Moneybox: Eurodoom

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Moneybox Eurodoom The terrifying new theory that the European economic crisis could devastate the U.S. By Matthew Yglesias Posted Tuesday, Nov 29, 2011, at 08:56 PM ET The severity of the ongoing economic crisis in the Eurozone is perhaps best brought home by a striking statement made Monday by conservative Polish politician Radek Sikorski. "I will probably be the first Polish foreign minister in history to say this," he said, "but here it is: I fear German power less than I am beginning to fear its inactivity." Poland is not in the Eurozone, but it's easy to see why Polish officials are panicking. Exports to the Eurozone members constitute more than 10 percent of Polish GDP, so a recession there would almost certainly spill over to Poland. Should Americans share this fear? A similar analysis for the United States suggests we have much less to worry about. Our exports to the Eurozone are closer to 1.3 percent of GDP. That's not nothing, but it's a pretty small piece of the economic pie. It suggests that the economy has less to fear from reduced exports to a careening Europe than it does from the looming expiration of the Bush income tax cuts and the Obama payroll tax cuts. But a different kind of analysis suggests that the United States could face catastrophe if the Eurozone tanks. This terrifying possibility is suggested in a Nov. 7 lecture by Princeton professor Hyun Song Shi, "Global Banking Glut and Loan Risk Premium" (PDF). The starting point for his analysis is the fact—well-known to financial practitioners, unknown to the public, and perennially rediscovered by the economics profession ... To continue reading, click here. Join the Fray: our reader discussion forum What did you think of this article? POST A MESSAGE | READ MESSAGES Also In Slate Herman Cain Dares Another Sexual Accuser To Prove Her Story. Bad Idea. Forget End-Zone Dances. We Should Care More About How Players Celebrate After Big Hits. Why Are Teacups on the Cover of Every Chick-Lit Novel These Days?	Advertisement
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