Paul Krugman says that America — with its lukewarm stimulus — is doing better at deleveraging than more austerity-prone nations.

That is broadly correct. Austerity post-bubble is a cure for nothing. But America is still doing very badly. In the deleveraging horse race, America is “doing better” than horses that ditched their riders into the mud.

From the Economist:

And — given that I know that the UK’s total-debt-to-GDP is more like 1000% — these figures might understate the problem.

Of course, progress in deleveraging is a slow process, as the example of the British Empire teaches.

But I fear that every single case presented is probably closer to Japan in the 1990s than Britain in the 1950s. Central banks and governments the world over have concentrated on sustaining broken systems and zombie banks, thereby sustaining the bubble-level prices, a process that Nassim Taleb described in the Bed of Procrustes as “amputating limbs to fit clothes”.

And there is growing evidence that a bigger bubble — sovereign debt — is yet to burst.

Most worryingly, with big-spending hawks like Newt Gingrich and Mitt Romney rising in the polls — and hungry for new wars, and bigger global military commitments — one particular sovereign debt bubble (and its corollary, the Pax Americana) looks ever more fragile.

Yet another Eurasian power just ditched the dollar.

From Zero Hedge:

Today we add the latest country to join the Asian dollar exclusion zone: “India and Iran have agreed to settle some of their $12 billion annual oil trade in rupees, a government source said on Friday, resorting to the restricted currency after more than a year of payment problems in the face of fresh, tougher U.S. sanctions.” To summarize: Japan, China, Russia, India and Iran: the countries which together account for the bulk of the world’s productivity and combined are among the biggest explorers and producers of energy. And now they all have partial bilateral arrangements, and all of which will very likely expand their bilateral arrangements to multilateral, courtesy of Obama’s foreign relations stance which by pushing the countries into a corner has forced them to find alternative, USD-exclusive, arrangements.

The end will come with a whimper, not a bang. And the measly “deleveraging” conducted thus far will make not a shade of difference.

Advertisement