A serious Eurozone crisis is imminent. It will have serious,nasty ramifications for the U.S. economy and for Obama’s bid for reelection. Incumbent presidents generally get reelected when the economy is doing well. But a weak or faltering economy is bad news for incumbents because, rightly or not, incumbents get blamed for it. The US economy now is showing a few tentative signs of recovering. But if Greece leaves the Eurozone or Spain defaults or its big banks fail then the resulting carnage will impact the United States too. Unfortunately, both could happen.
Why it was just a few weeks ago that financial talking heads were saying how Eurozone problems were transitory or could be solved simply by pumping more money into faltering banks and countries. Of course, previous bailout money didn’t help the banking system and weren’t used to make loans to spur the economy. Instead it went right to the bond and debt holders, who often made these dicey loans knowing quite well they were reckless and imprudent. Now the populace of countries are being told they must man up,accept “austerity,” and pay for sins committed by others than themselves, even if it impoverishes them and their countries for decades.