Personal Finance

Europe: The Confidence Game That Could Break the Bank

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Last month, The Consumer Confidence Index published by the Conference Board dropped to 39.8 which, but for the trough of the ’08-’09 crisis, is the lowest it has been since the index was created forty-four years ago. Another index published by the Conference Board—the index of CEO confidence—also dropped and is hovering near historic lows. Translation: Everybody’s freaked out and depressed.

Confidence—or the belief that our retirement funds will be there, that we’ll always have a job, and that the world is a safe place to live in, at least economically—is the lifeblood of the American economy. Confidence among business and political leaders, here and abroad, is the lubricant of society. When confidence dries up, credit dries up, money dries up, and commerce dries up, bringing us perilously close to the arid conditions of the Great Depression. So even though the American financial system and American (used-to-be-but-no-longer-really) too-big-to-fail banks are not significantly exposed to any potential default of a European government, the failure of the European financial system would strike a very dangerous blow to the U.S. economy. And even though most Americans have perhaps only a vague notion of what’s going on in far-away southern Europe, it really should be thought of as what’s going on next door in the global economy that exists in the 21st-century.

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In other words, just imagine an episode of the Vanilla Ice Project where Ice accidentally screws up the wiring to a house (Italy), which in turn knocks out the power to the entire block (The EU), and that somehow manages to fry the entire electrical grid of a large Florida gated community (the global economy).

Note that the above scenario is rather unlikely… Ice seems to really know his stuff.

But I digress.

Consumer spending drives the United States economy and consumer confidence drives consumer spending. We all need to be able to believe in a reasonable future, one that looks reasonably like the recent past.

And so my friends, when judging what’s going on in Europe, assessing our future prospects as individuals, or America’s future prospects as a nation, it would be wise to reflect as well upon the observation of economist Stuart Chase: “For those who believe, no proof is necessary. For those who don’t believe, no proof is possible.”

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