While the media world is focused on several vituperative ratings agencies as the harbingers of global collapse, they are still ignoring the main reasons for our turmoil, reasons that exist on both sides of the Atlantic.
In Europe, the markets reflect that the deep problem is not Greece or Portugal in particular; it is everyone. The interconnections within the banking system are just as German as Spanish, just as Finnish as Italian. Until we put a global plan on the table, where long-term refinancing and a new pan-European guarantee is designed for existing debt, it is logical that speculators (people that have money and are not afraid to loan it) will continue punishing the stock and credit markets. Today, the French banking system was a sign, and in passing so was Germany. Tomorrow there will be others. Granted we speak different languages, we are in the same ship.
The solution will be uncomfortable. It will punish the banks and reduce flexibility for political economies, but some, those who so elegantly note that Europe should own Europe's solution, suggest that we move toward fiscal union. Save some miracle, the economies will not pick up the speed we need to pay our debt, and those who have the cash to finance the excesses of certain economies will certainly have the responsibility and control.
In regard to the United States, it is curious to watch how when Uncle Sam's solvency is under question, the Americans buy more T-Bills. Are they buying dollars because they believe that the country's accounts are going to run dry? Aware that the Fed has the ability to print all money that it needs, what is worrisome is whether the Treasury will pay for it or not. Here are some things I am afraid of, things that could galvanize a recession that no economic indicator will predict: polarized political struggles during in a pre-electoral year, crusading statements, and a media regime that interferes in technical financial issues managed by public service employees. The economy is already polarized. Who will align it? A truly great politician could.
