Follow us:

Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 6, 2012 at 12:58 PM

The Humpty Dumpty syndrome

We’re told today’s stock-market rally is a result of “reassuring” comments that central banks will rescue the eurozone from collapse. Fair enough, but even if all the king’s bankers and all the king’s men (and women) from the Federal Reserve and European Central Bank attempt a rescue, it will, at best, duct-tape Humpty Dumpty together for a few more months, and at tremendous cost.

Another ECB “bazooka” and QE3 from the Fed are understandable efforts. The dominoes are tipping and the world is facing another downturn. But they won’t fix the heart of the problem: A monetary union without a political union. Or the major arteries: Exceptionally high sovereign debt that keeps resetting at higher rates; a continental banking crisis, and German intransigence.

In other words, the crisis is chiefly one of sick banks and political dysfunction. The time when the ECB could have acted robustly and somewhat effectively has passed, and this central bank really can’t act as a lender of last resort — Berlin, afraid of inflation, won’t allow it. Easing will also be canceled out by continuing austerity, which kills growth.

So, at best, some time has been bought and perhaps the eurozone has taken a step back from the abyss. But European recession is already a reality, one affecting China, India and the United States.

And Don’t Miss: The sharp drop in government spending under Obama || Talking Points Memo

Today’s Econ Haiku:

Off to the Gallos

Modesto meet Yakima

Enjoy the hanging

Comments | More in Eurozone

COMMENTS

No personal attacks or insults, no hate speech, no profanity. Please keep the conversation civil and help us moderate this thread by reporting any abuse. See our Commenting FAQ.



The opinions expressed in reader comments are those of the author only, and do not reflect the opinions of The Seattle Times.


The Seattle Times

The door is closed, but it's not locked.

Take a minute to subscribe and continue to enjoy The Seattle Times for as little as 99 cents a week.

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Subscriber login ►
The Seattle Times

To keep reading, you need a subscription upgrade.

We hope you have enjoyed your complimentary access. For unlimited seattletimes.com access, please upgrade your digital subscription.

Call customer service at 1.800.542.0820 for assistance with your upgrade or questions about your subscriber status.

The Seattle Times

To keep reading, you need a subscription.

We hope you have enjoyed your complimentary access. Subscribe now for unlimited access!

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Activate Subscriber Account ►