I hate the silly term double-dip recession. It makes it sound like there is some sort of mathematical explanation for this graph, a predictability about it. What we have is false recovery, the kind that only happens because markets work on the assumption that recessions will come to an end out of some sort of natural pattern. Would-be investors wait for the whole boom-bust cycle to start all over again so they can get in at the bottom. The brief spurts of growth we see are like sprinters waiting too long for a race to start. They dash off alone, only slowing to a halt when they realise no one’s joining in.
We are not recovering yet because, simplistically put, we have not yet reached the bottom. More accurately though, we can’t rebuild an economy when there is so much non-existent money in the way.
We need to face up to the fact that the western economy is still stuffed to the ears with bad debt. We are treating bad investments that will never yield a damn thing as real money that somehow must be paid back to the investor – even if the taxpayer has to be made to do it. But it’s not real money. These are failed investments. The money has been lost. It no longer exists.
This blog post is highly speculative, but it argues that the sudden willingness of European banks to take a loss on Greece is because they foresee things getting much worse, soon. One of Italy’s largest banks is stuffed with bad debt, and it seems more than likely that if it goes, the Italian economy will go with it. The Eurozone cannot afford to bail out a country that large.
But this is actually a good thing. We will finally have to stop pretending this can be fixed with bandages, and do the major surgery necessary. It will hurt, but not as much as treating innocent taxpayers like reckless debtors hurts.
- Italy Crisis, Ireland Downgrade Intensify Euro Nightmare (huffingtonpost.com)
- Ireland’s Rating Cut to Junk as EU Seeks to Contain Debt Crisis (businessweek.com)