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Economics

Barbell Approach Only Way to Lift Heavy Economy

June 6 (Bloomberg) -- Despite the hoopla over last week’s jobs numbers and Tuesday’s long-term fiscal outlook from the Congressional Budget Office, the underlying reality of the U.S. economy hasn’t changed all that much lately. We are still in the midst of the hard slog following the financial crisis, and we still face a massive long-term government budget deficit.

Let’s hope that dismal combination is all we face -- because things might be about to get much worse. Europe stands on the brink of economic disaster, which at its worst could easily trigger another outright recession in America. Foreign deposits in Spanish banks amount to about 500 billion euros ($622 billion). It isn’t difficult to imagine those depositors changing their minds about such an asset allocation. That could prompt deposit flight in other southern-tier banking systems, which the European authorities couldn’t contain.