Greece Bailout

Markets are on a trip after yet another infusion of usd1trillion into failing European economy. The recent dependency on infusions or bailouts is a contagion in itself, which will tantamount to addiction due to induced tolerance and acute withdrawal symptoms. Such infusions of money in developed markets will prolong their agony.

In free trade environment, the one sided build up of trade deficits was an inevitable development since the developed countries were at a great disadvantage due to their high labour cost and demand size vis-a-vis their counterparts in the lesser world. Progressively, these flourishing zones turned unproductive on account of unprofitability. And it was matter of time that they ran out of gas.

Now, feeding these markets with money or diluting liquidity may help trigger the demand elasticity but in macro run the drug will not help rescue the developed economies. While pushing the demand up and diluting past debts, it can not deal with almost inelastic productivity in these areas. Their trade deficit will increase and money will flow to strengthen BRIC and other developing economies round the world. But still, it will be an Herculean task to bring the world at par without considerably chopping off the long arm of the economy, provided the big brothers are ready for the sacrifice, which may be expecting too much from the old lion, presently, on a trip.

Future is dark and horizons threatening. Do you hear the war cries (end of free trade) or another one bites the dust and free trade goes on.