Critically Incomplete Crisis Response

From Reuters:
The IMF's stark tone on the euro area debt crisis in its semi-annual checkup of the world's financial health was in marked contrast to the mood in Europe, where a European Central Bank decision to buy bonds of countries that accept an assistance program has removed immediate concerns about the survival of the euro.

"Despite many important steps already taken by policymakers, this agenda remains critically incomplete, exposing the euro area to a downward spiral of capital flight, breakup fears and economic decline," the IMF said in its Global Financial Stability Report (GFSR) released on Wednesday.

It said the euro area's debt crisis was the main threat to global financial stability, which had weakened in the last six months to leave confidence "very fragile".

The euro area's plodding progress means European banks are likely to offload $2.8 trillion in assets over two years to cut their risk exposure, an increase of $200 billion from a prediction six months ago, the IMF estimated. That could shrink credit supply in the periphery by 9 percent by the end of 2013, crimping economic growth.

The report adds to a gloomy backdrop ahead of the IMF's semi-annual meeting to be held in Tokyo later this week, which will gather the world's financial leaders.

On Tuesday, the Fund said the global economic slowdown was worsening as it cut its growth forecasts for the second time since April and warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump.

My view:

Eurozone is still managing to hold itself together, mostly by bailouts, glue and band aids.   

Certainly, this analyst has been surprised that Greece is still in the Euro, and that the trouble in Spain has not yet inflicted the pain on the bond market that is inevitably overdue. 

The most interesting part of the article is not the headline or comments about confidence levels, it is the highlighted section about reduction of credit supply as banks cut risk assets (ie: junk loans) out of their balance sheets.

This is the item that governments fear the most.  A shrinking supply of credit.

Every socialist and world improver in the EU must be having night sweats by now imagining the potential for doom of their socialist utopian United States of Europe.  Perhaps this quote from Gramsci in 1915 will enlighten our readers to the ultimate agenda of such a vision.

"Socialism is precisely the religion that must overwhelm Christianity. … In the new order, Socialism will triumph by first capturing the culture via infiltration of schools, universities, churches and the media by transforming the consciousness of society."
With the parasitic host (Europe) withering from the grave illness of socialism as the parasite threatens to kill its host, Karl Marx, Fredrich Engles, and Antonio Gramsci must be rolling over in their graves.

No wonder the world improvers and central bankers hate gold!


  1. Surely PW, the solution isn't in the alternative of "free-market" neo-liberalism either, since that ideology has also imploded from its own "internal contradictions", as Marx and Engels would put it.

    Perhaps there is none...a new paradigm awaits. We living in the twilight of yesterday's communal stories are unable to see it clearly. It may be for the generation coming, or the one after that to fashion it.

  2. In my view Mercury4, the free market is the only alternative with staying power. While my idea of a free market is probably different from the neo-con/fascist model, it is also quite different from the disruptive, twisted, rule laden model that the socialist welfare states model that wishes to control every aspect of our daily lives.
    In my view, a free market with well defined, unchangeable boundaries to protect people from exploitation has the best chance of an enduring legacy.

  3. Thank you for the fine Post PW.

    Washington DC, the heart of our nation. Now 100% artificial.

  4. Yes Bill, and few Americans seem to recognize our predicament.


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