The end of America? Tell us what you think

A famous poem written by T.S. Eliot includes the line, “This is the way the world ends, not with a bang but with a whimper.” Years later, this may have inspired Soviet premier Nikita Khrushchev (or whoever wrote the quote that is often attributed to him) when he said, “We cannot expect Americans to jump from capitalism to Communism, b

ut we can assist their elected leaders in giving Americans small doses of socialism until they suddenly awake to find they have Communism.” Whether Khrushchev said it or not, the sentiment is proving accurate.

At dinner recently with a coworker, the discussion turned to the upcoming election. My friend stated his belief that President Obama would be re-elected and that the second Obama term would seal the fate of the United States, not with the bang of a nuclear holocaust, but with the whimper of an economy that is doomed to collapse under the weight of a bloated federal debt that can no longer be financed or paid off without painful and draconian cuts that are not politically possible. In short, my friend believes that the United States is about to experience a Greek economic crisis.

He justifies his belief by noting that almost half of all Americans pay no income taxes. Many of these people who pay no taxes get large tax “refunds” nonetheless. Further, the percentage of Americans who are receiving government benefits is at an all-time high. He believes that the vast majority of these people will vote to return President Obama to the White House in order to keep the gravy train rolling.

My own opinion differs slightly. I agree that the current economic situation is dire. However, I believe that many of the Americans who are not paying taxes and who are getting government checks are doing so because they are unemployed and unable to find a job. Many of these people might be persuaded to vote for a Republican challenger with a pro-growth platform that will help the economy recover. I believe that my opinion is backed up by the Republican landslide of 2010 and early indications that the Republicans may well take control of the senate in 2012. Polls also show that Americans want competition and free markets rather than more federal regulation.

Getting the Democrats out of Washington is only half the battle. The other half of the battle is more difficult. Once the free-spending Democrats have been shown the door, the Republicans have to maintain discipline and avoid a return to their own free-spending ways. In this, recent events offer some encouragement.

Most importantly, Republicans in the House of Representatives have held the line on spending and taxes since the election of 2010. In 2011, the GOP house members held spending almost level in spite of the vocal objections of President Obama and the Democrat-led senate. This was the first time in decades that federal spending had not increased sharply, but instead remained almost level.

Republican successes at the state level are also encouraging. Republican governors in Wisconsin and Indiana have rolled back the power of unions. Wisconsin governor Scott Walker was vilified for breaking the teacher’s union’s power of collective bargaining, but the legislation arguably put Wisconsin on the road to economic recovery. In Indiana, Governor Mitch Daniels passed right-to-work legislation that gives employees the freedom to choose whether to become a union member or not. In contrast, deep blue states like Michigan, California, and New York are basket cases.

According to the Washington Post, at 85 percent, the United States has the world’s seventh highest debt-to-GDP ratio. Under Barack Obama’s borrow-and-spend policies, this ratio is increasing. This puts the U.S. close behind such nations as Portugal (101 percent), Italy (120 percent), and Greece (168 percent). The number one debtor nation with respect to GDP is Japan at 233 percent. Where the U.S. has some advantages over the European countries, such as the ability to manipulate its currency and the size of its economy, there are also disadvantages as well: There is no country big enough to bail out the U.S. President Obama pays lip service to deficit reduction, but his 2012 budget adds $8 billion to the deficit according to MSNBC.

My friend was under the impression that no nation has ever recovered from debt-to-GDP ratio of 100 percent, but this appears not to be true. According to Global Financial Data, several nations including Australia and Canada have paid down extremely high levels of government debt in the past. The process of paying down these high debt levels is long and politically difficult, often taking decades. According to the National Bureau of Economic Research, the consequences of not paying the debt down could mean be continued economic stagnation, high unemployment, and slow economic growth, especially as the ratio goes above 90 percent.

It could also be as bad as the hyperinflation as experienced by Germany in the 1920s when the Weimar Republic used their version of “quantitative easing” to print money to pay reparations from WWI. PBS tells how the price of coffee could almost double at a restaurant between ordering and getting the bill. In 1923, one dollar was equal to a trillion marks. Even a milder inflation such as the U.S. experienced in the 1970s led to a dismal and stagnant decade.

Holding the line on federal spending is not enough. Since the federal government borrows almost 40 cents of every dollar it spends, heavy cuts are needed in order to actually reduce the federal deficit and debt. With Occupiers already rioting in some cities and Democrats using scare tactics over Social Security and Medicare reform, cutting entitlement spending is sure to be difficult. A large and looming question is whether Republicans in Washington and Americans in voting booths around the country have the intestinal fortitude to make the needed cuts and stand by them.

If not, then it is only a matter of time until the collapse of our economy. American will end, not with a bang at the hands of the likes of Osama bin Laden or the Soviet Union, but with a whimper of government paralysis, inflation, and economic stagnation. The United States of America may continue to exist as a country, but it will bear little resemblance to the America that we know.

My belief is that the Republicans will win big this November, but on the long-term question, I rate their chances at about 50-50.

What do you think? Let me know by leaving a comment below.

Originally published on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/the-end-of-america-tell-us-what-you-think

What a Greek default could mean for you

 

The Greek government has been in a financial crisis for the past several years. There have been several attempts to restructure Greek debts and pass “austerity budgets” with draconian cuts to government spending, but the nation is edging ever closer to a default on its national debts. The situation has deteriorated to the point where Bloomberg estimates that there is a 98 percent chance that Greece will default within five years.

The fundamental problem is that Greece has spending much more than it earns in revenues. It has been making up the shortfall in revenues with loans, primarily from European banks. The problem for the European banks is similar to the U.S. banking crisis of 2008. In the U.S., the crisis was caused by the epidemic of mortgage defaults, which led to freezing of capital markets. Banks could not lend because no one knew the extent of the “toxic assets” in their holdings. They were forced to keep their cash on hand to cover possible defaults.

In Europe, the problem is several orders of magnitude larger. Instead of homeowners defaulting, the prospect is that entire nations will default on their loans. Greece is merely the first. Beyond Greece, there is also the possibility that Ireland, Portugal, Italy, and Spain will default. CNN Money notes that while Greece has over $400 billion in loans, the combined total for all five nations is $3.8 trillion.

Although most of the loans at risk are held by European banks, that does not mean that the United States is immune from the financial crisis. Nations around the world are interconnected through trade and a European financial crisis could easily spread across the Atlantic.

The panic of 2008 was set off when one company, Lehman Brothers, went bankrupt. Investors knew that the same systemic problems affected many other companies as well and reacted accordingly. Similarly, if Greece defaults, the ripples will be felt throughout the European and world economies. Dexia, a Belgian bank that failed and was nationalized in early October due to its large exposure to Greek and Italian debt, may be the Bear Stearns of the European crisis. Bear Stearns failed in March 2008 and was bought by J.P. Morgan Chase at a bargain-basement price in a deal orchestrated by the federal government.

American banks may not have many loans that are directly at risk in the crisis, but American companies do business in Europe. If the European economy crashes, it will affect the bottom line of American companies who have operations in Europe. European manufacturers would likely be caught in a credit crunch forcing a slowdown of operations and massive layoffs. Georgia companies such as Coca-Cola, Gulfstream Aerospace, Delta Air Lines, and UPS that are heavily involved in international business might be among the first American businesses to feel the effects of the crisis.

The crisis would quickly spread to the American Main Street as European investment evaporated and imports from Europe slow to a trickle. With the weak U.S. economy already verging on a double-dip recession, the crisis would likely spread quickly. Americans could soon be experiencing an economic crisis as bad or worse than the 2008 crash. Companies that depend on exports to Europe would quickly find their markets closed, leading to more layoffs and higher unemployment rates.

As in 2008, the effects would then ripple throughout the economy. As more workers lose their jobs, demand for goods and services would plummet, causing layoffs in other companies. The crisis would spread from country to country and company to company until many of the world’s economies were stricken.

In 2008, the federal government’s solution was TARP, the Troubled Asset Relief Program. TARP was essentially a bank bailout in which the federal government made loans and took equity stakes (purchased stock) in banks to provide an infusion of capital and liquidity. Although much criticized on both sides of the political spectrum, the original TARP did stem the crisis.

A program modeled on TARP for European banks and debtor countries might be a viable solution to the crisis. One potential problem is that Europe is 17 nations instead of one. A bailout deal must be approved by multiple national legislatures. As in the United States, bailouts of banks are not always popular in Europe and there may find significant political resistance to bailout plans.

A second problem is that the European Central Bank may not be up to the task. A Columbia University study cited in the Wall Street Journal suggests that the bank holds enough risky bonds that its own survival may be at stake. Instead of allowing the Greeks to write off as much as 50 percent of their debts, the ECB may elect to enact their own “quantitative easing” by printing money and allowing Greece to pay its debts with inflated euros.

A Greek default of some sort is almost guaranteed. Once the defaults start, no one knows for sure how fast and far it will spread, but given the weak economic situation in the United States, it is likely that European defaults would cause the American economy to slip back into recession. An old adage states that “when America sneezes, the world catches cold.” In this case, it is likely that a Greek sneeze will cause America to contract the Greek flu.

Read this article on Examiner.com:

http://www.examiner.com/conservative-in-atlanta/what-a-greek-default-could-mean-for-you

Serious questions for Democrats, liberals and other Obama supporters

As President Obama’s first and possibly only term begins to draw to a close, it is fitting to look back over the past three years and evaluate his performance. President Obama began with an ambitious reform agenda that included leading the nation out of the Great Recession, enacting what became his signature piece of legislation, the Affordable Care Act, and changing the image of America abroad, in part by closing the detainment facility for terrorists at Guantanamo and withdrawing from Iraq.

Some of these goals have been accomplished while others obviously have not. In the case of the accomplished goals, often the result has been far from what the president intended. There are several questions that we must consider in light of the past three years.

First, given that Democrats began President Obama’s term with strong majorities in both houses of congress and were able to pass whatever legislation they wanted over ineffective Republican attempts at filibusters, how do liberals explain the abject failure of their multiple Keynesian stimulus laws to recover the economy? Recent statistics show that the U.S. economy has experienced virtually no growth over the past two quarters and unemployment remains above nine percent. In Georgia, unemployment remains at 9.9 percent, almost a full percentage point above the national average, according to Georgia Department of Labor. The recovery is proving to be an illusion.

Second, how do we resolve the problem of the federal debt? The federal debt has increased markedly from 2008 to 2011. The increase is even more stark when examined in terms of control of Congress rather than the presidency. Since 2006 when Democrats gained control of both the Senate and the House of Representatives, the debt has grown from $8.68 trillion to $14.34 trillion according to data from treasurydirect.gov. This is a 65 percent increase in the federal debt over a five year period.

In budget debates so far this year, Democrats have resisted virtually all attempts to cut federal spending. The recent debt limit compromise brought the government to edge of default to enact a measly five percent in spending cuts. Vastly larger cuts will be needed since federal spending will still outpace tax revenues by a large margin. America’s future will be like that of Greece and the other European basket-cases if we continue along the path toward a European-style social democracy.

Under Keynesian theory, government theory can provide a boost to the economy. Alternatively, when the stimulus spending is removed, the economy must necessarily contract. When do liberals and Democrats believe that it is ever proper and beneficial to reduce spending or are we doomed to ever-increasing budgets in order to prevent another recession or depression?

Third, what do liberals suggest for a foreign policy since President Obama’s theories of engagement have failed? Polls show that the U.S. is even less popular in the Arab world under President Obama than under President Bush, a remarkable feat in itself. Far from giving up its nuclear program, Iran is stepping up enrichment of uranium and growing ever closer to a nuclear weapon. Such a weapon could target Atlanta if launched from a cargo ship just beyond Savannah’s territorial waters. Further, President Obama’s engagement of dictators just as Libya’s Gadhafi, Syria’s Assad, and Iran’s Ahmadinejad have not stopped them from ruthlessly cracking down on democracy protests. Russia’s Putin and Medvedev and Venezuela’s Chavez have also expanded their power under Obama’s tenure.

The Atlanta Conservative Examiner would welcome a serious response from liberals and Democrats in answer to these questions. Please leave your answers in a comment below or email them to the address listed in the author’s profile. The definition of insanity is said to be doing the same thing over and over while expecting a different result. Regardless of party affiliation we should examine the mistakes of the past and open a dialogue on how to avoid making similar mistakes in the future.

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http://www.examiner.com/conservative-in-atlanta/serious-questions-for-liberals-democrats-and-other-obama-supporters

 

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Greek Ruins

Greece is in crisis. Recent reports have shown rioting and told of the bombing deaths of Greek bank employees. For most Americans, the reports from Greece probably come as a shock. What happened to Greece and how did they get into this situation?

Greece certainly suffered from the global economic downturn that began in 2008, but its problems began long before that. In simple terms, Greece spent too much money. Like other social democracies, much of the money went to government salaries, pensions, and welfare state programs. By some estimates, government workers account for as much as 40% of the Greek economy [http://bit.ly/9dxUHB]. These government workers earn lavish salaries (they are paid for 14 months of work each year) and pensions. The Greek economy is also slowed by high levels of corruption, nepotism and tax evasion. Further, Greece also hosted the 2004 Olympic Games in Athens. The Olympics is always an expensive, and usually money-losing, proposition for the host country.

In the past, when Greece or other countries ran up high levels of debt, they would simply print more of the national currency. This would devalue the currency, the drachma in this case, and cause inflation. The government would then pay its debts in cheaper drachmas and repeat the cycle.

This changed in 2001 when Greece joined the euro zone and adopted the euro as its national currency. The more stable euro allowed Greece to finance its spending with lower interest rates and the country ran deficits to pay for its expensive public sector workers.

It wasn’t long before Greece began to have problems. Rules for the European Union specify that member nations are not permitted to run deficits larger than 3% of GDP (gross domestic product) [http://bit.ly/9Xxgsb ]. However, in 2004 it was revealed that Greece’s deficits had not been below 3% of GDP since before 1999. How did they manage to join the EU with larger deficits? They lied [http://bit.ly/cEXepN].

At that point, Greek voters ousted the socialists and installed a right-wing government in an attempt to restore fiscal sanity. The new government raised taxes on alcohol and tobacco, as well as increasing the VAT (value added tax) and, for a time, the Greek economy appeared to improve [http://bit.ly/cEXepN].

The next bill began to come due in 2008 with the crash of the global economy. As with most of the rest of the world, the Greek economy entered a recession. As the economy shrank, the deficit increased as a percentage of GDP. To make matters worse, the national debt had also increased by approximately 100 billion euros since 2004. The socialists returned to power in 2009 and announced sharp cuts to government spending to combat the crisis [http://bit.ly/5IkjZA].

It wasn’t enough. Greek bond ratings were revised downward and the Greek deficit for 2009, which had been estimated at 6%, was revealed to be as high as 13.6% as history repeated itself and Greek financial reports to the EU turned out to be less than accurate [http://huff.to/9euNoD]. Greek bonds soon reached junk bond status.

The Greek government imposed an austerity package of spending cuts and higher taxes on the nation. As a result, government union workers and anarchists opposed to multinational corporations began rioting in the streets. Three bank employees were killed when their bank was firebombed by rioters.

At this point, it appears that other European nations and the International Monetary Fund (IMF) will have to bail out Greece to prevent a national bankruptcy. According to the most recent reports, the EU and the IMF plan to loan Greece an additional $145 billion, of which $39 billion will be supplied by the IMF [ http://bit.ly/9sLtRM]. Some of the IMF money will be supplied by the United States.

Part of the danger of the Greek debt crisis is that it could spread to other parts of the EU and from there to the world. Other EU nations such as Spain, Portugal, and Italy also have debt crises, although not to the extent of the Greeks. Greek debt is worth approximately $400 billion and a default could cause a domino effect on banks, companies, and nations around the world [http://bit.ly/9Xxgsb]. Additionally, the crisis is already shaking investor confidence in the euro, causing its value, as well as stock markets around the world, to decline.

Many analysts are also pointing out that Greece might be a “canary in the coal mine” for many other western nations. The recession has caused many nations to run up deficits as they attempt to stimulate their national economies. Around the world, countries are finding that they can no longer afford expensive social programs and lavish salaries for public workers. As European research institute GaveKal noted, “If Greece was the birthplace of democracy, the question now is whether it will be the graveyard of social democracy” [http://bit.ly/9aVNzu].

The total Greek debt is now estimated to be at approximately 125% GDP [http://bit.ly/cD5ghY]. That means that Greece owes more than it can produce in one and one-fourth years. The Greek deficit is currently estimated at 13.6% GDP.

How does that contrast with the United States? The US debt is at 87.3% GDP and will soon reach 90%, the point at which the debt’s drag on the economy will increase markedly [http://bit.ly/c7EuJM]. The US is not far behind Greece in budget deficits. The federal budget deficit for 2009 was 9.9% [http://bit.ly/4riOem]. Given the spending habits of the current administration and congress, the US deficit and debt are both likely to continue increasing. As the numbers of federal employees increase, along with increasing federal pay rates and generous government pensions, the US is headed down the Greek road.

The US does enjoy several advantages over Greece. One is that US debt ratings are still good enough to garner low interest rates. There have been indications, however, that the US is in danger of being downgraded to a riskier status. Additionally, the US controls its own money supply. Unlike Greece, the US can print more money to pay its debts, although this would result in inflation (devalued and cheaper dollars).

The situation is different for many of the states, however. California, one of the leading basket case economies in the US, bears a striking resemblance to Greece. California is plagued by expensive government employee wages and pensions as well as costly social services. Government employee unions resist attempts to cut spending. Nevertheless, in 2009 California passed its own “austerity package” of tax hikes and spending cuts after it was forced to resort to paying state debts with IOUs. Like Greece, California also cannot manipulate its money supply since it uses the dollar. California’s 2010 budget shortfall was 56% of its total budget [http://bit.ly/5GfiaO]. If the situation does not improve, California may ultimately face the stark choice of begging for a federal bailout or a state bankruptcy.

In our own state of Georgia, we have also been hit hard by the economy. Georgia faces a budget deficit and shortfall as well. Georgia’s estimated budget shortfall for 2010 is 26% of the general budget. The state government is enacting deep budget cuts in education, transportation and health care.

Faced with a huge financial crisis, the states are adopting the Greek method of austerity measures while also relying on assistance from the federal government. In contrast, the federal government continues to grow and spend at a rate that dwarfs historical precedent. Ultimately, the bills will also come due to the federal government and the nation will face the painful realization that nothing is for free, including government services.

Sources:
1 http://www.stanforddaily.com/2010/04/30/a-greek-tragedy/
2 http://www.guardian.co.uk/business/2010/may/05/greece-debt-crisis-timeline
3 http://ec.europa.eu/news/economy/090324_1_en.htm
4 http://www.guardian.co.uk/world/2009/dec/14/greece-unveils-reforms-to-public-finances
5 http://www.huffingtonpost.com/2010/04/22/greek-debt-crisis-gets-wo_n_547604.html
6 http://online.wsj.com/article/SB10001424052748704866204575224421086866944.html
7 http://ec.europa.eu/news/economy/090324_1_en.htm
8 http://www.detnews.com/article/20100510/OPINION01/5100306/1008/Editorial--Greece-debt-a-warning-to-U.S.
9 http://www.data360.org/dsg.aspx?Data_Set_Group_Id=409
10 http://www.nytimes.com/2010/03/16/business/global/16rating.html
11 http://www.nytimes.com/2009/06/22/us/22calif.html?_r=1&pagewanted=all
12 http://www.statehealthfacts.org/comparemapreport.jsp?rep=49&cat=1
13 http://www.wsws.org/articles/2010/mar2010/geor-m09.shtml
14 http://online.wsj.com/article/SB10001424052748703648304575212490148430912.html


Chicago IL
May 10, 2010