Europe: Ticking Debt Bomb?

[Professor S]

http://money.cnn.com/2010/05/06/mark...dex.htm?hpt=T1

Stocks selloff sharply Thursday, extending the recent downturn as investors continued to worry that Europe's debt problems will slow a bigger global economic recovery.

The Dow Jones industrial average (INDU) lost as much as 997 points in volatile trading. At 2:50 p.m it was down 600 points, or 5%. The S&P 500 index (SPX) slipped 63 points, or 5.4%. The Nasdaq composite (COMP) dropped 127 points, or 5.3%.

Stocks have been sliding on and off for the last two weeks as investors mull the ramifications of the growing debt crisis in Europe. While European leaders have pledged to provide Greece with $146 billion in loans over the next three years, attempts by the nation to institute certain "austerity" measures to bring down the deficit have sparked riots and other violent outbursts.

Meanwhile, investors are concerned that the size of the bailout will make Europe less able to help Spain, Portugal and other debt-plagued nations. The so-called PIIGS also include Italy and Ireland.

Man, this is not good.

[Xantar]

OT: Should this be in the Politics Forum?

Back on topic: this is why Europe should have instituted an equivalent to the Federal Reserve banking system for the Euro. Many of the countries have central banks, but they don't have an organized system for helping each other out in the same way that the federal government over here can help out states which are in debt.

No, deficit spending is not good. But sometimes it's better than the alternative, as the Europeans are finding out.

Also, I lost $1,000 in two days off my portfolio. Stupid Italians.

[Professor S]

I thought it was more economic than political.

[Xantar]

Well then, here's an excellent article from The Economist about the financial woes of Greece (and Europe).

The graph is also very illustrative. Greece's debt is more than 100% of GDP. For comparison, public debt in the US is somewhere around 50%.

The other country with a huge debt is Italy. In fact, its public debt as a percent of GDP is even higher than Greece. I read elsewhere that Italy's debt to France alone is about 20% of France's GDP.

I say again: stupid Italians.

[Professor S]

Do you have any worries that this could lead to a systemic contraction in the world economy? My concern is that it will greatly impact the European Union, and with how all advanced economies are so interconnected we could see a double-dip recession. Am I being paranoid?

[Bond]

Originally Posted by Professor S

My concern is that it will greatly impact the European Union, and with how all advanced economies are so interconnected we could see a double-dip recession. Am I being paranoid?

Highly unlikely. To see a double-dip recession would require governments to stop propping up the bad debt. That would be far too politically unpopular to do, so I don't see that scenario playing out at all.

However, I do think we are going to see major currency inflation in the near-to-mid future, which will be a purely political and not economic move.

[Professor S]

Originally Posted by Bond

However, I do think we are going to see major currency inflation in the near-to-mid future, which will be a purely political and not economic move.

So you're saying "Invest in Gold"...

[TheSlyMoogle]

GOLD? GOLD RUSH?!

HOLY SHIT WE CAN BE 49ers NOW?! ONLY WE'LL BE LIKE 10ers?! HOLY SHIT!

I'LL START FARMING GOLD RIGHT NOW!

*Plays WoW*

[TheGame]

Originally Posted by Bond

However, I do think we are going to see major currency inflation in the near-to-mid future, which will be a purely political and not economic move.

I'm suprised the inflation hasn't started given how out of control debt is.Right now is the time to buy solid things like houses and cars, and not the best time to save.