Tuesday, September 14, 2010

More good news for people who like bad news

Desmond Lachman at AEI is predicting that "the Euro will unravel, and soon," which he notes would have disruptive effects extending well beyond Europe itself:

"From a U.S. perspective, a deepening in the eurozone sovereign-debt crisis could threaten the rather feeble U.S. economic recovery now underway. In part, it would do so by weakening the euro against the dollar and by clouding European growth, both of which would diminish U.S. export prospects. The more threatening channel through which it could impact the U.S. economy would be by increasing overall global financial-market risk aversion and by precipitating another global credit-market crunch akin to what occurred in the aftermath of the Lehman bankruptcy in September 2008. This risk is underlined by the fact that global financial institutions are now closely integrated and that U.S. banks presently have around US$1.5 trillion in loans outstanding to Europe."

I don't know Lachman personally or by reputation, but gather that he is well-regarded and a serious person, rather than being one of AEI's more politically minded resident scholars or fellows.

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