Six Impossible Things

30th May '10 by John Mauldin

1 comment 2292 reads

Alice laughed. "There's no use trying," she said" One can't believe impossible things."

"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

- From Through the Looking Glass by Lewis Carroll

Economists and policy makers seem to want to believe impossible things in regards to the current debt crisis percolating throughout the world. And believing in them, they are adopting policies that will result in, well, tragedy. Today we address what passes for wisdom among the political crowd and see where we are headed, especially in Europe.

I am reminded of the great line from the movie, The Princess Bride. Vizzini is the short bad guy who is trying to get away from Westley and every thing he attempts does not work. Westley just keeps on coming. At each failed attempt, Vizzini mutters, "Inconceivable." Finally, Vizzini has just cut the rope and The Dread Pirate Roberts (Westley) is still climbing up the cliff.

Vizzini: HE DIDN'T FALL? INCONCEIVABLE.

Inigo Montoya: You keep using that word. I do not think it means what you think it means.

European leaders keep telling us that the break-up of the eurozone is inconceivable. I do not think they know what that word really means. Let's see if I can explain the problem so that even a politician can understand.

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absurdh

5th Jun '10

very interesting article - it makes very clear the importance and the pain of deficit reduction, which can be substancial. In regard to Greece, the vicious spiral it seems to me is not a forgone conclusion. And that Greece will default (or implemet 'haircuts')is not inevitable, i think for two reasons.

One, ECB has brought breathing space for EU countries - in other words they have the opportunity to reduce their deficit over a longer period of time than otherwiese, therefore, giving time for economy to adjust as a result this process will be a lot less painful than otherwise it would have been.

Two, and more importantly, I think the whole world realises that we are only half- way through the crisis, the debt has been taken off private sector and put into public and though deficit reduction now is absolutely necessary because sovereign default is simply not an option - something else is needed. And that is rebalancing of the world demand. I think G20 will be working very hard to address this very question - and whithin the EU - demand will need to be rebalced where for example Greece will begin to acquire current account surplus - of course as have been pointed out it is difficult to do without having the ability to adjust your currency - difficult but not impossible. It can be done in other ways, such as collective fiscal policy. etc.

Indeed, one of the outcomes of this crisis will not be the breakup of european union as the author seems to suggest- but the opposite!

Six Impossible Things

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John Mauldin

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