While the US media obsesses on 9/11, the world economy may be about to go over a cliff.

[woo me with science]

http://online.wsj.com/article/SB10001424053111903285704576558703643732800.html?mod=googlenews_wsj

The Euro Threat to Obama
An economic shock from abroad is the last thing that the U.S. economy now needs.

By DESMOND LACHMAN

In 2008, Barack Obama was propelled into the White House largely by a financial crisis. In 2012, he might find that what goes around in politics comes around, as his bid for re-election may be thwarted by yet another financial crisis. The main difference between then and now will be that this crisis did not originate in the United States but in Europe. And it will be one over which President Obama has no control.

Judging by recent events, the euro zone's end-game may not be far off. Greece's economic and fiscal reforms appear to be seriously off track, and the debt crisis has now spread from Greece, Portugal and Ireland to Spain and Italy. These latter two countries are aptly described as being both too big to fail and too big to bail.
....
European failure...is bound to have huge ramifications for U.S. and global financial markets....If there is any doubt on this score, all one need do is consider the U.S. financial system's massive exposure to European banks. In a recent survey, Fitch Ratings Inc. found that, as of the end of July, the U.S. money-market industry still had over a trillion dollars of direct exposure to European banks—or roughly 45% of money markets' overall assets. The Bank for International Settlement reports that American banks have loan exposure to German and French banks of more than $1.2 trillion.....

This overexposure to the European banking system should be keeping Mr. Obama awake at night....

(more at link)


Hold on, folks. This could get bad very quickly.

[AngryAmish]

1. Euro must go away, and it is best if it is done quickly.

Stupid to have a currency but not a treasury.

[woo me with science]

5. And yet the solutions being proposed are in the opposite direction,

toward *more* economic integration and away from sovereign national currencies that would allow countries to print money and protect themselves from the banks.

http://money.cnn.com/2011/09/08/markets/europe_debt_crisis_/

Europe's debt crisis: 5 things you need to know
By Ben Rooney September 12, 2011: 8:05 AM ET

....
The crisis has brought to light problems that many analysts say will require a fundamental change in the way the European Union operates.

The eurozone nations have enjoyed the benefits of a shared currency and uniform monetary policy since about 1999. However, aside from certain unenforced budget targets, the group has never had a common approach to fiscal policy.
....
European leaders have said repeatedly that they will do whatever it takes to preserve the euro, arguing that greater economic integration is the key to doing so.

Last month, French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris to discuss, among other things, a proposed "golden rule" to require all euro area nations to commit to balanced budgets.

The goal, they said, is to promote greater "convergence" among the policies of the core members of the EU, such as France and Germany, with those of the more troubled nations on the union's periphery.

The leaders also discussed greater coordination on corporate tax rates and the creation of a so-called financial transaction tax.

But officials have so far stopped short of explicitly calling for a uniform fiscal authority.

Investors have been calling for the creation of a so-called Eurobond, which would be backed by all 17 euro area nations. Issuing a common form of debt would ease borrowing costs for the weaker members of the union....But it would result in higher rates for more credit-worthy nations, which are opposed to the idea.

[AngryAmish]

6. Eurobond is a sick joke to those europeans who have been honest

It is like being responsible for the bills of a lazy brother-in-law.

[Turbineguy]

2. Actually

If we give Greece a mere $11 billion guarantee, we nip the default in the bud. At least for now. And it will cost a lot less than the alternative. This is a manufactured crisis. European banks stand to make 100's of billions off a Greek default.

[treestar]

3. Weird they can't tell us this story without it being all about its

effect on Obama. Yet it says it is something Obama cannot control.

European "failure" would be rather bad for Europeans, yet that seems overlooked here.

Our "failures" could affect Europe, too.

[TwilightGardener]

4. There's some breathless glee in that reporting, in case anyone hadn't noticed.