Monday, May 10, 2010

california and greece.

"The least substantial line of alarm is Greece as fiscal harbinger. The US might not be Greece, say pessimists, but California could be. Here is a state so strapped for cash that it recently resorted to paying its workers with IOUs rather than money. (If that is not default, it is the next best thing.) Could California do for the US what Greece is doing for the EU?

Unlikely, is the answer. California is a bigger economy: in that sense its problem is on a larger scale. But its debts and deficits are puny compared with Greece’s. Other defences and safety-valves, notably lacking in Europe, are to hand: an activist federal government, a compliant central bank, a currency that cannot conceivably split apart.

The parallel should not be dismissed altogether. A country whose government borrows beyond its capacity must eventually pay the price. Greece does teach that lesson, in case anybody had forgotten it – and in the US, some have. But the greater worry for the US at the moment is not that Europe shows where it is heading but that secondary effects from Greece and any widening emergency will squash its fledgling recovery."

http://www.ft.com/cms/s/0/bb184e6a-5b9b-11df-85a3-00144feab49a.html

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