Comparing the Europe and US debt crises
The Economist has an insightful commentary on both debt crises. Excerpt below.
Both the US and the European Union have public finances that are out of control and political systems that are too dysfunctional to fix the problem,” Mr Rachman writes. I have some quibbles about the way he frames the economic issues as a generalised problem of “an unsustainable and dangerous boom in credit”, viz homeowner credit in America and the overdrawn borrowing of Greece and Italy in Europe. This seems to smooth over a lot of differences a bit too easily; the American housing bubble was fueled by CDOs, but the economic problems in Europe aren’t about an asset bubble caused by Greek or Italian government borrowing, and to the extent that the problems are due not to asset bubbles but to financial interconnectedness, the interconnectedness caused by private-sector issuance of CDOs and CDSs isn’t really the same as the interconnectedness caused by the adoption of the euro across 17 countries.