Monday, August 8, 2011
The ECB started buying Italian and Spanish debt in size today, and yields have plunged. This chart of 2-yr yields compares Italy (orange line) to Spain (white line). This is marginally good news, since it has sharply lowered their default risk, but of course it does nothing to fix the underlying problem, which is that both countries (like ours) suffer from an excess of government spending. Big government consumes a big amount of an economy's resources in an inefficient manner, thus reducing an economy's ability to grow. The damage has been done, and it can only be reversed if government spending is reduced. The only good side to this global crisis of big government is that it has drawn the attention of electorates all over the world who will now be challenged to put things right.
Posted by Scott Grannis at 7:38 AM