Copyright 2012 by John T. Reed
The Euro Zone (EZ) may turn out to be a great gift to America. It is 17 countries that agreed to all use the new (1999) currency called the euro. The Euro Zone is a subset of, not the same as, the 27-country European Union (EU).
The Euro Zone has a European Central Bank (ECB) that governs the monetary policy, that is, deflation and inflation avoidance—of the Euro Zone countries. The ECB has no jurisdiction over the EU countries that are not in the Euro Zone.
In 2010, I wrote a book titled How to Protect Your Life Savings from Hyperinflation & Depression, which could be more academically/technically titled, how to avoid being hurt by bad or inept monetary policy.
The imminent danger in the U.S. is that the U.S. Federal Reserve, the ECB of America, will “print” too much money because the U.S. government can no longer borrow enough from the world bond market to pay for our deficit spending: which is $1.3 trillion this year.
The Greek government needed bailouts when its debt-to-GDP ratio hit about 140%. We hit that level in around 4.5 years at present debt and GDP growth rates.
The Greek government got, and continues to get, bailouts from the EZ and the IMF. But those bailouts have been made on the condition that Greece cut government spending. Greek elected official, claiming they had no choice, made the cuts demanded by the bailer outers.
Yesterday, May 6, 2012, the Greek voters threw the Greek equivalent of the Democrat and Republican parties out of office voting instead for communists, socialists, and neo-Nazis. Basically, they voted for ABDR (Anybody But Democrats and Republicans).
Greek voters hate the austerity imposed upon them by the EZ and IMF.
Rough equivalents of this—replacing incumbents with more leftist politicians—have happened recently in ten Euro Zone countries.
What are the alternate plans of the fringe parties. The Neo-Nazis want to deport immigrants and put a mine field on their border with Turkey, a Muslim country through which zillions of Muslims flow into the EU which sort of has no border guards once you get into any EU country. The leftist parties want “the rich” in Greece, or the foreign lenders, to pay for the shortfall of taxes to government spending.
France also had an election on May 6, 2012 with similar results. France’s blame-the-immigrants party won 20% of the vote in a preliminary election. Only two candidates were allowed in the final election on May 6th and the socialist won—only the second socialist in French history. His plan is to raise taxes the “the rich” in France—from 44% to 75%. He also says every country has a soul and “France’s soul is equality [of outcomes]”. He described the world of finance as his “main adversary.”
“The rich” in France have their own plan: leave France. Unlike the U.S. and maybe one other country, French citizens can simply leave the country and thereby stop paying income taxes to the French government. U.S. citizens have to renounce their U.S. citizenship to stop owing U.S. federal income taxes.
Normally, at this point, France and Greece would have “solved” their problems by devaluing and hyperinflating (by “printing” lots of money) the French franc and the Greek drachma.
Why have they not done that this time?
They can’t. When they joined the euro zone, they gave up their within-country money printing presses. Only the ECB can print money for France and Greece and the other 15 EZ countries. Its sole function in life is to prevent deflation and inflation, so it refuses to “print” more euros that France and Greece (and Spain and Italy and Portugal) could use to pay their government deficit spending.
That means the governments have to cut their spending—a lot. They have. But the government employees who got fired and the recipients of government retirement and other checks are screaming bloody murder.
So what’s going to happen? I am not the expert on the Euro Zone, but the common-sense thing is for Greece to be thrown out of the EZ and all bailing out of Greece ended. That would enable Greece to go back to the drachma, default on their bonds, hyperinflate their currency, and turn themselves into Austria/Germany of 1922.That means passing a series of laws called wage and price controls, capital controls, and financial repression laws. The black market would be the only market. Refugees would stream out of the country to go to countries that still had stable currencies. Tourism, one of Greece’s big industries, would go to near zero other than bargain shoppers from other countries who had real money to buy stuff cheap from Greeks. And there is not much of that to buy: ouzo? olives? In hyperinflated early 1920s Austria, many women were driven into prostitution to avoid starvation. See the silent Greta Garbo film The Joyless Street.
I hope that happens and that it is horrible so that maybe American will wake up to where we are heading. The Greeks are behaving like two-year olds. They deserve it. The Germans, who are the main EZ country trying to get the Greeks to grow up, are too wimpy about it, apparently permanently stuck in “I’m sorry my grandfather was a Nazi who invaded your country 70 years ago” mode. For their gullibility and wimpiness, the Germans also deserve getting stiffed by the Greek government and banks. Reportedly, few Americans or U.S. institutions were dumb enough to buy Greek bonds or lend to Greek banks. Thank God for small favors.
Many Americans say the U.S. is not Greece.
I hope they are right, but I see little reason to believe it. Senior citizens have been screaming at Paul Ryan just as loud here as they scream at the ousted politicians in Greece. In 1989, American seniors screamed at House Ways and Means Committee chairman Dan Rostenkowski so much than he had to literally flee from them. The Occupy movement is also a near carbon copy of the riot crowds in the PIIGS countries.
The Democrat party business model is to get as many Americans addicted to government jobs and government checks as possible to cement themselves into power permanently. It has worked quite well for Democrats for 79 years. That was also the business model of the now-being thrown-out PIIGS parties.
In France, 19% of voters refused to go to the polls on May 6th and 5% cast blank ballots to demonstrate dislike of all the existing parties. On one level, that is infantile tantrum throwing, which has been the norm in the PIIGS countries—other than Ireland—lately. On another level, it is a logical response to a ballot with no acceptable choices: reelect the parties that got them into the mess or elect some new nutty parties whose “solutions” are nothing but race or class scapegoating.
Isn’t that roughly what choice we Americans have at the polls? Actually, we also have the party I have been voting for for decades in presidential elections: the Libertarians. They are not about race or class scapegoating. But they are about even greater “austerity,” a policy better expressed as “more appropriately sized government,” i.e., much smaller. Cutting government spending is only austerity if you are one of the parasites—government employees and those receiving government checks for nothing. To the rest of us, getting the parasites off our backs does not seem austere at all. It is liberation.
The 2010 elections gave me some hope that America would stop going down the road of more and more debt. But the 2011 debt-ceiling fight convinced me the Tea Party Congressmen were just another bunch of political hacks who went native as soon as they arrived in Washington. See the list of tea party traitors who voted to raise the debt ceiling after promising they would not.
I now look to the PIIGS for hope in America. I hope the PIIGS behave so badly and cause themselves such horrible financial and riot troubles that the American people will wake up before it’s too late. Unfortunately, the more likely scenarios that we do the same thing to ourselves as the PIIGS countries are doing to themselves.
The problems in Europe and the U.S. are not caused by “the rich” not paying enough or by immigrants. Hammering “the rich” and the immigrants will only make things worse. The enemy of the “austerity victims” in Europe and the U.S. is “the man in the glass.” The enemies of America are not al Qaeda or the Taliban, they are AARP, UAW, SEIU, AFT, ATLA, government retirees at all levels of government, watermelons, and other similar groups. They, not foreign armies landing on our beaches, seek to take away, and are taking away, our freedoms and our property.
“Eat the rich” said one Occupy poster. “Keep your government hands off my Medicare,” said a Tea Party protest sign. Those two signs capture the essence of the real war America is in, and about to lose, if they do not wake up.
John T. Reed