Tag: sovereign default

Categories
folly too much government

Borrow It Forward

The consequences of borrowing to fund welfare states have been getting more obviously destructive. In the European Union, the fates of governments with still a few years to go to pay the piper are tethered to the fates of even more wildly profligate states.

Yet the solution most EU officials propose, aside from more tax hikes, is to lend and borrow even more. Whole governments go on the welfare roll. The countries delivering the loans in turn “borrow” from their own unwilling citizens.

When will it end?

Maybe never, if the precedent being pondered by the innovative government of Portugal is implemented and gains traction.

A court there has ruled that it’s unconstitutional for Portugal to save money by cutting the salaries of government employees. (Perfectly all right to hike taxes, though.) So the government is thinking of end-​running the decision by paying workers part of their salaries in treasury bills instead of the usual funny money.

The logic is stunning. Obviously, we can pay everything we owe just by issuing IOUs! Not since Rumpelstiltskin wove straw into more straw has anybody fashioned something this magical.

Nobody need ever go bankrupt again so long as we all keep issuing IOUs to vendors and creditors. All the bad consequences of bad practices will maybe just disappear through this expedient! Incredible!!!

Maybe I’ll call up my credit-​card company to explain how this works. Once I figure it out myself, that is.

This is Common Sense. I’m Paul Jacob.

Categories
Accountability folly too much government

A Dog-​Wagging Tale

In California and Rhode Island (to name just two states) cities are going bankrupt … or closing libraries and parks and cutting police and firemen to forestall going belly up. Meanwhile, they continue paying huge sums in employment benefits for folks who used to work at city hall, but have since retired into the politicians’ promised land.

Bankrupt cities don’t do so well at paying out those promises, though.

That’s why even many union members in San Jose and San Diego, California, supported the victorious citizen initiatives earlier this year that created a reasonable and workable pension program, and why serious pension reform passed through the legislature and was signed into law in deep-​blue, heavily unionized Rhode Island.

In Los Angeles, former Mayor Richard Riordan’s Save Los Angeles campaign has worked mightily to prevent the city’s three pension systems from hitting the outrageous and piggy-​bank breaking annual cost of $2 billion by 2017. Unfortunately, Riordan’s group abandoned a petition drive to place a reform measure similar to San Diego’s and San Jose’s on the Los Angeles ballot next Spring. The Service Employees International Union (SEIU) Local 721 claimed credit for blocking the initiative, claiming they convinced thousands of petition signers to withdraw their signatures.

Now, the Los Angeles Daily News reports that, “With no pension ballot initiative to fight, the unions can re-​focus their energy and their money on the races for mayor, controller, city attorney and the City Council.”

“We are more freed up now,” said an anonymous union official.

And likely to have even more influence on how the city will be run and financed and managed.

Or should I say, “mis-​managed”?

This is Common Sense. I’m Paul Jacob.

Categories
too much government

The Greek Misprize

Sometimes a great misunderestimation.

George W. Bush’s “misunderestimate” still has a jolly ring to it, in my ear, just as does the common barbarism “irregardless.” Yet I realize that, in both cases, the prefix adds no new meaning to the word it would seem to modify.

Regardless, underestimation is today’s theme.

Matthew Feeney, at Reason​.com, notes the shock-​without-​awe of the Greek government’s 2013 budget, just released. “The budget is worse than the 2010 projections,” he notes. And that simple statement almost qualifies as understatement:

The IMF had been hoping that the Greeks would manage to get their debt to GDP down to 120 percent by 2020. Considering that the newest budget projects a debt to GDP rate of 184.9 percent in 2016 it is unlikely that this goal will be reached.

That 184.9 percent figure was revised up from previous estimates of 179.3 percent.

The amount of debt is now way beyond the country’s annual income, as measured by GDP. I’m not one to rely heavily on GDP figures, but we need some comparison, and a market/​private sector income figure would not make the 2013 ratio look any better.

And this is not a new thing. The Greeks have been underestimating their debt-​to-​GDP ratio for years now, as a nifty graphic from Zerohedge shows.

When a country is as overladen with government workers and other tax consumers as Greece is, this is to be expected. Zerohedge was right in 2010, to note that “Greece just got bailed out so it can get into even more debt!” At some point, hope morphs into fantasy and misunderestimation of future insolvency becomes a way of life.

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

A “Progressive” Reform

The money’s running out; the government is on a timeline. Something must be done before going into default.

Of course, the Executive Branch could prioritize spending, fiddle with accounts and still pay the interest on the federal debt as well as pay Social Security recipients — to year’s end. But it looks like the Obama Administration is just as committed to brinksmanship as the (heroic!) Tea Party folks who refuse to raise the debt ceiling.

And now the infamous “Gang of Six” re-​emerge with a cockamamie proposal to “solve” the problem, mostly by saying they’ll “cut in the future” but keep mum, for now, what those cuts would be. It’s the typical lily-​livered politician’s move.

The worst of the Gang of Six proposal, as fed-​spending watchdog Dan Mitchell noticed, is that the alleged spending cuts don’t actually cut spending overall, just (get ready for it…) cut spending over planned increases. 

We’ve been hearing this since the Carter era.

Something I haven’t heard from anyone (except my colleagues, of course — nothing from politicians, naturally) is a real cut that could substantially help. 

Since the government is running out of money, cut federal wages across the board.

And make the cuts “progressive.”

How? Take any current federal government salary. Exempt the first (say) $60,000. And then cut the remaining salary level above that by (say) 20 percent. The exemption makes the rate cut in effect progressive. The “rich” would face greater income reductions.

Progressives should like that, no?

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

The Inglorious Mess That Is Greece

Ah, the glory that was Greece! Too bad the modern country is anything but. The nation-​state of Greece is going broke, and going broke spectacularly.

And, dare I say it, instructively?

Everybody’s blaming everybody else, there. But the simple truth of the matter is that the politicians of Greece — both socialist and “conservative” — enticed citizens to go along with a sustained binge of spending, spending far beyond revenues.

And then the government lied to European Union HQ in Brussels about how much it was spending over revenues.

And, you guessed it, Greece continued to borrow even more.

Yes, public spending in Greece was more out-​of-​control than government spending here in America. And that’s why it’s instructive. What is happening right now to Greece is happening elsewhere in Europe — Italy, Spain, Portugal — and is on pace to happen to us, too. 

Greece does have one option the good ol’ US of A doesn’t have: It can go begging to the European Union. So far, saner heads in the EU are saying “no,” but that may not last. 

While we don’t have that option, Greece lacks ours: With the Euro as its standard, it’s constrained from the monetary fiddling that American leaders are tempted with. Inflation. Hyperinflation.

When things get worse here, we’ll hear talk of huge tax hikes, confiscations, and sovereign default. 

But also expect a lot of what Greek politicians did: Lying.

Inglorious, eh?

This is Common Sense. I’m Paul Jacob.