What Has Been Done to Insulate the U.S. From Systemic Risks Overseas?

BY Paul Solman  September 9, 2009 at 2:56 PM EST

Question: Chairman Bernanke mentioned in the News Hour forum back in July that the key trigger to Depression 1.0 was the failure of a large central European bank.

With Austrian and other banks in deep distress (I believe Austrian banks have losses that exceed Austrian GDP), what are the prospects for a repeat performance, and what steps have been taken to insulate the U.S. financial system from overseas systemic risks? If this is not the catalyst for Depression 2.0, what other black swans could there be?

Paul Solman: Ben Bernanke and his fellow central bankers the world over are determined not to let the collapse of banks in Austria, Iceland, or Fiji, for that matter, bring down the world financial system and lead us into Great Depression 2.0.

Remember, we have the same productive resources today that we had a year ago, in terms of labor and resources. Our technology has surely advanced. So the problem is, in a sense, mechanical. And psychological.

Count me still as a green shoots skeptic. Given the potential opacity of government statistics in China, I’m not sold on the its recovery. Russia is back because the price of oil is too, but how long will that last if the world economy again loses faith and steam?

And things just seem to have changed here in America. We’re saving more. We’re proud of it. That seems like a good thing, But a whole lot of jobs, worldwide, depended on the old ways of getting and spending. The transition has been rough thus far. It wouldn’t shock me if it continued to be. And the whole point of the black swan thought experiment is: Cataclysms are very likely, but they’re a lot more likely than we may think.