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Problems and Solutions

October 31, 2011 – 4:55 pm

Now that we have had a weekend to understand the implications of the EU bail out effort there is skepticism that it will actually work. What surprises me is that there wasn’t more skepticism when the framework initially appeared. As they say ‘the devil is in the details’ and we had precious few details to ferret out the lord of the underworld.

Still the bailout is good in the sense it gives everyone more time to try and work through the problem not only for Greece, which seems destined to fail, but Spain and Italy which have a slim window of opportunity to get their house in order.

The same messy house that needs order is here in the U.S. We just have much more time to clean it. Watching the problem in Europe boil has given our politicians some sense of urgency. On the other hand our economy is fragile and doing anything too dramatic and too soon could burn our precious GDP growth from 2% down to zero, a cost we may not want to pay just to reduce debt.

The answer for both Europe and the U.S. is growth. With economic growth you can pay today’s debt with tomorrow’s increased earnings and for politicians that means more taxes. Also, inflation may well be a welcome savior. Of course inflation will cause its own problems but politicians love to inflate their way out of too much spending.

Good Trading
Steve Peasley

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