re: "The party's over"

Aaron at Eternity Road didn't exactly cheer me up.

Not that cheering me up is in his job description.

Money quote(s):

"Part of my message is driven by fear, for I know it is the young men my age that pay when the world begins to unravel. My voluntary attempt at military service a couple of years ago ended before it really took off, but I may be getting another crack at it, this time by draft, in a few short years. I don’t mean to scaremonger, but the nice, globalized world of the late 20th century will be giving way to something else entirely in the 21st.

America, protected by two oceans, always has the benefit of being able to choose its wars. The rest of the world is not so lucky."

"This time it will emanate from Europe, although it will also involve our financial system in a secondary role. The massive doses of fiscal stimulus applied to economies the world over managed to delay the inevitable by a year or two and even produced a nice little ramp job in the stock market, but the hour of reckoning is upon us."

"Even if the Eurozone manages to come to a consensus on the Greek bailout (still not a certain deal), I would set the odds at even that the Greek government will fall regardless and the new masters will repudiate Greece’s debt anyway."

"The EU bailout is also predicated on forcing non-Euro EU members like Great Britain and Sweden to pony up. Do you think they’re salivating at the possibility of shoveling money into the Greek tar pit to save a currency they don’t use?"

It's also predicated on the International Monetary Fund (IMF) loaning an unspeakable amount of money to the EU, at least a quarter of that money from the U.S. This is known in economic circles as "throwing good money after bad." We learned about this in my accounting classes, the term was "sunken costs."

The unspoken side of that is the calculus of how exactly you can put a price tag on measures to avert, or even delay, this sort of catastrophe. I'm sure some bright post-grad students (assuming either catastrophe is averted or that graduate schools survive it) will be able to attach dollar figures to just that, in the far by and by. But that means the time being bought has to be used for preparations to make national survival more likely should the coming disaster not be avoided.

"All of this means war in Europe, and soon. Maybe it will be contained to civil unrest/war within the worst-off countries like Portugal and Italy. Maybe it will be bigger than that. It is hard to say, but the crack up of the EU won’t be pretty."

&

"The truth is that our economic policy since the crash has been to cover up, lie about, and fraudulently trade based on worthless assets like underwater mortgages, just as we did during the housing bubble. Rather than break up the large banks, reinstate Glass-Steagall, and re-balance the economy by letting those who made bad bets fail, we have been playing make believe on everything from stock prices to consumer spending (read: handouts).

Europe’s troubles may let us get away with it awhile longer, or it may force recognition of enough bad assets on the nation’s collective balance sheet that we will get to replay 2008."

This is another reason to help the EU out of its present difficulties, if we can. After all, the house of cards falling over will be our own as well.

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