A note this morning from David Zervos, of Jefferies & Co. (no PDF attached): Subject: Economists as Prime Ministers Times they have to be pretty bad if the economists are called in to run a country! Papademos is now the Greek prime minister, and it appears that Monti will get the tap in Italy. We will have two PhD economists, from MIT and Yale, ready to lead the battle charge against crisis in Southern Europe. Of course, having US-trained saltwater economists in charge should keep the man in the streets of Rome or Athens sleeping much more comfortably at night. Hmmmm!! Letting economists run trading books created the LTCM debacle. And letting economists run the US bank regulatory process created an era of moral hazard and bailout, which crested with the 2008 global banking crisis. I would generally blame Larry Summers, Alan Greenspan, and Bob Rubin for the vicious circle of financial-market deregulation and bailout that took us into the overleveraged abyss from which we can now only be saved by currency devaluation and inflation. Rubin was not a PhD, only a BA, but with Larry and Al by his side there was enough PhD in the room to bungle the job at hand. Remember the Time magazine front cover in 1999: “The Committee to Save the World.” Ugghhh! There is a time and place for economics. Econ is important, and I do not want to belittle a graduate degree that took me 4 years to acquire. But economics is an art, not a science – no matter how much mathematical rigor is involved . By and large, economists tend to consistently violate one of the most important rules: the KISS rule: Keep It Simple, Stupid. And when it comes to trading, regulating or, more importantly, leading a nation, being a master of complication is a recipe for disaster. In fact, there is little positive correlation between success in these professions and economics training. In some cases, it is quite easy to argue that there is a significant negative correlation. Markets may temporarily cheer the idea of national unity governments led by economists. But the idea that these leaders are going to sell the pain of austerity to the man in the street any better than their predecessors seems patently absurd. I would fully expect the riots in Greece to flare up again, with this Thursday as the kickoff of a long, hard 100 days for Papademos. And in Italy, Monti will talk a great game in Brussels and Frankfurt, but the delivery of either reform or increased EU oversight will be elusive. Instead, expect Eurobonds to become fast-tracked as the Italians push harder and harder. With no success in bringing EFSF bonds to market, and with the rapid deterioration in French and Austrian spreads, the only hope for selling any non-German European sovereign debt to anyone other than the ECB is a Eurobond. Even Merkel on Sunday seemed to be warming to the idea – which is a 180-degree turnaround from her position less than a month ago. She even used the words joint liability. I suspect there have been 2 epiphanies for the leaders of EMU in the last 2 weeks: 1. Some countries will have to leave. 2. Eurobonds are the only way to fund. Europe is fast-tracking to a narrower political and fiscal union. And with a PhD economist in charge of the ECB (another saltwater MIT man), we should get Bernanke-like cooperation from the ECB during this complicated transition. That means a bigger SMP, and eventually QE when the Eurobonds come into existence. QE will ensure yields stay low and stable for a time, so the SWFs and CBs of the world will buy even at negative real yields. What better way to solve the European debt crisis than financial repression from the ECB via the market for Eurobonds? Get ready for some big-time negative real rates in Europe to go along with those big-time negative real rates in the US. It’s a race to the bottom as nominal GDP and inflation spike to erase decades of foolish debt creation on both sides of the Atlantic! Buy real assets. Good luck trading.