As the G20 meets in Mexico, familiar press releases promise that global heads are urging Euro leaders to “do everything in their power to solve the debt crisis”. What they mean is everything except what needs to be done: admit the debts are too large to be repaid, and write off hundreds of billions in outstanding bonds. What the leaders mean so far is that the Euro zone should do everything in their power to further enslave the working people and real economy in order to save the banks harmless from the losses that they deserve to take. Until large-scale write offs become an accepted keystone in this restructuring process there will be no way forward to a meaningful recovery.
Meanwhile Goldman Sachs is forecasting that the US Fed will announce further measures of “easing” out of their two day meeting ending tomorrow. Maybe they will. If anyone has privileged inside information on what the Fed is likely to do it would be Goldman Sachs. But I am guessing that the Fed members themselves have no idea as yet about what they should try now. With interest rates at record lows, and cash and liquidity in the banking system at unproductive record highs, the Fed and other Central bankers are likely to have little if any lasting effect on the economy from here. The next global recession has almost certainly arrived, although it will be months still before official sources and the long-always risk crowd are forced to acknowledge this. By then unemployment will be higher, deficits will be larger, debt will be even further beyond the realm of reason and capital markets are likely to have fallen considerably. Maybe then governments will be desperate enough to make banks acknowledge their losses. It will inevitably happen one of these days.