Gloom and doom from George Soros re the situation in Europe

Billionaire investor George Soros says that the global financial system is on the brink of collapse. Developed countries are falling into a "deflationary debt trap," in which consumer spending falls, products become more expensive, tax revenues drop, and sovereign debt grows...

Concern is mounting that the eurozone may break up because of market pressure on European sovereign debt, which could plunge Europe into a depression and the world into a recession. Observers are already worried that Europe could suffer a recession and subsequent slow growth for several years even if it averts a eurozone breakup, since products would remain expensive in the euro, making consumers more hesitant to buy them and forcing governments to curtail budgets even more as consumer spending falls...

If Italy or Spain defaults on their sovereign debt and leaves the eurozone, it would probably break up. Depositors likely would pull their investments from banks, large European banks would fail, borrowing costs for other countries would become unsustainable, and other countries would leave the euro. Such an outcome would depress lending and consumer spending and plunge Europe into a deep recession...

More at the Huffington Post and the Wall Street Journal.   Other commentators have noted that the recent interventions in the European system alleviated only the liquidity crisis, not the underlying debt problems.

Addendum:  Here's some more from the Washington Post re collateral damage in the U.S.:

To get a sense of how vulnerable the U.S. economy could be if the euro currency union cracks apart, start with the volume of U.S. exports to the euro zone — $153 billion in the first six months of the year. Add several hundred billion dollars in investments by U.S. banks in the euro zone and several trillion dollars’ worth of other financial contracts between the two economies...

American banks and other companies could find themselves battling with any country that leaves the euro union and reinstates its own currency.  “The risk is likely paralysis,” said Michael Hood, a market strategist at J.P. Morgan Asset Management. “You won’t even know what people owe you.”..

According to the Bank for International Settlements, U.S. banks have more than $220 billion at risk through investments in German and French banks alone. If those firms start to topple, U.S. financial companies could as well, a hazard highlighted by the failure this fall of the MF Global brokerage firm because of its dealings in Europe.