Economic Stimulus Sovereign Debt Crisis End Game

Economics / Global Debt Crisis
Jun 14, 2010 - 08:41 AM

By: Martin_D_Weiss

Anyone not blinded by greed can plainly see the sick cycle we’re in:

First, the government helps create a great asset bubble.

Next, the government-created bubble bursts under a dark cloud of hardship for millions of Americans, and …

Last, the government responds by creating still ANOTHER bubble, often far more dangerous than the previous.

A rare sequence of events? Hardly.

Just in the past dozen years, we’ve already seen three — the tech bubble and wreck … the housing bubble and bust … and now the sovereign debt explosion and implosion.

So by this time, millions of investors already know the drill. What they don’t know is the answer to the biggest question of all:

What’s the End Game?

Will the world’s money printing presses inevitably run amuck, trashing any remaining value in paper currencies?

Will major governments ultimately default on their debts, destroying the global credit system?

Will our entire civilization crumble?

My answer: The threats are certainly real. But the final outcome could be very different indeed.

In fact, no matter how many tricks governments may play and no matter how wild this 21st century roller-coaster ride may get, there will also be another possible end game: Austerity.

Austerity can come in many forms: Governments may impose austerity strictly in reaction to market-driven forces … or by pro-actively taking the lead. Austerity may come with wild inflation … or without. It could trigger deep social upheaval … or merely sporadic protests.

But regardless of how austerity finally arrives, it cannot happen without across-the-board cutbacks in government payrolls, severe reductions in unemployment benefits, massive cuts in pensions, big hits to social welfare programs, and invariably, NO MORE ECONOMIC STIMULUS!

New Austerity Measures Sweep The Globe

Hard to believe? Then take a closer look at the sudden rush to austerity announced just in the past few weeks …

Greece has finally bowed to unrelenting attacks from global investors and is slashing 30 billion euros from its budget in three years.

Spain, also under massive pressure from investors, has announced spending cuts of 15 billion euros, plus a 5 percent reduction in public worker wages.

Portugal is getting ready to embark on a program to cut 2 billion euros this year alone.

Italy is slashing 25 billion euros from its budget over the next two years.

Germany, supposedly the most robust of all euro-zone countries, has no choice but to follow a similar path — cutbacks of 85 billion euros by 2014.

But this is just the beginning.

In the UK, newly elected Prime Minister David Cameron has wasted no time in confessing that Britain’s financial situation is “even worse than we thought.â€