Euromess Starting to Cross the Atlantic

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One of the ways in which a financial crisis in Europe can affect America is via credit channels. As I wrote a few weeks ago, European banks provide quite a bit of credit to the U.S. market these days, so if they’re forced to tighten lending that could cause a credit contraction here too.

As the chart on the right shows, it looks like this has already started to happen. But how bad could it get? And what would it mean for the American economy? Via Joe Weisenthal, Jan Hatzius of Goldman Sachs provides some rough numbers:

If [European banks] decided to shrink at the same pace as in the period from 2008Q1 to 2009Q1 — the fastest decline during the global financial crisis — this would imply a decline of just under 25%. If so, the direct hit to US credit growth would be about 0.8 percentage point (that is, 3.3% multiplied by 25%)….How much could a 0.8% drop in credit supply shave off of US GDP growth? [A bit of explanation follows….] This would imply that a retrenchment by Euro area banks could result in a hit of 0.4 percentage point to US growth.

On the bright side, this is a worst case scenario. On the not-so-bright side, this is only one of the channels by which a European recession could affect us. We might not catch pneumonia just because Europe does, but we’re still likely to get a pretty bad cold.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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