Saturday, November 19, 2011

Debt Is Not An Infection

As the European debt crisis has unfolded, I've been consistently amazed at the use of the "contagion" model for the problem. We've been told by all kinds of authorities that if the Greek debt problem could be resolved, the contagion wouldn't spread to other countries, as if a loss of confidence in a sovereign's ability to repay their loans was a kind of infection, spread by visual contact. I see that Greece can't pay it's debts, so I'm going to sell my Portuguese bonds.

Does that work at your house? If you and your neighbor each owe Citibank $150,000 on your credit cards, does resolving his crisis solve yours? Heck no! You're screwed, pal. Get ready to move into a studio apartment after selling everything you own.

When the austerity wave hit France recently, that must have been the end of the contagion model. I haven't heard much of it lately. The big deal to me is not that they've ditched the thing, it's that they ever grabbed onto it in the first place. How intellectually bankrupt do you have to be to treat debt like an infection? How morally bankrupt do you have to be to do so in order to keep handing out wads of borrowed cash to public employee unions and people on the dole? Their world view is clearly wrong and yet even as it fell apart right in front of them, they came up with one more preposterous model to save it.

I wonder what their next model will be.

These are bacilli, not bonds.


Dean said...

KT, obviously no macro-economics expert, I, but could the "contagion" be a result that they are all in this together because they are all dependent on the solvency of a common currency, the Euro?

Doo Doo Econ said...

How dare you post this common sense! What if your neighbor who owed $150,000 to Visa happened to be a gay brown male?! Then his debt crisis is probably due to raceaphobia which should be eliminated in society!

K T Cat said...

A wise Latina would never have left a comment like that.