ECB Stark: 'Clear risk' of sovereign debt crisis

This isn't a new revelation. It's been said by others, but never by someone of such high profile.

There is a clear risk of a sovereign debt crisis in most advanced economies, European Central Bank Executive Board member Juergen Stark said Tuesday.
...
The crisis began as a financial crisis and evolved into an economic one, Stark observed. Now, there is a "clear risk that we will enter a third wave, a sovereign debt crisis in most advanced economies."
Though it is tempting for governments to suggest higher inflation in order to monetize debt, "calling on central banks to raise inflation rates permanently takes the focus away from the overriding problem, which is that, at present, unsustainable fiscal policies represent a threat to macroeconomic stability in nearly all advanced economies," Stark said.
"If, on top of the financial uncertainties and concerns about public debt, the general public were to lose trust in the purchasing power of money, the consequences could be grave," he warned.

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lovely, here we go

From the numbers, I'm really not surprised and thought about this immediately when they just approved the TARP blank check.

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Maybe he should limit his focus to EU

EU has significant problems particularly because its only a monetary union and nothing else.

The "unsustainable fiscal policies" he talks about relates to EU countries. In the U.S. the deficit is a result of automatic stabilizers such as unemployment kicking in and a dramatic drop in tax revenue. I would argue we need more and better government spending to address mass unemployment.

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True, but there is a common thread...

Clearly, the world cannot sustain so many debt-financed billionaires.

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I'll argue we need better spending, instead of more

I had a thought last night and had an epiphany, to understand where the tea parties are coming from, on the "stop taxing us" mantra.

Then, I thought about the billions going to no-bid Iraq contractors, the billions going to the Banksters, who continue on with their mega bonuses and now using taxpayer cheap Fed funds,stopping any reforms and especially stopping anything on derivatives..to the health care disaster, where the choices are presented to insurance company mega giveaway or nothing, and then the Stimulus itself, where we have billions going offshore, stimulating China, stimulating Germany....

They have one huge legitimate point here, our money isn't being used for the public good and national interest, more of a bargaining chip to give away to the global financial elites who lobby and have "friends of pals" with "strong connections" inside government and Congress to get it for them.

This stuff infuriates me and I'm a huge believer in mixed governments, strong social structures, New Deal programs, Keynesian economics.

But what is one going to do when spending should be relabeled corrupt giveaway, or picking the pockets of America in a large part?

The list of corruption, billions lost, ridiculous, never done contracts, U.S. taxpayer funds going offshore, propped up financial institutions pocketing billions that subtracts from the overall economic health of the nation, .....

I could fill this entire comment form with examples.

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Ok, but consider this:

We have a One trillion dollar output gap. The biggest effects of the poorly designed 2009 stimulus are fading. The current jobs bill is weak. Where is the increased output going to come from? Business investment, consumer spending, Net exports?

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right, which is why we can help

try to promote Jobs bills, policy, trade policy, financial reform and other efforts which are not only truly Stimulative, but also tight as a drum to be in the national interest and we'll get a real bang for the buck.

Personally, because I do up all of these economic indicators, it's not because I'm data crazy (although I will confess to a love of statistics), it's because I see that output gap, it's causes and we are so royally screwed here.

But just spending to spend, well, theft doesn't really increase real GDP, either does making sure China has the new emerging alternative energies manufacturing sector locked (or Germany or France for that matter)....

So, it's not just spending, it's right spending which can be stimulative....

Stimulating Halliburton is not stimulating the economy. Making sure Goldman Sachs has record profits simply by planing the spread on the Fed free loan money and U.S. treasuries isn't Stimulative.

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I have never advocated 'spending to spend'

I strongly believe that It Doesn't Have to be This Way. It truly doesn't. The only limitations to full employment are political not economics. But there is no doubt that government spending should be focused on productive outcomes which can deliver benefits now and into the future.

It is shameful that an Administration (particularly a Democratic one) is willing to say with a straight face that high unemployment will be with us for awhile.

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