The Outlook - My Concern About Europe
No matter what Europe does, not matter what Germany and France do, Europe is in for a lot of pain. Recession most assuredly and likely a severe one, if not a depression. While I think that eventually Germany allows the ECB to print, that is not a foregone conclusion.
From a European perspective, printing money is a real problem, and for some countries an economic disaster. But (selfishly) what the US and the rest of the world needs is for Europe not to let its banking system implode. A recession will hurt exports, but Europe only accounts for a little over 10% of US exports. Losing even 20% of that is a problem, but not a disaster. What is a disaster is another 2008 banking crisis.
The US, while not robust, is in Muddle Through mode. 2-3% growth is still growth. While not generating enough jobs to really make a serious dent in unemployment, the economy is not making the situation worse. But that could change. As I have written for two years, my biggest concern is a European banking crisis coming to the US and the rest of the world. And recent data suggests that the markets are beginning to share that concern.
Credit spreads are rising, as is the
cost of interbank funding (Source: John Mauldin’s, “Thoughts From the
Frontlines”).
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