Wednesday, April 7, 2010

2010 Recovery: Default and Bankruptcy Fears Simply Shift From Banks to Countries

The world is not exactly going through an economic recovery in 2010, but by a shift of the focus of the crisis, according to analysis published in this week's New Yorker magazine.

"Another year, another crisis". If last year we feared that large banks failed, now the fear is that whole governments will come down, says the article by James Surowiecki, in The Financial Page.

Today, Greece's debt totals U.S. $ 400 billion, a GDP of about U.S. $ U.S. $ 340 billion annually (and contracting). There are also concerns about Portugal, Ireland, Italy, Greece and Spain. The author points out that U.S. states go through similar problems.

The Wall Street Journal asked: 'Who is going to default first, Greece or California?". According to them, the U.S. states as well as Greece and other European countries, did a "trick" accounting to give the impression that they owed less. The article considers that the rich countries of Europe, especially Germany, which did not want to help Greece, are making the same mistake that occurred in the U.S. in the 1840s, after a housing bubble. At the time, eight states defaulted on their creditors because the federal government refused to bail them out.

Today, the U.S. states can count on help from Washington, which alleviates the concerns in the country, according to Surowiecki. He suggests the same medicine for the Europeans: "It seems that we learned our lessons. If Europe wants to be more than Germany and a handful of other countries, it should do the same. "

The problem is you cannot solve a debt problem with more debt.

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