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MAKE MONEY BLOG$~This article originally appeared in the Aug. 20, 2012 issue of Forbes magazine.
Big crises seem to happen during summers when the weather is particularly nice. World War I, which set off a chain of horrific events that nearly destroyed Western civilization, started during the gorgeous summer of 1914. The 1929 Wall Street crash that kicked off the Great Depression started after a balmy summer. World War II, a decade later, began in summertime. In 2001 the 9/11 attacks took place on a beautiful end-of-summer day. The cracks in our financial system that led to our current woes were first visible in August 2007. And we nearly went into cardiac arrest during the closing days of summer 2008.
It’s again summer, and two big blowups loom: Europe’s economies and Iran’s nuclear program. The public sector in Europe continues to get bigger, while the private sector is being hammered. Today levies are going up almost everywhere, and no pro-growth structural changes, such as loosening labor laws, are being pursued. Italy, Greece and Spain won’t move beyond token steps. France, now led by a socialist whose ideology our President loves, is heading off the proverbial cliff. Germany wants more regulatory powers for the EU, along with new bureaucracies, both growth killers. Printing more money won’t help here. Such perverse policies haven’t been pursued since the early 1930s, when governments thought that raising taxes and devaluing their currencies was the way to combat the worsening slump.
Europe’s financial system is in a precarious position. Will it be 2008 again? Banks are loaded with government junk bonds, and most EU countries’ economies are contracting, which makes servicing these debts more problematic.
Then there’s Iran. Last April the U.S. “persuaded” the Israelis not to strike Tehran’s nuclear facilities. But the Jewish state held off only because the U.S. pledged that it would back up Israel militarily if conflict came. The U.S. military’s buildup in that part of the world is growing rapidly. Israel may strike soon.
Such a crisis could be the event that brings down Europe’s rickety financial system.
The U.S. economy is in no position to counteract a European implosion. Nor are Asia’s: Japan is stagnant, as usual; China’s economy is slowing; and Singapore’s economy, the bellwether for that part of the world, declined in the second quarter.
All this puts a peculiar pressure on Mitt Romney’s nomination acceptance speech. If he gives a full-throated address, fleshing out pro-growth principles and policies, equity markets may rally in anticipation that the U.S. will once again rise, as it did in the early 1980s, thereby saving itself and the world from disaster.
Enjoy the nice weather.
source: forbes.com
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