gulfnews : Bailouts will not resolve debt mess

It is increasingly becoming clear to investors that government financial engineering and stimulus packages are only putting off the inevitable, which is why stock markets remain dangerously volatile.

The debt crises in Europe and the US — which led to Standard & Poor's downgrading the credit rating of the world's largest economy — cannot be resolved by increasingly expensive sovereign bailouts. The only real answer is for the debt of those countries to be restructured in an orderly manner — with financial institutions and other creditors taking the pain associated with the irresponsible loans they made during the boom years.

While the restructuring may result in losses for some institutions, an orderly default will avoid the wholesale destabilisation of the international financial system. And, while the outcome may be further economic slowdown and even another recession in some cases — not things easily contemplated — countries are more likely than not going to emerge on the other side with cleaner and stronger financial and economic systems.

Politicians, who are too scared and irresponsible to take the necessary hard decisions, must realise that they cannot buy their way out of this economic and financial crises.

* username: rupertbu