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America: "The Smart Kids in the Stupid Class"

Posted May 19, 2010 05:14pm EDT by Peter Gorenstein in Investing, Newsmakers
Related: ^DJI, ^GSPC, FXI, PGJ, EEM, FXE, TLT

European stocks and the euro fell again on Wednesday, dragging the Dow down once more.

“The markets are now looking at the Eurozone saying 'my god we’re going to see sovereign defaults,'” says Ian Bremmer, president of the political consulting firm, Eurasia Group. "And it’s possible, thinkable, we might not have a Eurozone – the most successful experiment ever of the free market system.”

Many blame the most recent fall on Germany’s temporary ban on naked short selling and naked credit-default swaps of euro-area government bonds. Meanwhile, the U.S. Senate continues to iron out the final details on financial regulation reform.

Be it well intentioned or populist pandering, the government intervention exemplifies a broader global trend, says Bremmer author of The End of the Free Market.

Given the economic crash in many developed nations “it’s politically indefensible” to defend free market principles in the West, he says.  On the other hand, state-dominated economies like China, “are doing best” and pointing to their model as the reason for their success.

Although the dollar and Treasuries have risen in value because of this European crisis, Bremmer recognizes the fiscal difficulties that lie ahead. “We may be doing comparatively well to the Europeans and the Japanese but we are the smart kids in the stupid class.” 

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