Economic Downturn

The crash of last week showed the brilliant people they really weren’t so brilliant after all. After several bail outs of Greece and the collapse of the Greek welfare state, Europe woke up to the fact that Italy and Spain weren’t so far behind Greece, and unlike Greece, both of these countries are simply too big to bail out. Europe is heading for a recession and the collapse of the European welfare state continues.

The problem with Europe is that they have a central currency but no political and economic unity beyond that. The goal originally was to set perameters for each country to follow, but that has failed completely and the problem with a more political and economic union would require voters in 17 countries to say yes, and there appears to be no real demand by voters to be run by bureaucrats in Brussels. The Europeans were promised they would be taken care of from birth to death, but those promises are falling apart and Europe slowly with it.

In the United States, it is the death of Keynesian on steroids and while many on the left are decrying that Obama has failed because he was too moderate in his approach, the reality you can’t get as hard left as Obama in America and his policies represent complete failure.

Since 2008, we have seen QE1, QE2, stimulus 1 (under Bush), stimulus 2 under Obama, TARP, the government take over of GM and Chrysler, and the passage of Obamacare, and Dodd-Frank. What do we have? An economy that is slowly grinding to a halt.

The recent debt ceiling is but a down payment, but the Democrats have made it clear, there will be no further serious cuts until Election Day. What the market saw in both Europe and the United States can no longer make good on their welfare state without bankrupting the country. The Emperor has no clothes and no money, but the other reality is that the ruling class has no answers.

European Central Bank President Jean-Claude Trichet called for structural reform in a recent press conference but looked like a man totally confused and unable to grasp that his world is slowly disappearing. As for Obama, he looked over his head, trying to understand why his economic plan hasn’t worked and realized that it also won’t work in the long haul.

The downturn in stock is as much due to a lack of faith in the leadership as it is anything. There is no confidence that anyone in the ruling class understands the new world and their own role in the present economic failures.