Economy Enters Dangerous New Phase

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem?

A CNBC story reported, “She warned that both advanced and emerging economies faced key economic challenges, and that governments must ‘act now’ to stop further contagion. ‘Policymakers should stand ready, as needed, to take more action to support the recovery, including through unconventional measures,’ Lagarde said.” (Click here to read the complete CNBC story.) Lagarde is surely talking about revving up the global printing presses for more bailouts.

Meanwhile, the Germans are talking about letting countries like Greece go bankrupt. Another CNBC story yesterday said, “Even senior figures in Merkel’s conservative Christian Democrats (CDU) are leaving open the possibility of default. ‘The way things are looking, you can no longer rule out a possible Greek restructuring,’ CDU budget expert Norbert Barthle told Reuters, when asked about a default or euro zone exit.” (Click here for more on this CNBC story.) So which is it? Will it be bailout or default? Who knows, maybe a little of both before it is all over.

A post on Zerohedge.com Friday may give the answer. It reported, “Wondering what is next for Europe? Don’t be. With Jurgen Stark, aka the last real hawk at the ECB, gone, here comes “the printing.” SocGen’s (Societe Generale) Dylan Grice explains. From SocGen: Suppose that Italy or Spain get caught up in the whirlwind like Greece, Ireland and Portugal, as threatened to happen last month. Maybe the Italian political situation deteriorates, maybe Ireland defaults, maybe Greece will go revolutionary, or maybe an ill-advised wayward comment from an influential European politician will spook markets and send them into renewed tailspin. We don’t know which of these will happen, if any. All we know is that these are some of the many plausible triggers for a further deterioration in this fragile situation.” (Click here for the complete post from Zerohedge.com.)

That “fragile situation” would mean a panic set off by an impending debt implosion, but SocGen’s Grice says the powers will not allow it to happen. In the end, there will be a burst of money printing to stave off insolvency that has already infected many European banks.

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