The author of this article, Simon Johnson, is a highly regarded economics professor at MIT and former chief economist of the IMF. He has long argued persuasively, at least to my thinking, that the bailout of the “to-big-fail” banks in the US (and UK) did not work to solve the toxic asset problem, but merely kicked the can down the road.
In the two essays linked below Johnson argues that the political rigidities and peculiarities of the eurozone are impeding a rational adjustment to a major part of the worldwide debt problem. This is increasing the probability of a concatenation of mutually destructive policy actions and reactions like those that precipitated the global depression in the 1930s.
Euro Falling, US Recovery Under Threat
Simon Johnson, Baseline Scenario, 7 February 2010
The euro depreciates, the dollar strengthens, and our path to recovery starts to run more uphill.
Europe Risks Another Global Depression
Simon Johnson, Baseline Scenario, 7 February 2010
The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis.
At the end of the meeting yesterday, Treasury Secretary Tim Geithner told reporters, “I just want to underscore they made it clear to us, they the European authorities, that they will manage this [the Greek debt crisis] with great care.”
But the Europeans are not being careful – and it’s not just about Greece any more. Worries about government debt and associated public sector liabilities (e.g., because banking systems are in deep trouble) have spread through the eurozone to Spain and Portugal. Ireland and Italy are next up for hostile reconsideration by the markets, and the UK may not be far behind.
