Three weeks after European leaders unveiled emergency euro-area funding exceeding the symbolic $1 trillion mark, concerns about Spain’s position have ratcheted the nation’s borrowing costs to the highest levels this year. Crisis-fighting resources will dominate talks at the International Monetary Fund’s spring meeting in Washington from April 20-22.
While the U.S. insists that Europe can overcome the crisis using its own financial firepower, euro-area officials say they’ve done enough to trigger additional global assistance. The urgency was underscored last week as Spanish and Italian yields jumped, challenging assumptions among the region’s leaders that the worst of the fallout was behind them.
But I thought there was no crisis? That we all took “decisive” and “effective” actions in 2008 and 2009?
Hmmm… you mean that was a lie?
Spain’s 10 year bond is trading near 6%, and Italy is trading near 5.5%. That’s a problem; Spain is feeling desperate, as one of their economic ministers is now calling for the ECB to buy yet more of it’s trash, er, “debt.”
The real problem that Europe has is the same one we have in the United States — we, and they, are unwilling to fund our government programs with sufficient money in the present tense.
That is we’re all unwilling to come to the public of our respective nations with the open question as to exactly what services we want our governments to provide, and then set tax levels such that they’re paid forin full in the present tense.
But this is exactly what we must do — and what they must do.
This weekend I was at a political event canvassing for Calen Fretts who is running for Congress as a Libertarian. Our current hurdle is getting on the ballot, which requires petitions. In the course of gathering them I spoke with a lot of people, and one of them was very focused on foreign policy, hammering on the Iraq war and generally being hostile to Libertarian ideas.
At one point I pointed out that irrespective of what he, or I, might like the fact remained that $750 billion a year (our defense budget) is roughly 1/3rd of all tax revenues that the Federal Government currently receives. While national defense is certainly one of the Constitutional powers of the Federal Government if you can’t write the check without it bouncing it’s immaterial. I recognize, for example, that we cannot simply walk off into the sunset on foreign policy as we’ve managed to create for ourselves a world where weneed foreign resources, particularly oil, but this is something we can correct over time.
What we can’t do is continue to believe that we can cut taxes further while increasing spending at the same time. If we’re going to have lower taxes (and everyone likes lower taxes) then we must also have lower spending. This isn’t optional — it’s absolutely necessary.
We simply have to have the conversation with the American public in recognition that we either have to cut federal spending by about 50%, double tax receipts or some combination of the two. Either is going to have a significant and inescapable economic impact.
Spain, Italy and the rest of the Euro Zone are in the same box. None of these nations have actually addressed the funding and spending mismatch that led them into this box and none of them have shown any indication of correcting that error. Nor have we.
But if we’re going to ever make a serious effort at resolving our debt problem before we play Thelma and Louise, driving straight off the cliff, we must stop with the rhetoric and deal with the mathematics.
Walker was up on CNBS this morning again saying that the problem is not “today” but “tomorrow.” He’s wrong. In fact, he’s lying as he knows he’s wrong. The problems we have today are real, they are emergent, and health care is not a Medicare or Medicaid problem, it is a structural issue in our medical system.
We simply cannot continue to run $1 trillion+ annual deficits. This has to end now.
In Europe they must also end these imbalances now.
If those problems are resolved then while the short-term economic difficulty will be significant the intermediate and longer-run benefits will be stability and economic prosperity.
If not then the outcome will be ruin.
In that case it is not a matter of if, but when.