While the economy may seem pretty bad. . . .

. . . it may actually be worse than you think.  This according to an analysis in the London Review of Books by John Lanchaster.  His bottom line:  the European banking sector is in much worse shape than we’ve been led to believe.

He argues that we can no longer achieve a best case scenario of a massive stimulus to revive demand, cause the economy to grow and thereby ease the pain involved in repaying debts government took on to save the financial sector.

The next scenario – the one we are on course for at the moment – is not so much the next-best as the next-least-worst. It is modelled on what happened to other parts of the world over recent decades, from Latin America to Russia to South-East Asia, as they underwent debt crises and consequent economic collapse. In all cases, the relevant economies recovered, after about a decade of hard times and widely shared economic pain. In this model, the debts are gradually paid down, the economy is slowly and miserably rebalanced, and eventually things grow back to where they were when the bubble burst. There is a general sense of baffled incomprehension in the West at the idea that this should be happening to Us, instead of to Them; it turns out that this trajectory of crisis and slow recovery is a lot more bearable when it happens to other people, ideally in far-away countries of which we know little. But that is what we look to be on course for at the moment.

Oh joy. . .

Via Kevin Drum.

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