The Two Drunks Model
Carmen Reinhart and Kenneth Rogoff, in their monumental study, point out that bank crises and government debt crises often follow one another. I call this the “two drunks model” of financial crises.
Think of two friends who walk to a neighborhood bar every Saturday night. On a given Saturday, the first friend may be too drunk to walk without assistance, and he may have to lean on the second friend in order to make it home. The following Saturday, it could be the second friend who needs to be supported in order to get home. However, if both of them get too drunk and try to lean on one another to get home, they may collapse together.
This is how I picture the current situation in Europe. Many European banks are unsteady. They need government guarantees and capital injections in order to stay in business. At the same time, many European governments are heavily indebted and running large deficits. They need banks to continue to lend to them in order to fund their spending.
Troubled banks and troubled governments are leaning on one another, like two drunks. It is still uncertain whether they will make it home. Regardless, we can expect banks and governments to support one another as best they can. Banks do not want to see governments fail, and governments do not want to see banks fail.
Tag Archives: Europe - Page 2
“Antimicrobial resistance poses a catastrophic threat. If we don’t act now, any one of us could go into hospital in 20 years for minor surgery and die because of an ordinary infection that can’t be treated by antibiotics,” Davies told reporters as she published a report on infectious disease.
“And routine operations like hip replacements or organ transplants could be deadly because of the risk of infection.”
One of the best known superbugs, MRSA, is alone estimated to kill around 19,000 people every year in the United States – far more than HIV and AIDS – and a similar number in Europe.
Russian nuclear forces conducted a major exercise last month that tested the transport of both strategic and tactical nuclear weapons near Europe, according to United States officials.
The exercise raised concerns inside the Pentagon and with the U.S. European Command because it was the largest exercise of its kind in 20 years and involved heightened alert status of Russian nuclear forces.
However, a U.S. official said the exercise was a concern within the U.S. national security community because of the scale of the exercise and the number of weapons being moved. “Certainly it’s a concern when you have this kind of exercise going on,” this official said.
The official said another worry is that Russia appears to be increasing the readiness of its nuclear forces at a time when the U.S. nuclear complex is in urgent need of upgrading and the military is facing sharp automatic defense cuts that could affect U.S. nuclear forces readiness in the future.
What they have found so far has shocked even scholars steeped in the history of the Holocaust.
The researchers have cataloged some 42,500 Nazi ghettos and camps throughout Europe, spanning German-controlled areas from France to Russia and Germany itself, during Hitler’s reign of brutality from 1933 to 1945.
Mrs. Kirchner’s decision could open the gates to a major foreign policy realignment in the near future. Her populist government is moving toward the pro-Iranian positions of Venezuela’s ailing president, Hugo Chávez, and further away from those of Brazil, the United States and Europe. According to the Argentine newspaper La Nación, Argentina has started to collaborate on arms deals, including the development of missile technology, with Venezuela and indirectly with Iran.
“These cuts will be devastating to the U.S. military. We’re still living off President Reagan’s military buildup, but we’ve been engaged in war in Iraq and Afghanistan for more than 10 years,” she said. “We have to have money to replace equipment whose attrition rate is higher than expected. Sequestration pretty much assures the money for resetting that equipment is not there.”
Another potential casualty of the sequester, according to Defense Secretary Leon Panetta, could be the entire European leg of the U.S. missile shield currently protecting Europe.
“There are already delays in the program and the plan doesn’t really address the ballistic missile threat,” Bendikova said. “The threat is growing, while the U.S. homeland would not be protected until 2017. The question is whether (current defenses) will be enough as the threat from Iran and North Korea progresses and advances.”
One of the many cognitive failings of human beings is that we tend to think tomorrow will be a lot like today. As a day to day heuristic, this is actually pretty sensible; if you predict that tomorrow’s weather will likely be quite similar to today’s weather, you’ll be right most of the time. Except, of course, when you’re wrong. In the 1930s and 40s, Europe’s Jews assumed that each day would be much like the previous day, and they were right, by and large — but a whole series of days that are only marginally different from the previous day can bring you, with surprising speed, to some terrible places.
Setting cognitive errors aside, we do not, as a nation or as a species, have much basis for assuming that things will keep on getting better. For that matter, we have little basis for assuming that things that are crummy now will get fixed, or even stay only as crummy as they are now (as opposed to getting a whole lot crummier). To keep things in perspective, the cataclysm of World War II was only 70 years ago. World War I was only a century ago. Why would anyone imagine that such catastrophes — still alive in the memories of older Americans — can’t happen again? Do we really think the human species has evolved somehow in the last few decades?
One day the Europeans may find that the US is not there to deal with threats at their frontiers
In the 1970s, Mogens Glistrup, a prominent Danish politician, became famous for suggesting that his country replace its armed forces with a recorded message saying “we surrender” in Russian.
Glistrup is no longer with us but his approach to defence seems to be gaining ground. Europe’s ability to use military force is dwindling fast, and with it the power of Europeans to defend their interests around the world. It is true that there are many troops from European countries deployed in Afghanistan, and the French are in Mali. But, behind the headlines, military capacity is shrinking.
By ZBIGNIEW BRZEZINSKI
WASHINGTON — Today, many fear that the emerging American-Chinese duopoly must inevitably lead to conflict. But I do not believe that wars for global domination are a serious prospect in what is now the Post-Hegemonic Age.
Admittedly, the historical record is dismal. Since the onset of global politics 200 years ago, four long wars (including the Cold War) were fought over the domination of Europe, each of which could have resulted in global hegemony by a sole superpower.
Secret US Defense Department studies cast doubt on whether a multibillion-dollar missile defense system planned for Europe will ever be able to protect the US from Iranian missiles as intended, congressional investigators said Friday.
Military officials say they believe the problems can be overcome and are moving forward with plans. But proposed fixes could be difficult. One possibility has already been ruled out as technically unfeasible. Another, relocating missile interceptors planned for Poland and possibly Romania to ships on the North Sea, could be diplomatically explosive.