How Europe Avoided Our Mess

[marmar]

from The American Prospect:




How Europe Avoided Our Mess

The credit crisis, which is sapping America's economic strength, was the result of an almost religious belief in deregulation. It is instructive to consider the economic situation in nations that resisted deregulation.

Robert Kuttner | May 5, 2008 | web only



Last week's Federal Reserve's rate cut of a quarter point is said to be the last one for a while. The Fed is about out of tricks.

Though our central bankers have now cut short term rates from 5.25 last September to the current 2.0 percent, credit costs to long-term borrowers are higher than they were a year ago -- because lenders fear increased inflation.

Some of this is the Fed's own doing. Its cheap-money policy, necessitated by the Fed's own failure to police harmful speculative practices, has further weakened the dollar, raising prices of imported commodities.

Many credit markets are still frozen for lack of investor confidence -- something that low interest rates cannot bring back. Losses continue to mount on the balance sheets of banks that made foolish speculative investments, causing credit to contract further.

None of this had to happen. The credit crisis, which is sapping America's economic strength, was the result of an almost religious belief in deregulation whose excesses are now coming home to roost.

It is instructive to compare the American financial mess with the economic situation in nations that resisted deregulation. Old Europe tends to get a scornful press in the U.S. But Europe is not suffering a financial meltdown today -- mainly because Europeans (with the exception of Britain and Switzerland) took only a few sips of the financial Kool-Aid so heavily promoted by U.S. banks.

A few European banks did get into trouble last summer, because they had been persuaded to buy toxic sub-prime securities made in America. Germany's powerhouse Deutsche Bank continues to suffer some big losses. But the European Central Bank, in its first real test since the Euro made its public debut in 2002, has performed well and the crisis has largely passed. On our side of the ocean, the Fed keeps lurching from bailout to bailout. .......(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=how_europe_avoided_our_mess

[Divernan]

1. The EU has got its act together in many complex respects.

The quality of life of its citizens leaves the US farther and farther behind. The overwhelming majority of US citizens/voters could not pass a quiz on the US govt.'s approach to regulation/deregulation, or civics in general. And I think it's safe to say that 99% of Americans know NOTHING about the EU - its history, its institutions, its member states and the criteria for gaining membership in the EU. I took a weeklong legal seminar in Europe 2 years ago on an introductory overview of the EU - and it blew me away.

To me it is the most noble, and so far, successful experiment in governance in history.

[melody]

2. The EU has serious problems (including the same internal nonsense we have)

They are different but equally as serious.

The most successful and noble "experiment" in governance in history is relative to the person making the estimation.

What happened to the US was an economic attack from within that was designed to destroy us. When the truth emerges regarding
the entities behind it, well ...

[elocs]

4. I am willing to bet that there are a surprising number of Americans

who could not even pick out Europe on a map. That may be a bit of a stretch, but not too much. I think your average American knows the price of gas, but is clueless about most other things.

[melody]

5. Please. That's simply not true or fair

My seven year old grandson can not only pick out Europe, he can differentiate between countries.

On the other hand, I had to explain to a German friend's daughter that Mexico is part of North America.

[elocs]

6. The difference is that your 7 year old grandson cannot vote.

Plus, he is still in the learning mode.

[melody]

7. No, the difference is you're making a reactionary, knee jerk assessment based on no evidence

Hate Americans if you like, but your opinion is steeped in emotion, not logic.

[BB1]

9. Have to agree, as a european.

My ex-girlfriend couldn't point out South America (the whole damn continent) on a map. She put her finger on India. She works for an international firm...

Still, all of you know the reputation of US Americans regarding topography. Denmark is NOT the capitol of Amsterdam.

[melody]

3. Europe has equal but different problems

They have their own problems ahead.

[Miss Authoritiva]

8. Love this:

As German Chancellor Angela Merkel once twitted Britain's then Prime Minister Tony Blair, "Mr. Blair, we still make things." By contrast, the Brits and their American cousins think financial engineering is economic salvation. They don't seem to mind that if manufacturing keeps moving offshore, which is devastating for the trade balance.

Do we export anything other than movies and plastic/paper for recycling?

[yurbud]

10. ''Mr. Blair, we still make things,'' should be the title of the article--that hurts

essentially, our economy is being run like three card monte, a ponzi scheme, and a late night get rich quick infomercial, which is not sustainable.

[yurbud]

11. middle, working class, & poor need a stable economy. wealthy & speculators like cycles

so they can make money on the way up and the way down.

[struggle4progress]

12. This supposed "religious belief in deregulation" is, of course, really the corporate class's

ruthless and conscious pursuit of its own interests: privatization of profits, socialization of risk, legislation ensuring that the lower classes remain locked in debt, legislation protecting the corporate classes from lawsuits, &c&c