Constantinople, Byzantine Empire, Ottoman Empire, the New World, Tobacco and Slavery

Posted by PITHOCRATES - July 16th, 2013

History 101

With the Fall of Constantinople to the Ottomans in 1453 Islam spread Unchecked into Christian Lands

Constantine the Great moved the capital of the Roman Empire to a place on the Bosporus.  Where the ancient city of Byzantium once sat.  Where Asia met Europe.  Where the Mediterranean Sea met the Black Sea.  And the great rivers beyond.  The Danube.  Dnieper.  And the Don.  Constantine named his new city Constantinople.  And made it a jewel.  With great Christian churches.  To celebrate his new conversion to Christianity.  Which started following the Battle of the Milvian Bridge.  Where on the eve of battle Constantine and his soldiers had a vision of the Christian God.  Promising them victory if they placed His symbol on their shields.  Which they did.  And they won.

Constantine spared no expense in his new city.  Which was easy to do because it was a very wealthy city.  For the greatest trade routes went through the Bosporus.  Which is why when the western half of the Roman Empire fell the eastern half, or the Byzantine Empire, carried on for another thousand years.  Give or take.  As it thrived on that trade pouring through it.  Especially from the Far East.  Along the Silk Road.  Which peaked during the Byzantine Empire.  Bringing the exotic goods of the Far East west.  From silk to porcelain to spices.  Which flowed unhindered to Christian Europe while the Christians still controlled the Byzantine Empire.

But all good things must come to an end.  Thanks to the Seljuk Turks.  And the rise of the Ottoman Empire.  Islam had united the Arab people.  And with the fall of Constantinople to the Ottomans in 1453 Islam spread unchecked into Christian lands.  Up through the Balkans into southern Europe.  Lands they would contest for time and again.  Making for some bitter Christian-Muslim animosity that continues into modern times.  But more crucially at the time was the loss of control over that trade from the Far East.  Making those goods not as reasonably priced as they once were.  Which proved to be quite the problem.  As the European Christians had grown quite fond of them.  Luckily for them, they could do something about that.  Thanks to all of those wars they fought with the Muslims.  The Crusades.  Which brought back a lot of Greek books of science that were collecting dust in some of the old great Greek cities all around the Mediterranean.  Founded during the Hellenistic period.  Which came before the Roman Empire.  Thanks to a fellow by the name of Alexander the Great.  Who spread Greek learning throughout the known world after he conquered it.

Christopher Columbus sailed West to establish Far East Trade without going through Muslim-Controlled Constantinople

From those books the Europeans were able to become better sailors.  On ships that could catch the wind and navigate their way great distances.  Portugal and Spain led the way.  Prince Henry (1394-1460), the Navigator, trained navigators in Portugal.  His students pushed further and further down the African coast until Bartholomeu Dias rounded the Cape of Good Hope (1486).  Vasco de Gama would round the Cape of Good Hope and sail up the eastern coast of Africa all the way to India (1498).  Pedro Álvares Cabral was heading south to round the Cape of Good Hope in (1500).  Swung out too far west.  And ran into Brazil in South America.

Spain then financed the voyages of Christopher Columbus.  Who had read that the earth was round.  And wanted to prove it.  As well as spread Christianity.  Columbus wanted to find a way west to the Far East.  Sure it was just beyond the horizon of the Atlantic Ocean.  After a voyage longer than his near mutinous crew expected they finally landed on San Salvador Island in the Bahamas (1492).  Thinking he found an ocean passage to the Far East.  Around the Muslim controlled land route.  He would later understand that he had found the New World.  Which we would be calling Columbia.  Had his dispatches beat a Florentine passenger’s on a Portuguese ship who wrote about what he saw.  Amerigo Vespucci.  Which is why there is not a North Columbia, a Central Columbia and a South Columbia.  Instead, there is a North America, a Central America and a South America.

With Columbus’ success Spain financed others.  Vasco Núñez Balboa.  Who crossed the Isthmus of Panama and reached the Pacific Ocean (1513).  Ferdinand Magellan.  Who sailed around South America through the Straits of Magellan and into the Pacific Ocean.  Sailing on to the Far East.  And back home.  Being the first to circumnavigate the globe (1519-1522).  Hernán Cortés.  Who conquered the brutal Aztec regime in Mexico (1521).  Eventually the Spanish would bring great riches of gold and silver back to the Old World.  Meanwhile France financed Jacques Cartier in his attempt to find a Northwest Passage to the Pacific.  Who sailed up the St. Lawrence River to Montreal (1534).  Then Samuel de Champlain founded Quebec (1608).  Where they established a lucrative fur trade with the native Indians.

Cultivating Tobacco took Large Tracts of Farmland which required more Laborers that they had in the Colonies

Queen Elizabeth of England financed Walter Raleigh.  Who explored the coast of North America (1584).  Looking for a place to settle a colony.  On a subsequent voyage he brought 100 settlers with him.  And settled a colony at Roanoke, North Carolina (1585).  Which became the Lost Colony of Roanoke (1591).  The Virginia Company of London, a joint-stock company, would have better luck.  They raised financing by selling stock shares to investors who would share in any profits of the colony.  Christopher Newport led a voyage that established the first permanent English settlement in the New World.  At Jamestown (1607).

Though the Americas were not the Far East it was a vast landmass with inexhaustible resources.  And endless tracts of fertile soil.  The possibilities were endless.  The marriage of John Rolfe to Pocahontas (1614) provided an uneasy peace between the settlers and their Indian neighbors.  Then Rolfe figured out how to cure tobacco (1612).  Something the English began smoking after Columbus observed the Cubans sticking burning rolls of tobacco in a nostril.  The English refined smoking with a pipe.  And they really enjoyed it.  Importing vast quantities from the Spanish colonies in America.  Thanks to Rolfe, though, the English could produce their own tobacco.  Once they worked out a few problems.

Cultivating tobacco took large tracts of farmland.  But to put large tracts of farmland into production you needed laborers.  And in 1612 Virginia there just weren’t a lot of colonists living there yet.  The demand for labor far outstripped the supply.  So they tried to satisfy that demand with indentured servants.  Preferably from Europe.  Even criminals from English jails.  As well as from Africa.  Who worked in bondage during their indentures.  Then went free.  Until around the 1660s.  When things changed.  Starting in the southern colonies.  Where slavery became hereditary.  For Africans, at least.  Like it was in the Old World.  Where peasants and serfs were bonded to the land.  Once a slave.  Always a slave.  And if your parent was a slave so were you.  Like it was in ancient Athens.  At the end of the Western Roman Empire.  And in the Muslim world.

Muslim didn’t only enslave Christians.  They also established slave markets with African slave traders.  Who opened their markets to the Portuguese, the Spanish, the French and the English.  To help them meet that soaring demand for labor during the early days of the New World colonies.  When there were so few colonists.  Who found their way to the New World in the first place because of the Muslim conquest of Constantinople.  Which sent the Europeans to the seas to find a western way to the Far East.  And when they did they discovered the New World.  Creating the largest market ever for African slaves.  And the greatest convulsions in the New World as they struggled to end slavery in the Americas.

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Debt Crises in Ireland, Greece, Portugal and now Spain may Prove too much for the Euro to Survive

Posted by PITHOCRATES - June 3rd, 2012

Week in Review

The woods are lovely, dark and deep.  But I have promises to keep.  And miles to go before I sleep.  And miles to go before I sleep.  Lines from a poem by Robert Frost.  For some reason this came to me as I read about the never-ending crisis that is the sovereign debt crisis in Europe.  And the Eurozone.  For the Euro is lost in those dark and lovely woods.  Woods that are so deep that it will never find its way out.  And the only kind of sleep the Euro is going to get is the kind you don’t wake up from (see Britons face £5bn bill to help out Spanish as fears grow that Madrid will have to ask IMF for €300billion bailout by Hugo Duncan And James Salmon posted 6/1/2012 on the Daily Mail).

British taxpayers could be forced to stump up another £5billion to rescue Spain as the crisis in the eurozone spirals out of control.

Fears are mounting that Madrid will have to ask for an emergency bailout of up to £300billion as it struggles to prop up its basket-case banks.

A third of that money could come from the International Monetary Fund – including around £5billion from the UK, even though Britain is not in the eurozone.

UK taxpayers have already coughed up £12.5billion to rescue debt-ridden Greece, Ireland and Portugal…

But growing doubts over how the Spanish government will finance the £15billion needed to rescue Bankia, one of its biggest lenders, have raised fears that it will follow Ireland, Greece and Portugal in requiring a bailout from Europe and the IMF.

This week US investment bank JP Morgan warned a joint rescue of Spain could cost around £300billion.

The Spanish banking system has been crippled by nearly £150billion in toxic property loans.

At the heart of the sovereign debt crisis in Europe is debt.  They have way too much of it.  So much that the odds are not good that they will ever be able to repay it.  Which makes people very reluctant to loan them any more money.  It’s like loaning a friend money who already owes you a lot of money.  Do you loan him more money?  It just may help him turn his life around.  Start anew with a new job.  Earning enough money to support himself and pay you back.  That’s one possibility.  Then there’s the possibility he may just blow the money on booze, drugs and women.  You know he’s just going to spend whatever else you loan him.  And not pay any of it back.  So it would be rather foolish to loan him more money.

This is the decision facing the people who could attempt to bail out those in the Eurozone.  They’ve already loaned them a lot of money.  So these in-trouble countries can sustain the government spending their current tax revenue can’t support.  But the deal was to cut back that spending so they can live on what their tax revenue CAN support.  But there’s only one problem.  The people of these countries reject calls for them to live within their means.  And have had enough of austerity.  And that’s a big problem.  Because if they don’t live within their means they will perpetuate the sovereign debt crisis.  As they will always need to borrow more money to pay for the things that their tax revenue can’t afford.  Until the day this house of cards collapses.  And the longer it goes on the more money people will lose in bad loans to these in-trouble countries.

The central problem in this crisis are bad loans.  Caused by the easy credit policies of central banks to loan money to anyone so they can buy a house.  All this easy credit caused housing booms in countries all around the world.  And housing bubbles.  Then the bubbles burst.  Leaving countries with debt crises as toxic mortgages weakened banking systems everywhere.  And still Keynesian economists are urging central banks to repeat this reckless lending behavior again to stimulate economies.  And to bail out the Eurozone.  The problem is that the central banks have so destroyed their economies no one is borrowing money.  Or spending money.  Because no one thinks the worst has passed.  And businesses and private citizens have learned the lesson from the great debt crisis we’re going through everywhere.  Too much debt is a bad thing.  And are refusing to take on new debt.  And using what income they have to pay down existing debt.  Contrary to all Keynesian doctrine.  For they want reckless and irresponsible spending.  Because they believe only spending is good.

Politicians and central bankers said the situation in the eurozone was unsustainable and drastic action was needed to prevent the ‘disintegration’ of the single currency.

They spoke out as European leaders scrambled to stop the financial crisis in Spain spiralling out of control and infecting other countries such as Italy…

Mario Draghi, president of the European Central Bank, said the eurozone was unsustainable in its current form.

In his sharpest criticism yet of eurozone leaders’ handling of the crisis, he said the European Central Bank could not ‘fill the vacuum’ left by governments in terms of economic growth or structural reforms.

So, no, more easy credit isn’t the solution.  Countries must live within their means.  Which means adopting austerity measures.  And find ways to achieve real economic growth.  Not the kind that leads to bubbles.  Or sovereign debt crises.  And the best way to generate real economic growth is with tax cuts.  Cutting spending as needed so they spend only what their tax revenue can afford.  They must stop running deficits.  And stop borrowing money.  (Good advice for the United States as well).  As the private sector economy picks up because of a more business-friendly tax structure they will create jobs.  So all of those government workers who lost their jobs in the public sector can get new jobs in the private sector.  Whose salaries and benefits will not have to be paid for by more government borrowing.  If they adopt pro-growth policies like this the international community may still be able to help them.  And save the Euro.  But will they?  With all of that public opinion against any more austerity?  Don’t know.  Probably not. 

It’s unlikely that the Euro will ever find its way out of the woods.  For these woods are scary, dark and deep. 

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Bloated Public Sectors Responsible for the Eurozone Crisis

Posted by PITHOCRATES - January 1st, 2012

Week in Review

The Eurozone was Europe’s answer to the United States of America.  One large, single-currency, free-trade zone.  And it worked.  For awhile.  During good economic times.  Like most things work during economic times.  Like it does in business.  A business could have a lot of cost problems and inefficiencies.  But if sales are good people don’t tend to see them.  Because healthy sales revenue can fix any problem.  It’s when you don’t have healthy sales revenue that high costs and inefficiencies hurt a business.  And the cost cutting, nay, the cost slashing begins.  Which is what has happened in the Eurozone.  Only they haven’t started the cost slashing yet (see The Eurozone Crisis For Dummies by Simone Foxman posted 12/30/2011 on Business Insider).

Since joining the euro back in 1999, the governments of Greece and Portugal (among other offenders) have gotten used to spending a LOT of money. When times were good, it wasn’t a problem — banks and other investors were willing to lend them money on the cheap and their public sectors became bloated.

When the financial crisis hit, however, problems came to a head. Debt levels in Portugal, Italy, and Greece became unsustainable, and taxes in a contracting economy are no longer enough to pay the bills.

Greece, Portugal, and Ireland are still struggling to bring their public debt under control, after receiving billions of euros in bailout aid from the European Commission, the International Monetary Fund, and the European Central Bank (the so-called troika). Some of this aid was provided through a temporary Special Purpose Vehicle called the European Financial Stability Facility (EFSF).

For a complete summary of the Eurozone crisis follow the above link to the full article.

Some say Europe’s spending is the problem.  Others say it’s the austerity they’re pushing onto the high-debt states that has taken a non-problem and created a crisis.  Some blame outside economic factors such as the American subprime mortgage crisis that ruined a good thing.  To point the finger of blame you need to look at when the crisis became a crisis.  And when was that?  When these countries could no longer pay the bills for their bloated public sectors.  Regardless of what caused it.  It happened.  And when it did they showed us that they could only support their government spending during exceptional economic times.  Which can mean but one thing.  They were spending too much.

When a business finds itself in this predicament the long knives come out and they start slashing costs.  And the businesses that weren’t spending too irresponsibly usually survive.  Those who spent too much or don’t slash enough don’t.  And that’s where the Eurozone is right now.  But they have a peculiar problem.  They may have a currency union but they are still independent nations.  Rich with history and tradition.  And set in their welfare-state ways.  These great social democracies of Europe.  The Eurozone as a whole can only hope the problem states do the right thing and cut back their spending.  Which they haven’t yet.  And appear to be doing only with the utmost reluctance.  Which explains the ongoing crisis.

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Greece/EU/the Euro are not out of the Woods Yet

Posted by PITHOCRATES - January 30th, 2011

The Price for Greece to Avoid a Sovereign Default

Greece’s troubles ain’t over yet (see European Union talks on Greek debt as IMF flies in by Helena Smith posted 1/30/2011 on the Guardian).

The European Union is engaged in frantic behind the scenes talks to reduce Greece’s debt as international monitors fly into Athens this week. There is growing concern that the eurozone’s weakest state will be unable to end its worst crisis in decades, without a sovereign default.

A sovereign default?  Yikes.  That’s pretty bad.  That means things may be so bad that they may just have to start all over.  And just say ‘so sorry’ to all those debt holders.  Break that sacred obligation of a written contract.  Just like those written contracts with the public sector unions will be broken when they reorganize.

No nation wants to go down this path.  The Greeks certainly don’t.  So what will it take?  And can they do what it takes?

Economists also recognize that even if Athens enforced the fiscal consolidation programme demanded in exchange for the bailout to the letter, the country would have to generate a primary budget surplus of 5.5% just to keep up with debt repayments.

That, in turn, would not only require relentless austerity but years of sacrifice in a nation already racked by a widening gulf between rich and poor and the social tensions that unprecedented policies have brought.

The spectre of a Greek default has divided economists, with many arguing that it would trigger a chain reaction and have a catastrophic effect on Ireland, Portugal and Spain which are also struggling with heavy debts.

It is an uphill battle.  They got into this mess because of uncontrolled deficit spending.  They just couldn’t cut spending or raise taxes enough.  Now to prevent default, they will have to cut spending and raise taxes even more than they were willing to before.  Can the Greeks pull off this Herculean task?  Or should Ireland, Portugal and Spain be getting a little nervous?  Time will tell.

If East Germany could do it so can Greece

The Greeks have a friend in Angela Merkel, the chancellor of Germany.  Germany is the strong economy in the European Union.  And they have experience in bringing someone back from the brink.  The reunification of Germany after the fall of the Berlin Wall was not easy.  West Germany was a prosperous nation with a strong currency.  East Germany was not.  Rescuing Greece will be similar.  Restoring financial health to a weaker nation.  While protecting a strong currency (the Euro) that is key in the rescue (see Merkel’s Defense of Euro Forged in East Germany by Jack Ewing and Katrin Bennhold posted 1/30/2011 on The New York Times).

There are also practical lessons for Europe. Like Greece and Portugal, the former East Germany suffered from a crippling competitiveness gap yet it was locked into a strong currency, the German mark.

Mrs. Merkel has witnessed the enormous political divisions that can arise when taxpayers from one region are compelled to rescue residents from another.

And how bad did it get?

About 14,000 businesses were shut down and four million jobs lost in the first five years after formal reunification in 1990. Unemployment eventually peaked at more than 20 percent in 2005.

Since the fall of the Berlin Wall in 1989, two million of the 16 million people living in the east have moved west. Long-term unemployment and wage depression bolstered xenophobic parties like the National Party of Germany, which holds seats in the state Parliament of Saxony.

It won’t be pretty.  But it can be done.  If the Greeks can handle “relentless austerity.”  If the other EU members are willing to rescue the Greeks.  And if the Greeks can resist xenophobic fears of those trying to help them.

And while the Greeks face this austere future, the rest of us should think about reducing our own deficits.  Before we find ourselves saying, well, if the Greeks could do it, then so can we.

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Crushing Debt is Crushing Europe and the United States

Posted by PITHOCRATES - January 15th, 2011

The Republicans are Irresponsible for not Allowing the Democrats to Spend Irresponsibly

Washington has maxed out their credit card.  They do like to spend.  But now they need to increase their credit line.  And the Republicans aren’t playing nice (see US debt passes $14 trillion, Congress weighs caps by Tom Raum, Associated Press, posted 1/15/2011 on Yahoo! News).

Remarkably, nearly half of today’s national debt was run up in just the past six years. It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. The period has seen two major wars and the deepest economic downturn since the 1930s.

With a $1.7 trillion deficit in budget year 2010 alone, and the government on track to spend $1.3 trillion more this year than it takes in, annual budget deficits are adding roughly $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends.

In a letter to Congress, Geithner said the current statutory debt ceiling of $14.3 trillion, set just last year, may be reached by the end of March — and hit no later than May 16. He warned that holding it hostage to skirmishes over spending could lead the country to default on its obligations, “an event that has no precedent in American history.”

Such righteous indignation.  According to Mr. Geithner, holding the debt ceiling hostage is just irresponsible.  The Republicans are using the financial wellbeing of the nation for political gain.  But I see it differently.  I don’t see the refusal to raise the debt ceiling as being irresponsible.  I see the runaway spending that makes the debt ceiling an issue as irresponsible.  And, yes, you can blame Bush for adding $3 trillion in 4 years.  If you blame Obama for adding $3.42 trillion in two years.  And then for passing Obamacare which will make us pine for the gold old days when the deficit increased only $3.42 trillion in two years.

Debt-level brinkmanship doesn’t wear a party label.

Here’s what then-Sen. Barack Obama said on the Senate floor in 2006: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government’s reckless fiscal policies.”

It was a blast by the freshman lawmaker against a Bush request to raise the debt limit to $8.96 trillion.

Bush won on a 52-48 party-line vote. Not a single Senate Democrat voted to raise the limit, opposition that’s now complicating White House efforts to rally bipartisan support for a higher ceiling.

Apparently, reckless fiscal policies that explode the debt are only a problem when a Republican is president.  Obama, a tax and spend liberal Democrat, opposed raising the debt ceiling to $8.96 trillion.  Then he outspends George W. Bush and approves a debt ceiling somewhere north of $14.3 trillion.  And to add insult to injury, they bitch with righteous indignation when the Republicans object to their reckless and irresponsible spending.  As if there is no hypocrisy in their actions.

The Debt Dominoes ready to Fall in Europe?

But there is hypocrisy.  Worse, Obama is putting the nation in financial peril.  The debt ceiling is dangerously high.  It’s nearing 100 percent of GDP.  What does that mean?  Well, let’s take a look at Europe.

Greece is drowning in debt.  Even after their bailout, they project her debt to reach 165% of GDP in 2014.  Italy is close behind.  France, Ireland, Belgium and Portugal have debt between 80-99% of GDP.  Britain, Spain, The Netherlands, Germany, Austria and Hungary have debt between 60-79%.

Some of these nations are on the brink of bankruptcy.  Greece had to make ‘austerity’ cuts.  And the people rioted.  France increased the retirement age a couple of years.  And the people rioted.  Britain made students pay more of their own university tuition.  And the people rioted.  They just bailed out Ireland.  Portugal and Belgium have crushing interest costs on their debt.  Spain is of concern.  And Germany, the fiscally responsible nation in the Eurozone, is picking up the tab for a lot of these bailouts.  Not out of altruism.  But a Euro problem anywhere is a Euro problem for Germany.  She doesn’t have much choice.  But how long can she continue to afford this generosity?

Will the Debt Crises be the end of the ‘Cradle-to-the-Grave’ Nanny State?

Not long, it would appear (see Time for Plan B posted 1/13/2011 in The Economist).

This newspaper does not advocate the first rich-country sovereign defaults in half a century lightly. But the logic for taking action sooner rather than later is powerful. First, the only plausible long-term alternative to debt restructuring—permanent fiscal transfer from Europe’s richer core (read Germany)—seems to be a political non-starter. Some of Europe’s politicians favour closer fiscal union, including issuing euro bonds, but they are unlikely to accept budget transfers big enough to underwrite the peripheral economies’ entire debt stock.

Things are so bad with some of these Social Democracies in Europe that the Economist is recommending they just ‘file bankruptcy’ and start anew.  Their financial holes are just too deep.  Of course, this means they’ll probably screw the debt holders.  But there will be fair-shared sacrifice.  They’ll eliminate some of that debt.  But they will also eliminate a lot of that spending that caused their debt crisis in the first place.  Some of their ‘cradle-to-the-grave’ nanny state will go bye-bye.  Considering how ugly it was when France tried to raise their retirement age and when Britain cut back on tuition subsidies, these austerity moves will take ugly to a new level.

But like any problem, the longer you wait to address it the worse it’ll get.

And the longer a restructuring is put off, the more painful it will eventually be, both for any remaining bondholders and for taxpayers in the euro zone’s core. The rescues of Greece and Ireland have increased their overall debts while their private debts fall, so that a growing share will be owed to European governments. That means that the write-downs in any future restructuring will be bigger. By 2015, for instance, Greece could not reduce its debt to a sustainable level even if it wiped out the remaining private bondholders.

And this is our future.  Especially with Obamacare waiting in the wings.

The Road to Serfdom – from Medicare to Obamacare

We shouldn’t be talking about raising our debt ceiling.  We need to be talking about spending cuts.  Geithner, Obama, et al are playing a dangerous game.  They want to grow government at any cost.  To get it so deeply entrenched no matter the cost so that people will riot when faced with austerity cuts.  And they’re coming.  Austerity cuts. 

It’ll start with Medicare doctor reimbursements.  Then when Medicare collapses, Obamacare will add a public option.  This will be the end of private insurance.  Obamacare will then evolve into a national health service.  Which will ration health care services.  Then they’ll raise the Social Security retirement age.  Just like in France.  By then we’ll be well along the Road to Serfdom.

And then the rioting will start.

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Excessive Spending on the Public Sector and Entitlements Explode Debt to Unsustainable Levels

Posted by PITHOCRATES - January 12th, 2011

Our Debt as a Percentage of GDP Growing to almost ‘Greece’ Levels

US Federal Debt As Percent Of GDP ranged from about 32% to 52% during Ronald Reagan‘s 2 terms.  It ranged from about 56% to 67% during Bill Clinton‘s 2 terms.  It ranged from about 56% to 69% during George W. Bush‘s 2 terms.  After Barack Obama‘s first year in office it jumped to about 83%.  After his second year, it jumped to about 94%.  Our federal debt almost equals our Gross Domestic Product.  And President Obama wants to raise our debt ceiling so they can borrow more.  So they can spend more.  So how do these numbers compare to other nations?  Not good (see Same as the Old Boss? by John Stossel posted 1/12/2011 on Creators.com).

Last year, I reported that the United States fell from sixth to eighth place — behind Canada — in the Heritage Foundation/Wall Street Journal’s 2010 Index of Economic Freedom. Now, we’ve fallen further. In the just-released 2011 Index, the United States is in ninth place. That’s behind Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland and Denmark.

The biggest reason for the continued slide? Spending as a percentage of gross domestic product. (State and local spending is not counted.)

The debt picture is dismal, too. We are heading into Greece’s territory.

And we all know what happened in Greece.  They had a debt crisis in 2010.  They tried to cut spending.  Cut government benefits.  And the people rioted.  So, is it too late for us?  Perhaps not.  Because Canada pulled themselves back from the brink.  And if they can, can’t we?

Economist David R. Henderson points out that our neighbors to the north faced a similar crisis. In 1994, the debt that Canada owed to investors was 67 percent of GDP. Today, it’s less than 30 percent.

What did Canada do? It cut spending from 17.5 percent of GDP to 11.3 percent.

This wasn’t merely a cut in the growth of spending, a favorite trick of congressional committees. These were actual reductions in absolute spending.

“If a cabinet minister wanted a smaller cut in one program, he had to come up with a bigger cut in another program,” writes Henderson in “Canada’s Budget Triumph,” published by the Mercatus Center. All but one of Canada’s 22 federal departments experienced real cuts in spending. While Canada raised taxes slightly, spending was cut six to seven times more.

These supposedly painful cuts didn’t cause terrible pain. In fact, there was much more gain than pain. Unemployment dropped, the economy boomed, and the Canadian dollar — then worth about 71 cents U.S. — today is about equal to the American dollar.

Real spending cuts, eh?  Who are we kidding?  We can’t do that.  It just may be that Canada is more fiscally responsible than us.  And, dare I say, more capitalistic?

Debt Crises Hit Greece, Ireland and now Portugal

So how are things over there in Europe?  Everything hunky-dory now that the European Central Bank bailed out Greece and Ireland, saving them from their financial crises?  Well, they were talking about another EU nation that was in danger of following them.  Portugal.  So far, though, they’re still treading water.  They pulled themselves back from the brink of bankruptcy with a successful bond auction.  Unfortunately, the interest they have to pay on those bonds may bankrupt them (see This little piggy went to market posted 1/12/2011 by The Economist online).

But it is unsustainably high for a country with such so much public debt relative to its GDP. If Portugal is to remain solvent, its borrowing costs will have to fall much further. It is hard to imagine what might push its bond yields down other than concerted buying by the ECB, a de facto bail-out. It therefore seems likely that Portugal will eventually have to seek rescue funds from its euro-zone partners and the IMF, as Greece and Ireland have had to.

Yeah, it doesn’t look good for Portugal.  Or the European Union.  It’s kind of ironic.  The EU and the common currency, the Euro, were supposed to unite Europe and make it an economic superpower to compete against the United States.  But, instead, that noble idea is its own worst enemy.  Because of the common currency, one member’s fiscal mismanagement is a problem for all members in the union.  And social democracies just don’t give up those fat government benefits.  They spend until they can borrow no more.  Then they let the more fiscally responsible members bail them out.

Some of the EU members could learn a lesson from Canada.

New Jersey, New York, California and Illinois Having their own Debt Crises

And the U.S. could learn a lesson from Canada.  Because we just don’t know how to cut spending.  Illinois is “swimming in debt” and ranks 48th in job creation (see Illinois: Thank Goodness For Michigan… Or We’d Be Last In Everything by Tabitha Hale posted 1/12/2011 on RedState.com).  And what are they doing?  Cutting spending?  No.  They’re raising taxes.

In California, Jerry Brown will cut entitlements and raise taxes (see Jerry Brown’s Budget Gambit by Allysia Finley posted 1/12/2011 on The Wall Street Journal).  California, like Illinois, is sucking air.  And you need a supermajority to raise taxes in California.  And how does he plan to persuade the good people of California to agree to the tax hike?  By threatening to cut education if they don’t approve it.

Dick Morris writes that public sector unions are bankrupting New Jersey, New York, California and Illinois (see TO SAVE THE STATES: LET ‘EM DECLARE BANKRUPTCY posted 1/12/2011 on DickMorris.com).  He argues they should go bankrupt to break those unsustainable public sector union contracts.

Debt Crises the Norm unless Government takes on the Public Sector and Entitlements

Excessive spending leads to debt crises.  We all know this.  And yet no one wants to cut spending.  Except Canada (go figure).  Even though everyone knows this, no state will go up against the public sector.  Or entitlements.  For two reasons.  First, they just don’t have the stones.  Second, these are the most important demographics that keep these politicians in office.

So if you’re wondering what our future will be like just take a look at what happened to Greece in 2010.  For that may very well be our future.  Or it can be worse.  It can be like New Jersey, New York, California or Illinois.

www.PITHOCRATES.com

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