Since October, most of the financial news has been about Europe and the potential for a global meltdown.  The credit squeeze resulting from this crisis has become painful enough to demand serious action, which in global terms means our own Federal Reserve taking the lead.  Very little has changed since this crisis began upwards of two years ago, except the brick wall is approaching rapidly.

But what about the other big economic problem, unemployment?  Very little has been written about jobs in the US since it appeared in September that something like a turnaround has occurred.  Unemployment Initial Claims were 390k-400k each week, seasonally adjusted, through October and November with little change.  That’s a net loss of 1.7M jobs per month before we add in the total creation to arrive at the total employment picture.

Continue reading →

Back in 2009, there was a lot of talk about the “moral hazard” of bailing out big financial institutions.  The concern was that, once bailed out, the banks would learn that no matter what happened the Federal Reserve and government would be there to cover all of their bad loans – and thus make more.   In short, providing insurance for default makes it more likely that it will occur.

The term is something like a pop psychology term for the system of socialized risk that defines our entire financial system.

With the benefit of hindsight we can now ask whether or not the bad loans stopped after the big bailouts of 2008.  Did large financial institutions change their behavior and start to behave?  The answer, increasingly, appears to be no, there has been no substantial change in lending behavior since the bailout.  The “moral hazard” appears to be very real – big bets on big risks have continued without much change.  And that’s not only why there is a new crisis but also why serious policy changes must take place.

Continue reading →

Europe has come to understand that what is at stake right now is not just the economies of a few member nations, but the future of European Union itself.  The cornerstone of that union is the Euro, the single currency that has made close cooperation even tighter.  But in order to save that currency, there is little that can be done short of the member nations drawing much closer together.  That, and risk killing off the Euro in order to save it.

The growing realization is that they will have to print a lot more Euros to get out of this.

Continue reading →

This morning the Euro crisis moved on from the still unresolved Greek issue to Italy. There is nothing new here except that Italian PM Silvio Berlusconi said he would resign after an austerity package was passed and move the nation ahead into new elections.  How did that happen?

This highlights the critical difference between how the US has been handling the Depression so far, which has been primarily to spend our way out, versus the European belt-tightening austerity being forced on member nations. That difference is stark, but it was not a choice – the Euro system is set up so that it cannot do anything else. It’s that inflexibility that is driving the crisis which has the world running scared.

Continue reading →