Thursday, August 2, 2012

Waiting on the ECB

Markets are focusing on the ECB this morning, wondering if Draghi really has some plan to resolve the European insolvency crisis.  One thing for certain: whatever plan Draghi can produce will not involve any government expenditure reductions or government revenue increases anywhere in the Eurozone.  Absent either of these two measures, sovereign debt in Europe will only continue to move catastrophically higher.

Shifting the deck chairs on the Titanic is the Draghi model, one supposes.  Having the ECB buy Spanish or Italian debt may spur a one day market rally, but cannot possibly put a dent in the real crisis.  In fact, it only makes matters worse by encouraging the political forces in Spain and Italy to continue to avoid real reform in the vain hope that somehow, somewhere things will improve.  They won't.

The solution to the problems in Europe is obvious:  reform.  But, reform is not on the table -- never has been.  The left is so addicted to entitlement and bureaucracy, both in Europe and in the US, that they refuse to see where this is all headed.  Keep an eye on Illinois and California.  This disaster is headed our way for pretty much the same reasons.

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