We conjecture that the main contributing factor to the financial crisis was not “excess saving” but the “excess elasticity” of the international monetary and financial system: the monetary and financial regimes in place failed to restrain the build-up of unsustainable credit and asset price booms (“financial imbalances”). Credit creation, a defining feature of a monetary economy, plays a key role in this story.
I am reading the paper, but I am gathering this paper is referring to a global monetary system betting on American productivity. Geithner's Socialist Banking network requires a productive American middle class to work. It don't work because politicians abuse the system. If you have Geithners brand of Banking Socialism, politicians eventually cause large bankruptcies.
So what does this suggest for 2012? Well, most American politicians will screw up the debt issue, but Chinese and European politicians are uch worse! So we have cascading bankruptcies of the major OECD entitlement systems, starting with Greece, Ireland, Italy, then France, then the USA.
In channel theory we would ask, what is the relative frequency of bankruptcies? Europe can suffer bankruptcies in succession, one small couyntry after another. In America its is going to be larger but fewer bankruptcies.
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