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In addition to the financial drag on the governments needed to keep their banks and their payments system functioning, they now face an indirect but more potent force:
Falling tax revenues as incomes and assets fall.
Unlike nations with fiscal authorities (most everyone- US, UK, Japan, Russia, etc.) at the federal level who can write ANY size check (in local currency) that won’t bounce, the eurozone national governments are subject to constraint by market forces much like that faced by the US states.
When the risk of growing national deficits scares away investors from buying their debt it’s ‘game over’.
The payments system gets shut down and stays shut until it’s reorganized with expanded (fiscal) powers probably for the European Parliament and the ECB.
They need to grant these institutions with the operational capability to run unlimited budget deficits the authority to guarantee bank deposits and to deficit spend in general.
For the US my remedy remains:
- The Fed needs to lend unsecured in unlimited quantities to its member banks.
- Congress needs to declare a ‘payroll tax holiday’.
Yes, it’s still that simple for America to ‘save itself and the world’.
Write your Congressman and other political leaders ASAP!