economy, it's refreshing to see the Obama Administration's obvious pro-inflation policies described as what they are:

President Barack Obama, in particular, is likely to be very tempted to fire up the money printing presses and, by devaluing the currency, to reduce the real burden of liabilities the United States has accumulated. Because foreign investors in China and Japan hold a large share of America's debts, they would be more adversely affected by depreciation than the Americans themselves.

Despite the worrisome tone, the piece is not really apocalyptic. The prospect of Washington getting a credit downgrade, of the United States losing its "global position," or of our own government having to confront bomb-throwing public sector unions might be scary for Keynesian Klowns and National Greatness idiots. But if your concern is the well-being of actual Americans, these are consummations devoutly to be wished. I just wish our own establishment media were capable of telling the truth this consistently.

Whole article. Courtesy of Arts & Letters Daily.