The Global Economy as Slow Motion Train Wreck

| Tue May 24, 2011 10:13 AM EDT

The Wall Street Journal reports that investors have turned distinctly bearish on the global economy:

The negative news began late Friday, after the outlook on Italy's $1.9 trillion of government debt was lowered to negative by credit-ratings firm Standard & Poor's, which cited weak growth prospects and a slipping economic reform agenda. Then on Sunday, Spain's ruling party suffered a crushing defeat in weekend elections. The heavier-than-expected losses for the Socialist Party of Spanish Prime Minister José Luis Rodríguez Zapatero raise questions about his government's ability to pursue plans to overhaul the euro zone's fourth-largest economy and thereby ward off an international bailout.

This follows a growing political backlash elsewhere in Europe over the bailouts of Greece, Ireland and Portugal that is seen as making any additional support for those countries even harder to galvanize than in the past.

....By late Sunday in New York, the focus had shifted to the other side of the globe as fresh economic data raised concerns about the pace of economic growth in China, with whom the fortunes of other Asian economies are closely linked.

Once the housing bubble collapsed, a recession was inevitable. But the severity and length of the ensuing slump wasn't inevitable, and a second slump certainly isn't either. And yet, either a second recession or its near equivalent now seems more likely than not thanks to our increasingly 18th century approach to economic management over the past year. It's as if we've deliberately gone back to leeches and bleeding as cures for what ails us, and now we're surprised that the patient is getting worse instead of better.

This didn't have to happen. It still doesn't have to happen. It's a manmade catastrophe born of reactionary stupidity and political cowardice. We might still get out of this with our skins barely intact, but if we do it will be thanks only to dumb luck. Buckle up.

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