The Euro zone’s impossible dilemma

Some economist are worried that attempts to deal with the euro zone crisis are going to force Europe into a recession.  Here’s a link to one such forecast.

It’s a valid fear but one that applies to the whole planet rather than just Europe.  The probable cause of a world-wide recession is that we are using resources at a rate which is not sustainable.

If this is true then policy makers face an impossible dilemma.

Policies which lead to recession will hurt a lot of people and especially the poor.  In this case the line between rich and poor will likely be quite high.

The conventional wisdom is that to deal with a recession governments should spend to stimulate the economy even if they have to go massively into debt.

Stimulating the economy when there is resource depletion is going to deplete resources even faster and will bring forward a major crash.

A further complication is that the Euro zone financial crisis will likely lead to a sharp reduction in the money supply.  Without money the exchange of goods and services will be curtailed.

Resource depletion combined with a loss of money supply has the potential to be disastrous.  But it should leave a few resources for the survivors.

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