Friday, May 14, 2010

US faces same problems as Greece, says Bank of England

The writing is on the wall. It's written in big, bright, fluorescent spray paint. If you don't take it seriously, you're going to suffer.

The Bank of England is wrong. We have one problem that Greece doesn't have: nobody will be able to bail us out.

    London Telegraph -

    Mervyn King, Governor of the Bank of England, fears that America shares many of the same fiscal problems currently haunting Europe. He also believes that European Union must become a federalised fiscal union (in other words with central power to tax and spend) if it is to survive. Just two of the nuggets from one of the most extraordinary press conferences I have been to at the Bank.
    [...]
    It isn’t often one has the opportunity to get such a blunt and straightforward insight into the thoughts of one of the world’s leading economic players. Most of this stuff usually stays behind closed doors, so it’s worth taking note of. And I suspect that while George Osborne will have been happy to hear his endorsement of the new Government’s policies, Barack Obama and the European leaders will have been far less pleased with his frank comments on their predicament.

    The transcript and video are online at the Bank’s website, but below are the extended highlights, all emphasis mine. Well worth checking out.

    America, and many other large economies including the UK, share some of the same problems as Greece with its public finances:

    Every country around the world is in a similar position, even the United States; the world’s largest economy has a very large fiscal deficit. And one of the concerns in financial markets is clearly – how will this enormous stock of public debt be reduced over the next few years? And it’s very important that governments, both here and elsewhere, get to grips with this problem, have a clear approach and a very clear and credible approach to reducing the size of those deficits over, in our case, the lifetime of this parliament, in order to convince markets that they should be willing to continue to finance the very large sums of money that will be needed to be raised from financial markets over the next few years, at reasonable interest rates.

Read all of it.