A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.
With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.
Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.
That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.
It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble.
Greece shows that the EU has fared even worse. The country's public debt is 125 percent of its GDP. It was accumulated through the same old protracted over-spending channel. The 110-billion-euro bailout package from the EU amounts to half of its GDP. But when the necessary austerity measures such as scrapping the double pay and tax increases were introduced, they triggered a national strike and millions of Greeks took to the streets in protest that resulted in three deaths.
The most corrupting result is that the happy go-lucky Greeks got what they wanted, setting a bad example for other EU member states, especially the PIIGS (Protugal, Italy, Ireland, Greece and Spain) countries.
The US cannot help many of its state governments from going bankrupt despite having central economic authorities. The EU does not even have that. So, we are likley to see many more ugly conflicts and demonstrations.
Just one trend has been stable since the financial tsunami: Western government bond yields have been rising relentlessly. Which means the government bond market is now heading toward a collapse.
Western governments cannot help it, because Western politicians want to please their voters, and the only solution left, as many pundits have said is more borrowing from Peter to pay Paul, more smoke and mirrors, and more lies. In today's globalized economy, the Chinese are therefore the designated international Peters who can always be forced to pay the Western Pauls.