What we are seeing today is not as bad as the worst days of the crisis, but it ins’t much consolation for investors who had gotten back in the pool on the belief that the system had been patched up reasonably well and the economy was on the mend. All the authorities did was patch up a predatory banking system with duct tape and bailing wire and hoped enough cheerleading would restore confidence. And after the banks got their bailout money, the mood seemed to be “we spent so much on them, we don’t have anything left for anyone else.” The alarming rise in government deficits, which was primarily the result of the crisis (falls in tax revenues and increases in automatic stabliizers like unemployment payments) and not discretionary spending, has led to a deadly combination of austerian policies (which is making debt to GDP ratios worse, see Ireland, Latvia, and Greece for proof), dysfunctional government responses, faltering recoveries, and deliberate shredding of social contracts. It’s like watching a house burn and then having people throw Molotov cocktails at it.
The pattern of serious financial crises is the market meltdown hits first, then the real economy plunge takes place later. Our officialdom had been patting itself on the back that “better” policy responses had stopped the sort of damage that the US suffered in the Great Depression and Japan experienced in its post bubble hangover. But the GDP revisions of last week included some stunning reductions to 2008 figures which called the comparatively cheery story we’ve been told into question. And the powers that be have refused to take the important step of writing bad debt down...
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Poster Comment:
Good news guys...
