Thursday, May 31, 2012
Where is the US in the domino line?
Yesterday Spanish markets crashed. News of their financial insolvency made investors dump anything relating to the Spanish economy.
The world has changed, & currencies are more global now than ever. The problems we're seeing in europe are magnified by the trade deficits & the idea that govt can fix the economy. A nation like spain got into more debt than it should have.. borrowing to finance all the programs the politicians promised to get elected. But soon the interest on the debt became too great to have any money left for programs. Yet the people still want the stuff, they just think they should get it without paying for it. Then as their credit rating dropped, interest increased, making it worse. They are 'upside down', in that they pay more in interest than they can tax. The rich take off.. they go to other countries where they can keep their money. So all that is left is the middle class.. they always take the hit from socialist programs, even though the pols promise to take from the rich.
The problems with the euro should make the us wake up a bit, but it does not seem to have an effect. Their problems have made the dollar look good by comparison, so china keeps buying it to prop up our shaky currency. But if they decide to dump some dollars.. look out. The US will look like greece. Then what? The us will have to raise interest rates to get anyone to consider tbills. That will trickle up to mortgages, credit cards, & student loans. Artificially low interest rates are the only thing keeping our current economy alive.. and it's on life support! A hiccup in interest rates might flatline us.
Do we think germany will bail out the rest of s. europe? How about the scandinavian countries? Everyone talks about how successful they are financially, will they jump in & help their poor, downtrodden neighbors to the south? Don't count on it. Greece is gone. Spain & italy are not far behind. I think the british are disciplined enough they will cut the spending.. they'll get another thatcher type in who will make the hard decisions.. the left will hate them, but they will get the job done & keep themselves afloat. IIRC, they had a similar problem with the pound ~50 yrs ago.
We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. ~Winston Churchill
It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder. ~Frederic Bastiat