The news from Euroland keeps getting grimmer…
Today, it’s Italy and Spain, but the larger issue remains: extend and pretend isn’t working on either side of the Atlantic and the day of reckoning is fast approaching.
For Euroland, the problem is straightforward: the PIIGS are going to default, the only questions are how big the haircuts will be and whether the euro currency regime survives.
For the US, bank loan losses have still not been fully marked to market, and they are substantial: several trillion dollars.
There will be at least another 5-10 years of high unemployment and deflation until and unless politicians get serious about creating jobs (vastly more stimulus is needed, on the order of $2 trillion/year for the next 3-5 years) and enforcing moral hazard (politicians cannot continue being wholly owned subsidiaries of a bankrupt Wall Street, and house prices need to fall another 20-30%).
With the Know Nothings guaranteeing another 2 years of stagnation and gridlock in Washington, it’s difficult to be anything other than pessimistic about the rest of this decade.
Gorilla says: “When we have no leaders, we’re all bottom feeders!”
