The End of Easy Money

It's getting tougher for capital to move around the world. That's dangerous for everyone

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    In Europe, banks aren't lending across borders anymore, period. Why would a German banker want to take a bet on Spain or Italy when there is still no common way of insuring deposits or winding down too-big-to-fail banks? Europe is in danger of returning to what it was before the creation of the European Union: a collection of states, some weaker, some stronger, with varying interests but all with a slower-growth future. Greeks and Italians won't be able to get loans, but they won't have any money to buy German goods either.

    Emerging markets are likewise at risk from financial protectionism. China used the financial crisis of 2008 as a reason to put the brakes on opening up its banking system. But state-owned banks have lent out mom-and-pop depositors' money at minimal rates to overzealous property developers, creating a real estate bubble of epic proportions: Chinese loans have grown by 20% a year since 2007 and are up to a whopping $10.2 trillion. While it's impossible to know for sure, some financial experts estimate that as much as $3 trillion worth of that may go bad.

    It's sad that some of that capital couldn't be lent to fund a cross-border project like fixing Amtrak rather than building empty condos in western China. Middle Kingdom investors would get a decent return and U.S. commuters a decent ride. It would also provide an example of the sort of financial system we should be striving for--one in which money is allowed to travel as far as it needs to in order to lubricate the real economy but is not allowed to fly above regulators and average citizens. Finance needs to be both global and down to earth. Four years on from the crisis, we still have a long way to go toward that goal.

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