By Jim Whitt
If you had any doubt that our economy is joined at the hip with the global economy it was shattered by how the stock market reacted to the news that Europe had reached an agreement on resolving their debt crisis.
The thing that got my attention about the deal is the recapitalization of European banks which forces them to accept a loss of 50% on their holdings of Greek debt. I am no economist but taking a 50% loss on anything is never good. This isn’t really a solution. It’s just another bailout. You can slap some lipstick on that pig but it’s still a pig.
Meanwhile, back in the USA we are merrily rearranging the deck chairs on our version of the Titanic. Our debt is just a few billion shy of $15 trillion and we’re arguing about how much Warren Buffet and his secretary should pay in taxes. Forget soaking the rich, we’re all drowning in the same ocean of debt. No matter that the Titanic is sinking by golly we’re going to be fair about it.
I think we should one up the Europeans and force the holders of our debt to take a 100% loss. That would put us back to zero. Then our only problem is the fact that we overspend our national budget by nearly $1.5 trillion each year. Assuming this spending pattern stays the same we’ll be back to our $15 trillion dollars in debt in just 10 years.
So, let’s increase taxes to eliminate the $1.5 trillion deficit. All we have to do is generate 57% more in tax revenues. We’ll let Warren’s secretary figure out what’s fair.
OK, problem solved! Forgive our debt and increase our taxes by $1.5 trillion. Now remember, that’s assuming that spending won’t increase. I’m sure everyone in Washington will agree to that. Yeah, right. When we mapped the human genome we discovered bureaucrats’ DNA contained the compulsive spending gene.
Seriously, our government has a spending addiction. And why shouldn’t they? You can get high spending other people’s money. And when they run out of money? Raise taxes! Now, in the name of fairness — we aren’t the only addicts. This is a global problem. Most of the world’s governments have spending addictions too — which takes us back to Europe.
According to an article in the Financial Times*, China is likely to be a contributor to the European bailout. “It is in China’s long-term and intrinsic interest to help Europe because they are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people,” said Professor Li Daokui, an academic member of China’s central bank monetary policy committee. “The last thing China wants is to throw away the country’s wealth and be seen as just a source of dumb money.” I’m sure they will have no trouble explaining dumb money to their people. It will sound great compared to Tiananmen Square.
China is already the largest single foreign holder of U.S. government debt. Are you starting to see a pattern here? And to think that people are worried that Wal-Mart and Microsoft will take over the world. I don’t want to tell the Chinese how to run their business, but is it really smart to keep lending money to governments that have proven they can’t pay it back? Maybe the better question is, is it really smart to keep borrowing money from them to support our spending habit? Either way it sounds like dumb money to me.
We need to start a chapter of Spenders Anonymous for governments. Yes, there really is a Spenders Anonymous and they have a 12 Step program. Imagine congress, the president and every bureaucrat in DC standing up and reciting these steps:
Step 1: We admitted we were powerless over spending and money and that our lives had become unmanageable.
Step 2: We came to believe that a power greater than ourselves could restore us to sanity.
It will take a great power indeed to restore them to sanity. You can find the rest of the steps at http://www.spenders.org. Who knows, maybe we can talk the Europeans into joining.
*China could play key role in EU rescue, Financial Times, October 27, 2011