We cannot figure out how to get out of this crisis. There are no ideas left. Yesterday the stock market plunged another 5%. But why? On the one hand, Morgan Stanley said that that stagnant growth will worsen. On the other hand, new inflation metrics in the United States could force the Fed to supply another stimulus.
Further, doubts about the banking sector?s liquidity and financing have returned. One lender had asked for 500 million dollars from the European Central Bank, and that caused the Fed to investigate the European lender?s business in America because they feared a domino effect. And Merkel and Sarkozy?s idea to apply a Tobin tax is not helping anything. How do we escape this dead end street? The analysis is critical, and it has to do with a debt crisis egged on by excessive competition.
We already know that Keynesian stimulus packages have merely transferred debt to national governments. We will grow, although with our debt to pay down. Yet we need more flexibility. Some countries, such as Spain, will not have the resources to cure themselves. And there will be more taxes that will weigh down growth. At the least, some of our growth should be protected for the mid-term.
But it is also important to build systems for nations, companies and homeowners to renegotiate and reduce their debt. We should foster education and manage the world political economy such that nations will savings consume more. Or we struggle together, or we are knocked apart by the destruction of wealth that started in the stock markets and financial sector will wreak havoc on the world once again.
