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I can’t believe that anyone tried to trot out as conventional wisdom the idea that Europe’s troubles would cause no economic turmoil in the US. We don’t export much to Europe, the story went. The financial channel is more dangerous, but US banks have insulated themselves from the problems over there.
Wrong and wrong. In fact, US companies report slowing sales in Europe, which is having a direct effect on their bottom lines. This is particularly true in the tech sector, as Europeans being driven by austerity into poverty aren’t loading up on the latest gadgets at the moment. And you cannot separate this from a genuine slowdown in emerging markets like China, India and Brazil, part of a global slowdown. But the EU as a unit is bigger than the US or China, and if they’re in recession, that has an impact on sales everywhere. That’s especially true because a crash in the euro’s exchange rate has made US products relatively more expensive. A “strong” dollar hurts our trade position.
This is true of the financial channel as well, particularly when you look at global lending statistics:
International lending by global banks in the fourth quarter last year fell by the largest amount since the collapse of Lehman Brothers in 2008, according to the Bank for International Settlements, an association of the world’s central banks [...]
“Optimism has evaporated,” said Stephen G. Cecchetti, head of the monetary and economic department at the Bank for International Settlements. “Markets have become highly volatile, and investors are having doubts about everything, about growth and the financial health of sovereigns and banks.”
As the ripple effects of the European debt crisis have been felt across the United States and emerging economies in Asia and Latin America, banks in both developed and emerging economies have been looking to pull back on credit to risky borrowers.
A lot of this is due to reductions in interbank lending, but it reduces capital across the board, and harms the ability to access credit for businesses. And while I’ve had it with banks whining about higher capital rules, coming at this time in an economic slowdown, that does constrain credit.
There are options to all of this, in fiscal and monetary policy. Unfortunately the Fed has artificially limited their own options, and the ECB is even worse. Certainly nobody on the monetary policy side is considering measures like entering the Spanish bond markets (though with Spain increasingly locked out of the markets, anything is possible, I guess).
Maybe the silver lining here is that commodity prices are naturally edging down in the midst of a global economic slowdown, so we’ll all be able to fill up our carbon-emitting vehicles for a bit longer and contribute to catastrophic climate change. Thank the Lord for small favors.
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In the current economy, all borrowers are “risky borrowers”.
Self-fulfilling prophecy.
Damn Europeans just draggin’ us down again. KInda wish they had never discovered america.
Good work as always David Dayen. Thanks.
Just carbon emitting cars? How about carbon emitting everything? What’s the carbon footprint for owning and operating a computer? On line? With server backups,wireless, hi tech parts, etc, etc, etc.
It’s those rifle-dropping cheese-eaters in France. They’ve been ruining the world for centuries.
Rifle dropping? Is that like bird droppings?
The two Brits sounded like they are brainwashed and just repeating the same old right wing nonsense. Too bad Obama/Dema and Mitt /GOP thinks the same way!
“Maybe the silver lining here is that commodity prices are naturally edging down in the midst of a global economic slowdown, so we’ll all be able to fill up our carbon-emitting vehicles for a bit longer and contribute to catastrophic climate change. Thank the Lord for small favors.”; reminds me of Mort Sahl. :->)
thanx for the video, Krug kind of nails it, glad he’s getting right to the heart of the matter, lately: ideological anti-gov wingnuts will say and do just about anything to reduce size of gov., that’s their ideology, good to see Krug addressing the whole austerity scam for what it is: an ideological play to transfer wealth out of the public sphere and into the plutocracy. These two brit plutocrats were seriously overmatched, I liked the one wingnut’s question “are you saying we’re lying” , kind of answered his own question
“I can’t believe that anyone tried to trot out as conventional wisdom the idea that Europe’s troubles would cause no economic turmoil in the US.”
It should be obvious to everyone how interconnected the global economy is now. It is amazing how fragile it seems.
Equally obvious, it seems, should be the notion that Europe is not the cause of all (or most?) of the financial corruption/problems etc. in the U.S. Although, watching the media here, that notion may not seem so obvious these days.
Indeed, it seems like that has become the conventional wisdom since the economic turmoil in the U.S. immediately after the debt ceiling hostage crisis/fiasco/sham that ended last August causing worldwide panic in the financial markets?
8/2/12 Republicans finally agreed to release the debt ceiling hostage and the President signed the bill raising the ceiling.
8/5/12 Standard and Poor downgraded U.S credit rating for the first time in history.
The following week, markets around the world (including in the U.S and Europe) had the worst crash since the 2008 crisis.
I understand there is plenty of blame to go around, I just wonder if all the finger pointing and denial isn’t part of why problems never seem to never get solved.
I remember watching the financial channels last summer and I remember how quickly, after the crash, the focus became about the problems in Greece and then Europe. The Debt ceiling hostage crisis became less and less a part of the narrative.
I heard recently that the republicans are threatening another kidnapping of our economy this summer via the debt ceiling limit.
Here we go again.
Oops, that should be 8/2/11 and 8/5/11
“Indeed, it seems like that has become the conventional wisdom since the economic turmoil in the U.S. immediately after the debt ceiling hostage crisis/fiasco/sham that ended last August causing worldwide panic in the financial markets?
8/2/11 Republicans finally agreed to release the debt ceiling hostage and the President signed the bill raising the ceiling.
8/5/11 Standard and Poor downgraded U.S credit rating for the first time in history.”
aint it a shame
Conservative policies and the move toward an economically connected Europe have created some awkward situations. The Spaniards may have gotten too much credit for their own good. We in America understand how that happens.
The U.S. could buy some Spanish debt at great interest rates and make some money for the American public, but why should we stick our necks out? We can’t even get Republican Conservatives to invest in America.
Conservatives messed up. The Left in America has pulled the car out of the ditch despite efforts by the Conservatives to push it back in. Now America is in a fragile position and not so quick to offer help. It’s a horrible situation.