We didn’t bail out Europe. There’s no way the Fed can secretly bail out an entire group of nations.
The Europeans are having fiscal problems because of the great recession, but also because so far they want to unite partially but not completely in the same way the states are highly unified in the US. They want a common currency, a common central bank, and a coordinated economic policy, BUT they don’t want to be blend together and be completely unified and economically responsible for the other countries in the EU. Here in the US, we’re economically responsible for the other states to a large extent whether we like it or not. California has been subsidizing the other states for decades by paying much more into the treasury than it receives in federal spending. Now those roles may have to reverse and the federal government and the other states ultimately may have to guarantee California’s muni bonds to prevent the interest rates from rising up to unaffordable levels.
The Europeans don’t want to blend together and take on the problems or other countries and be economically responsible for other countries. So they have no mechanism currently to guarantee the sovereign debt of the smaller EU nations in a crisis. So sovereign bonds of Greece and Portugal are collapsing in price because there’s no EU economic authority to back them up. Ultimately the Europeans will have to decide if they want to really blend together economically and be responsible for each other, or whether they want to kick a few smaller and fiscally irresponsible countries out of their economic union.
It looks like they wanted to be an economic contender to the US and get rid of all the different currencies without thinking the EU all the way through, including how they would handle an economic crisis and plunging confidence in sovereign debt.
“Now those roles may have to reverse and the federal government and the other states ultimately may have to guarantee California’s muni bonds to prevent the interest rates from rising up to unaffordable levels.”
There is something about sentence that reminds of a couple we used to dine with occasionally. They would always say, “Let’s just split the bill tonight” upon be seated. They would then proceed to order the most expensive items on the menu, including appetizers, desserts and lavish drinks. We tired of their company rather quickly.
Unfortunately, we can’t just remove California from the USA nor should we want to do such a thing. California can solve most of the problem with budget cuts. Barack needs California in 2012, so he’ll toss some bones.
California’s default would be horrific, but that’s not the default I’m most concerned about at this time. I think the economic policies of this administration are dangerous, the final rocket shot to insolvency that has approached slowly for over 50 years.
It’s a good thing the USA is too big to fail.