In some respects, the global economy is in a more precarious position than it was in early 2009. Two years ago, governments around the world were still capable of unleashing trillions of dollars in fiscal stimulus. Central banks were able to slash interest rates, and in the case of the European Central Bank and Federal Reserve, force feed additional trillions of dollars of liquidity into their respective banking systems. The initial goal was to stabilize the global financial system, and subsequently engineer a self-sustaining economic recovery in each country’s economy. more »

In a letter 50 years ago to President John Kennedy, economist John Galbreath wrote, "Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable". This certainly applies to the sovereign debt problems plaguing the European Union. The fundamental problem is that Greece, Ireland, Portugal, and Spain have too much debt, and too little economic growth to service their debt loads. The European banking system could collapse if their banks were forced to acknowledge this reality. German and French banks have $541 billion of exposure to these weak countries. If the ECB allows any restructuring of Greece's debt, banks in Portugal and Spain will wobble. This event will spill over into Italy, and from there move on to Paris and Berlin. more »