Tidbits

From the founder of Stratfor: Italy is the fourth-largest economy in Europe and the eighth-largest economy in the world, and its banking system is collapsing. And Germany is desperate. It must maintain its standard of living. It can only do that with exports and Deutsche Bank is very exposed to Italian debt. But so is the rest of Europe.

So Europe, which is barely not in a depression or recession, is really going to be crushed by Italy. So constraint theory: Italy has 17% bad debt. Take it seriously, believe it. What happens if that 17% of the loans they made are unpayable?

One of the things you have to be able to do when you forecast is believe what you see, even if it’s different from what The New York Times said. How else could it end? Will the Germans save them? Ultimately they have to. Can they? 17% of the Italian banking system is a lot of money. 

Stratfor is a risk and prediction firm, mostly in international political policy.   Friedman, a founder, talks about constraint theory, defining boundaries that cannot be crossed.  Then combinatorics begins to limit the available options for any action that suppresses  a threat, and the prediction need only deal with a few.  This constraint theory is like a major refutation of Magic Walrus assumptions.
Here he scares the Germans:

It’s going to spill over into the Netherlands, it’s going to spill over into Germany. Germany is the new pig. Germany depends on exports and its markets are drying up. When the Germans start getting 10% unemployment, 15% unemployment, which is the real variable, how are they going to handle it?

Italy spills over to everything. Italy is a huge banking system. It has been the major banking system in Eastern Europe. It’s worked with Austria’s banking system. There’s all sorts of interplays there. So it's not the PIIGS one should worry about. Germany hasn’t even begun falling yet. And when Germany falls, and it will, that’s when the panic begins to set in. 

The problem he sees is asymmetric information, the New York times in not the decision maker, and considers the world as one with a smooth range of options.    But powerful nations have severely limited choices.