Interesting interview with David Stockman about the many malformations brought about by decades of monetary and fiscal mismanagement. Since the crisis official intervention has been relentless and extreme. In Stockman’s view, the room for manoeuvre is narrowing rapidly.
The fundamental error throughout has been official unwillingness to allow creditors to suffer. It’s led them, and therefore us, into a terrible cul-de-sac.
It’s not exactly about numbers and leverage ratios and bailout programs and whether the GDP or the primary surplus in Greece is 4% or 2%. I think what they’ve set in motion by inappropriately bailing out the banks and creating all of this sovereign obligation is radical political upheaval and discontinuities in Europe. It’s very possible that in France, at the next election, you’re going to get the Nationalist party in power, which is anti-EU. In Spain, the Podemos party came out of nowhere and now is running like 30% in the polls, way ahead of the incumbent government party. None of this was visible back in 2010, ’11, ’12, when they were fashioning all of these mechanisms, or even when Draghi was promising he would do whatever it takes.
So we’re in a new phase of this, and that may be the political blowback of what was an unsustainable and profoundly stupid policy at the beginning. You know, it’s a warning that you have to face down the problem of massive excess debt in the world and allow some liquidation to occur, allow some losses and write downs to happen, clear the decks. Because if you don’t, you’re simply buying a little time and sowing the seeds of much greater and more unpredictable and uncontrollable reactions and blowback down the road.
That’s the real lesson in Greece.
It is, and the most recent “agreement” between Greece and the troika is unlikely to hold for long because the underlying reality won’t allow it to do so.
As to how things will play out, it’s likely to be ugly but we truly are in uncharted territory.
[E]verybody ought to be reasonably humble about their predictions and forecasts because we have never been remotely in a world characterized by the things we’ve discussed so far – 200 trillion worth of debt, nearly a 3X debt to income ratio worldwide. The creation of new debt at a rate four, or even more – four times or even more the amount of new GDP that’s being generated. Central bank financial repression at the zero bound that wasn’t even imaginable.