Remember the problems of the PIGS in Europe? The PIGS were Portugal, Italy, Greece and Spain, the members of the European Union whose finances were so shaky that they risked potential default on their debt. The group got expanded to become the PIIGS when Ireland was added to the group. Just a year or two ago, interest rates in these countries were sky high. Greek government debt earned double digit interest rates. The debt of Spain, Italy and Portugal peaked in the area of ten percent interest rates. The whole world was concerned that we could see a major disaster if one or more of these countries went under.
Not all that much has changed for these countries since the worst days of the crisis. They still have enormous unemployment and stagnant economies. Their governments still run with major deficits. But no one seems to care any more.
As of this morning, interest rates on ten year government debt in Spain is actually lower than the comparable debt issued by the USA. And to be clear, American rates are still extremely low. The rate for the Spanish debt has plummeted even though the underlying conditions are really not that much better. The debt of all the other PIIGS has likewise recovered to very low interest rates.
Now the European Central Bank is talking about there being more stimulus for Europe through low interest rates. We have basically almost every central bank in the world pumping cash into the economy. Is that going to work? Are we going to witness a bubble that will grow and then burst with an effect so devastating that it will make the 2008 recession look like a walk in the park? This type of monetary policy has never been tried previously by such a great portion of the world's economies simultaneously. If it works, we get continuing slow, almost stagnant growth. If it fails, we get an enormous disaster. I don't like the odds.
Not all that much has changed for these countries since the worst days of the crisis. They still have enormous unemployment and stagnant economies. Their governments still run with major deficits. But no one seems to care any more.
As of this morning, interest rates on ten year government debt in Spain is actually lower than the comparable debt issued by the USA. And to be clear, American rates are still extremely low. The rate for the Spanish debt has plummeted even though the underlying conditions are really not that much better. The debt of all the other PIIGS has likewise recovered to very low interest rates.
Now the European Central Bank is talking about there being more stimulus for Europe through low interest rates. We have basically almost every central bank in the world pumping cash into the economy. Is that going to work? Are we going to witness a bubble that will grow and then burst with an effect so devastating that it will make the 2008 recession look like a walk in the park? This type of monetary policy has never been tried previously by such a great portion of the world's economies simultaneously. If it works, we get continuing slow, almost stagnant growth. If it fails, we get an enormous disaster. I don't like the odds.
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