Paul Krugman Calls it Europe’s Great Illusion: Are Inflation and Monetary Devaluation via Increased Spending the Only Real Solutions?

Paul Krugman's most recent piece at the New York Times is Europe’s Great Illusion, writing inter alia in the aftermath of the recent -- in our eyes "relatively successful" -- Eurozone summit meeting:

"Over the past few months I’ve read a number of optimistic assessments of the prospects for Europe. Oddly, however, none of these assessments argue that Europe’s German-dictated formula of redemption through suffering has any chance of working. Instead, the case for optimism is that failure — in particular, a breakup of the euro — would be a disaster for everyone, including the Germans, and that in the end this prospect will induce European leaders to do whatever it takes to save the situation."

We agree with Paul Krugman on much of his basic macroeconomics, but are recently somewhat more concerned about why he continues to pounce on the economy of Europe rather than on the economic situation in the United States.

We presume that the reason is because the USA and the EU are the biggest bilateral trading and investment partners in the world (with China soon overtaking) whose fortunes are inextricably entwined.

The transatlantic economy has traditionally been the world's motor, as can be seen from these figures from the European Commission, the executive body of the European Union (EU):

"Trade in goods

• EU good exports to the US in 2010: €242.1 billion
• EU goods imports from the US in 2010: €169.5 billion

Trade in services

• EU services exports to the US 2010: €125.2 billion
• EU services imports from the US in 2010: €131.0 billion

Foreign Direct Investment

• EU investment flows to the US in 2009: €79.2 billion
• US investment flows to the EU in 2009: €97.3 billion
• Investment stocks inward in 2009: €1044 billion
• Investment stocks outward in 2009: €1134 billion

More statistics on USA"

What would be useful to see from Krugman is an analysis of the people and institutions to whom the money of the debt crisis is OWED and why (or not) they should be saved from their bad investments viz. loans and why money speculators, banks looking for absurd returns from sovereign nations -- and failing, hedge funds, and their ilk, etc. should be rewarded for what is nothing other than monetary gambling. That is a far more important question than all this theoretical economic bantering.

Hat tip to CaryGEE.

EU Eurozone Bank Bailout: Understanding the Current Debt Crisis as a Financial World in Deleverage : Bill Gross, Founder and Manager of PIMCO, World's Biggest Bond Fund, Gives Us the Nuts and Bolts

William H. Gross ("Bill"), founder and manager of Pacific Investment Management Co. (PIMCO), the world's biggest bond fund, has said that Europe is in a Debt Trap, Even After the Bank Bailout.

Bill Gross is a very bright guy, be sure about that, so his opinion carries weight with this author, and it is advisable to read what he writes.

We do think that Europe is stronger than Americans can imagine and we think that the USA by contrast has serious economic, political and social problems to solve down the road, so we are not necessarily in agreement with Gross on his conclusions that America is currently a better investment than Europe. But then again, we are not managing a $250 billion fund, and Gross does.

What Gross has been writing recently at his Investment Outlook page at PIMCO is outstanding in delivering basic economic knowledge (from an investment standpoint) about a world that is "delevering".

If you really want to get a nuts and bolts view of the current world debt situation, the PIMCO writings of Bill Gross are an absolute reading must.

Below are links to some of his writings at Investment Outlook at PIMCO together with excerpts we have chosen to give an idea about the content:

The Great Escape: Delivering in a Delevering World by William H. Gross:

"[T]he Great Leveraging of the past 30 years .... was a world not of yield, but of total return, where price and yield formed the returns that exceeded the ability of global economies to consistently replicate them. Financial assets relative to real assets outperform in such a world as wealth is brought forward and stolen from future years if real growth cannot replicate historical total returns."

Wall Street Food Chain by William H. Gross:

"The whales of our current economic society swim mainly in financial market oceans. Innovators such as Jobs and Gates are as rare within the privileged 1% as giant squid are to sharks, because the 1% feed primarily off of money, not invention. They would have you believe that stocks, bonds and real estate move higher because of their wisdom, when in fact, prices float on an ocean of credit, a sea in which all fish and mammals are now increasingly at risk because of high debt and its delevering consequences. Still, as the system delevers, there are winners and losers, a Wall Street food chain in effect."

What's in A Name by William H. Gross:

"An authentic debt crisis – which the world is now experiencing – can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away."

See links to all of the articles by Gross at Investment Outlook Overview.

Crossposted at LawPundit.