At this time, I don’t know how many parts there will be to this “Seeing Things in a Different Light” series. I have at least a couple of more topics in mind; but we will see how it goes.
In today’s title I claim that Europe and the US are bankrupt. In fact I believe the entire industrialized world is bankrupt. What the industrialized world calls money is an illusion. The dollar, the Euro, The Yen and, etc., are worthless pieces of paper. The world is awash in so much debt it can never be paid back, without printing a world’s worth of more funny money. Am I an expert on this subject? Not hardly. I’m just an observer. So, let’s start by talking about Europe.
Europe is Bankrupt
When talking about Europe, we have to start by talking about Greece first. Greece is the bankruptcy poster child for the world. The Greeks have been living way beyond their means ever since they became part of the EU. Borrowing cheap money, their politicians led the Greek people into a socialist utopia and the Greeks took to it like fish to water. Then reality comes along and kicks the Geeks where it really hurts. The austerity measure that they need to implement are so Draconian to the Greeks that they refuse to accept them. The EU, which is pushing Greece to accept these Draconian austerity measures tried to help by forcing the banks that are holding most of the Greek debt to “voluntarily” accept a haircut. This “voluntary” hair cut was for the banks to forgive 50% of the Greek debt and accept a much lower interest rate on the remaining debt. The haircut is then effectively 70%. [ Side Note: As a capitalist, I should be appalled that the private banks should have to forgive a part the debt of the irresponsible Greek borrowers. But, I have no sympathy for theses banks. The bankers are not stupid, They knew full that Greece could never pay off their loans, But they kept lending because they were confident that the EU would never allow Greece to default. Well, reality can be brutal at times.] In spite of this “voluntary” gift by the banks, there is no way that Greece could implement all the necessary austerity programs and still grow their non-existent economy enough to pay off the remaining debt. So Greece will crash and burn. There will much worse riots. There will be bloodshed. The Greeks are going to HELL! And, the bankers will end up with a 100% haircut.
Is Greece really all that important to the EU? After all, it’s a tiny country and their total debt is peanuts really in the big picture of Europe. Greece is just the worst case of the debt cancer that infects much of Europe. It appears that Portugal will be the next country needing to be bailed-out. Italy, a much bigger economy, is a basket case. Spain is not much better. I read somewhere recently the unemployment rate for people 25 years of age and younger in Spain is over 40%. How scary is that?
So what can Europe do? Well, they have only one tool left. The “Paul Krugman Tool”. Yes, they will try stimulus on a major scale. They will put their printing presses in hyper-drive. The Euro will plummet. The immediate effect will be for the dollar to raise. Dollar based commodities will go up in price including oil. You are already seeing gasoline prices approaching $5.00- How much higher will it go? Your guess is as good as mine.
Is the US Also Bankrupt?
I believe it is. But then I have already admitted that I am no expert. Those who claim to be experts and our government would tell you we are not bankrupt. They would tell you that we are in recovery and the economy is growing and employment is increasing. Friends, I no longer believe anything our government and these experts tell us. Take employment for an example. The government in this election year is pumping out “good” news about employment every other day. But you go back and look at BLS data on the total number of people who were employed when Obama took office versus the total number of people who have jobs today. I think you will find that we have lost about six million jobs. Also, we are told that inflation is negligible. Do you find inflation negligible when you go shopping or fill the gas tank of your car?
On the outside chance that a real economic expert reads this post, I hope they will respond to a couple of questions I have:
- The Keynesian economist are laughing at the Austrian economist. The Austrian economist say that when governments stimulate, inflation will follow. The Keynesians are laughing and saying: Look! There was about three trillion of stimulus put into the economy and there has been no inflation. Okay, but we are also told the banks are sitting on two trillion dollars and that the private sector is sitting on another trillion dollars. My question is this: if these three trillion dollars should start circulating through our economy, won’t that bring on some serious inflation?
- In my opinion, the principal reason that the United States has not already crashed and burned is that our dollar is still the international reserve currency. Our bonds are still the only save place for central banks and investors to park their money. The US is, therefore, able to still borrow money at very low interest rates. The holders of these bonds are actually losing money when inflation is taken into account. So, I have a “what if” question that I would like an expert to respond to. What if one or more or even all of the BRICs (Brazil, Russia, India and, China) were to decide to back their currency with gold or a basket of valuable commodities? The Western economies, including the US, would collapse, wouldn’t they?
Well, let’s try to simplify this discussion on whether or not the US is bankrupt. The United States is currently more than $15 trillion in debt. By the end of this fiscal year, we will be close to $17 trillion in debt. For the forseeable future, our debt will continue to grow. There is no way in hell that future generations are going to be able to pay off our debt. And, what about the $100 trillion in unfunded entitlements? There is no way in hell that future generations can pay for that.
Does anyone believe we can borrow are way out of this crisis? You tell me if the US is bankrupt or not. We are told that the Republicans need to nominate a moderate in order to attract the independent voters and defeat Obama. We are told we can not turn our government around in one election cycle. We are told it will take three or four or more election cycles to save our country. Friends, I don’t think reality is going to cooperate for three or four or more election cycles. Do you?
Well, that’s what I’m thinking. What are your thoughts?