Paul Krugman again sees connections between what's happening in the US and what's going on in Europe (my emphasis):
I defer to nobody in my dismay and disgust over the debt ceiling disaster. America really is a mess.I'm harping on this (as is he) because it's the same thing in both places. Personal debt is so high here that it's killing the US economy; and sovereign debt is so high in currency-bound Europe that it's killing the peripheral economies, from Greece to Italy (yes, Italy is now peripheral; that's how close to the center the trouble has reached).
But I still wonder, looking at news coverage, why our disaster is dominating the headlines to the apparent exclusion of European woes. It’s there if you look for it carefully, and especially if you’re keeping track of the market spreads, but a casual reader might not even realize that the whole eurozone thing is coming apart at the seams.
So on both shores there are huge debts (I'm not including very safe, low-interest US Treasuries). And for every unit of at-risk, burdensome debt there's a creditor — who wants to be paid back now, regardless of the price to the rest of the economic system.
US banks want every dollar of home mortgage debt to be repaid, for example, even if it hamstrings the consumer economy for the next ten years to do it, and even (or especially) if it locks in those bank-created bubble prices.
European lending banks in the EU core — Germany, France — are holders of that Greek and peripheral sovereign debt. And they too want to be paid every centime, regardless of what it does to the EU in the process.
In short, it's a rentier's rebellion, of course, or Milton Friedman metastasized. Free market pre-crash manipulation for me, government-enforced post-crash responsibility for thee.
Thus a crisis on both sides of the Atlantic — in the ironically named "advanced" economies. Krugman is right to be concerned. As I've written before, debt can be forgiven, defaulted, repaid. Forcing bank-induced bubble debt to be repaid in full (i.e., with no forgiveness or restructuring) murders the future to repay the (corruptly created) debts of the past.
Unfortunately, the creditors (the rentier banks) are in charge on both continents; I don't think we'll be out of this until they aren't.
GP
