Sunday, February 19, 2012

The real and present danger of debt

The story of Greece continues to be instructive for America, if only we would listen.

Almost daily, the papers have another story of yet another traunche of bailouts from the remainder of Europe, and another round of austerity on Greece, through budget cuts, and the downward spiral of the Greek economy as a result, with soaring unemployment and taxes.

But we must remember, that the problems of today arose because of out-sized Greek debt.  Here are the demonstrated consequences of too much debt:

1)  The debtor becomes beholden to the creditor, in the case of Greece, doing things with its budget that it does not want to do, but in order to avoid being declared in default of their debt obligations, they do what as a solvent and sovereign nation, they would not.  This means that Greece is really no longer a sovereign nation.

2)  The debt eventually must be paid.  The pain that Greece is suffering today of paying more and more of its budget for fewer and fewer services, so that it might retire its debts, is exactly what COASTers and others have warned all along.  The over-spending party of this generation must be paid by later generations.

3)  Debt incurred in good times, means you can't stimulus spend in bad times.  Because of too much debt, Greece in a recession is unable to now over-spend to stimulate its economy.  Imagine, however, if they had saved and built a surplus in good times.

4)  Because of 1, 2 and 3, above, when debt problems arise, there is no time, no flexability, and no options to address the problem, because we spent and borrowed against our time, flexability and options when we should have been saving and investing.

So, U.S.A., hold onto your hats.  A bumpy ride is still to come.   

1 comment:

  1. I've already deleted two comments from hateful liberals who would rather launch into personal attacks against local activists than comment on the substance of the article. Comment on the subject matter being presented or be deleted.

    If you are not capable of understanding concepts such as the pitfalls of government debt and the crippling Greek debt crisis, then don't post here. There are plenty of left-wing sites around here that cater to liberals who can't understand anything beyond a personal attack. If that's all you understand, post there, not here.


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