2-Nov-11 WV-Euro in crisis again, as Greece melts down

[Reality Check]

Europe, so far, has rejected the United States model of the government ( in the form of the United States Federal Reservere ) just printing Trillions of new U.S. dollars out of thin air and the United States government ( in the form of the United States Federal Reserve Bank ) using Trillions of printed dollars to buy the United States' own bonds on the secondary Market.

Europe is instead attempting a muti-track approach:

1. Pretend that a democratic country can continue growing with a government debt load of between 120% and 160% of GDP.

2. Pretend that such growth can continue while the country introduces sever cuts in government spending at a time when a huge portion of the economy is government spending, and,

3. Pretend that such growth can continue while the country imposes new taxes on it's businesses and citizens to pay interest on the government debt, and,

4. Force the banks to accept a "voluntary" 50% loss on all debts they are owed by the country in debt crisis.

5. Tax countries not yet in a debt crisis to provide partial compensation to the banks and the citizens of the country in debt crisis for the losses they are suffering as a result of tracks 1 through 4.

The jury is still out on both the United States and European plans to solve their debt crisis.

[Reality Check]

There are some very good points being made here.

Declines can be gradual or sudden.

When there is a run on banks and the major banks fail that has the effect of the economy dropping off a cliff.

An example of that would be the major bank failures in Europe in the early 1930s and the final round of bank failures in the United States at the same time.

Those events led to the "World Wide Great Depression".

The results of a World War between China and it's allies and the United States and it's allies would also have sudden, unpredictable results.

Even without such events a slower decline of the west is predictable.

The United States government will either reach unsustainable government debt levels in the next few years or it will implement massive government spending cuts.

Either way a major double dip recession of long duration is the best outcome one can hope for in the United States.

Southern Europe and Ireland are already at unsustainable levels of government debt. Great Britain and France are not far behind. Government spending cutbacks, bank re-capitalization and/or limited bank failures will cause, at best, a long recession in all of Europe.

With both Europe and the United States in a major recession a world-wide major recession is unavoidable.

Sustainable government debt levels in most countries will become unsustainable during a world-wide major recession.