Spain Downgraded By S&P. Let's Make A Prediction - Spain Will Be The First To Leave Or Force Change In The ECB.
Now, I'm not putting odds on this statement but they are higher than anyone will give credence to. As we have discussed on several occasions, I remain very cautious as to the future of the ECB. At least in its current form. Spain's economy is already in a depression. Because of the seriousness of the pain in Spain (no pun intended) and the aggressive market-based philosophy of the Spanish economy, I expect Spain to be the first to break from the bureaucratic ECB for greater flexibility in dealing with this crisis. And, if they do, the ECB could fall like a house of cards. That is, unless they change their charter. Exactly how this would play out is unpredictable but I'm dubious that the ECB could change in short enough order as political forces would squabble amongst themselves while economies in Europe burned.
I can assure anyone reading this that the economic advisors to the leaders in Spain are painfully aware of the limitations that now exist being part of the European Central Banking apparatus. Spanish leaders must do something to relieve the credit crisis literally destroying its economy or risk a possible economic collapse.
This is really quite simple. The ECB at this moment in time has many parallels to the gold standard leading into the Great Depression. It is a monetary system that shackles government's ability to deal with a sustained credit crisis. Something the U.S. is currently not constrained by. Whether one considers this good or bad, it is a fact. If managed properly, I consider it a large net plus. The big question is "if". So far I'd give the U.S. a C- but they show signs of improving grades.
Heading into the 1930s, the gold standard fell like a house of cards and so too could the ECB for the exact same reasons - governments wanted the financial flexibility to deal with crises. Of course, many would call this currency devaluation. And, I guess it is if the phenomenon is long term. But at this point there aren't a lot of other options for past sins. Welcome to the race to the bottom of the barrel we have so appropriately remarked would happen.
Oh, one more thing. Anyone still want to be long the Euro?
I can assure anyone reading this that the economic advisors to the leaders in Spain are painfully aware of the limitations that now exist being part of the European Central Banking apparatus. Spanish leaders must do something to relieve the credit crisis literally destroying its economy or risk a possible economic collapse.
This is really quite simple. The ECB at this moment in time has many parallels to the gold standard leading into the Great Depression. It is a monetary system that shackles government's ability to deal with a sustained credit crisis. Something the U.S. is currently not constrained by. Whether one considers this good or bad, it is a fact. If managed properly, I consider it a large net plus. The big question is "if". So far I'd give the U.S. a C- but they show signs of improving grades.
Heading into the 1930s, the gold standard fell like a house of cards and so too could the ECB for the exact same reasons - governments wanted the financial flexibility to deal with crises. Of course, many would call this currency devaluation. And, I guess it is if the phenomenon is long term. But at this point there aren't a lot of other options for past sins. Welcome to the race to the bottom of the barrel we have so appropriately remarked would happen.
Oh, one more thing. Anyone still want to be long the Euro?
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