.

Greece may leave the Euro or the Euro may leave the world.
Events are getting very interesting.

The editorial page begins to get it.

http://www.nytimes.com/2012/06/02/opinion/how-slow-can-the-economy-go.html?_r=1&hp

"Blocking constructive action is bad enough, but it’s not the worst of it. Recently, the House speaker, John Boehner, has ratcheted up economic uncertainty by pledging to force another showdown this year over legislation to raise the debt ceiling. A debt-ceiling debacle would come on top of the expiration at the end of 2012 of the Bush-era tax cuts and the onset of some $1 trillion in automatic spending cuts. If allowed to take effect as planned, those measures would take a huge bite out of growth, further weakening the economy.

More uncertainty means less consumer and business confidence — and less hiring.

In response to the jobs report, Mr. Romney scoffed at Mr. Obama’s campaign slogan, “forward,” saying the president was leading the nation backward. In fact, the way forward has been blocked, time and again, by Republicans pushing the same tax-cut and deregulatory policies, now espoused by Mr. Romney, that have failed in the past to spur the economy."

http://krugman.blogs.nytimes.com/2012/06/01/the-breakeven-point-wonkish-but-terrifying/

June 1, 2012, 12:41 pm

The Breakeven Point (Wonkish But Terrifying)

A number of us have been saying for some time that the euro crisis is, at its root, a balance of payments problem. During the careless years, capital flooded from the core to the periphery, leading to big trade deficits and overvalued real exchange rates; now, all that needs to be reversed. Yet “internal devaluation” via deflation in southern Europe is basically impossible; if this is going to have any chance of working, we need a real devaluation in Spain mainly via German inflation rather than Spanish deflation. 4 percent German inflation plus zero in Spain might work; 2 and minus 2 can’t.
And this in turn means that overall eurozone inflation must be sufficiently high. That’s a necessary but not sufficient condition for salvation; not sufficient because a banking crisis can still blow the thing apart, but necessary because you can’t resolve the banking crisis unless there’s some plausible path back to sustainable economies.
One indicator I like to look at is the German “breakeven” — the difference between the interest rate on ordinary German bonds and on bonds indexed to inflation (which it turns out means overall eurozone inflation). This is an implicit market forecast of the inflation rates, and I’ve been arguing for a long time that it really needs to be above 2 for there to be real hope.
So what’s happening? Oh, boy:

I’m not sure this really means that investors expect only 0.7 percent inflation over the next 5 years; it’s probably also reflecting a collapse of liquidity, which drives down prices in the relatively thin markets for index bonds (which happened after Lehman too). But that’s just another kind of disaster.
This chart shows a euro on the verge of imploding. If the ECB can’t change this perception very, very soon — and I think it really is up to them — this goose is cooked."

The link is the same chart with more little bumps from Bloomberg.

I am unsure what very, very soon means. I suspect it is the next few days.

http://ftalphaville.ft.com/blog/

Just in case you aren’t bored of negative yield stories yet…

Posted by David Keohane on Jun 01 09:58. 2 comments | Share "German 2 year bond yields went negative on Friday:

That’s Schatz at -0.002. What fun.

It’s a nice yield curve if you can get it…"

http://krugman.blogs.nytimes.com/2012/06/01/poor-mouthing-britain/

"June 1, 2012, 12:55 pm

Poor-Mouthing Britain

I wrote a few days ago about the widespread belief here in the UK that there has somehow been a dramatic collapse in the economy’s potential. Martin Wolf has much more, plus a link to a very important paper by Martin and Rowthorn (pdf) that, as I read it (and Wolf too) very effectively debunks that belief.
There’s a lot of technical detail, but as I see it the main point is that we see a sharp drop in measured British productivity that could be the result either of some mysterious structural shift or the much more ordinary notion that many firms have held on to “overhead” labor in the face of what they expect to be only a temporary fall in sales. And the data just don’t support any of the proposed explanations of the supposed structural shift.
Specifically, the popular line here is that it’s the loss of all those high-value jobs in finance, which sounds plausible until you do the arithmetic and find that it’s way, way too small. This bears a strong family resemblance to stories about alleged structural unemployment in the US that focus on the shift out of construction; again, it sounds good until you do the numbers and find that it’s tiny.
This matters, a lot. If Britain has not experienced a mysterious productivity collapse, it is suffering much more than acknowledged from a lack of effective demand — and also has a much smaller underlying budget problem than the government claims. The British may be poor-mouthing their economy — and in so doing creating a self-fulfilling prophecy, in which excessive pessimism about potential leads to policies that in fact impoverish the nation.
Do I know for sure that this is the truth? No. But it looks more plausible than the official line. And surely policy should take into account not just the so far purely hypothetical risk of a loss of confidence by the bond market, but also the very real chance that vast amounts of potential production, not to mention the future, is being squandered through excessive pessimism."