Tag Archives: economic collapse

Welfare States in Europe can not keep their promises of goodies (Part 1)

I have been saying over and over that the USA is heading to Greece. I will post this story in two different posts. It should show us why the destination of European Welfare State is not a good one even though we are heading there fast under President Obama.

Flashing Red: European Debt Crisis Signals Collapse of Social Welfare State

By James Roberts and J.D. Foster, Ph.D.
August 16, 2011

Europe’s socialist (or “social democratic”) welfare state is collapsing under the load of unsustainable debt. There is no chance European politicians will ever make good on the many costly and unfunded entitlements they have promised their citizens.

The fundamental problem in the European Union is a monetary policy failure. In conjunction with the debilitating effects of the social welfare state, this has led to a broad economic collapse among the lesser states—notably the PIIGS (Portugal, Ireland, Italy, Greece, and Spain), but also some of the EU’s newer members—and it threatens to envelop the greater states.

For years, this collapse among the lesser states was disguised by debt accumulation—countries would borrow (at de facto concessionary interest rates) to overcome their inability to generate adequate income by producing and selling. The lack of actual and prospective growth combined with growing debt burdens has led to a long-term solvency crisis, which has been bubbling up of late into a series of liquidity crises.

The monetary and fiscal situation in the EU is increasingly unmanageable, as the debt burdens grow and growth prospects diminish further. To paraphrase an old saying: You can fool some of the credit markets all the time, and all the markets some of the time, but you cannot fool all the credit markets indefinitely.

The Ill-fated Euro Experiment  

The vision of a “euro zone” was ill-conceived from the start. It is now increasingly acknowledged that Brussels’ lack of control over social spending, especially in the PIIGS, doomed it from the beginning. Agreements (e.g., the Maastricht Treaty)[1] to stay within EU member government spending targets were routinely flouted, even by the largest EU countries.

But the growing gap in competitiveness amongst EU members was far more important. Some, like Germany, tended to adopt policies like labor market reforms that built on their inherent economic strengths. The strong got stronger, while others, like Italy and Greece, stood still or even retreated on policies that would have sustained their international competitiveness. The focus today on shifting painfully to policies that can make these countries competitive is simply too little, too late.

And now, the instability is rapidly spreading to the pillars of Europe—first Spain, then Italy, and now apparently to France. Southern Europeans kept borrowing in low-interest-rate euros (which simultaneously inflated housing bubbles in their countries) until, in Margaret Thatcher’s words, their socialist governments “ran out of other peoples’ money!”[2] As a result, some of Europe’s large private banks now hold toxic quantities of sovereign debt issued by the PIIGS and are threatened with extinction through serial defaults—thus they are deemed “too big to fail.” Already there is growing worry over the solvency of France’s Societe General Bank because of this crisis, with several other major European banks likely to be in trouble if the situation is not resolved.

To reduce federal spending and prevent economic collapse, U.S. policymakers should follow The Heritage Foundation’s plan in “Saving the American Dream.[8]

James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics, and J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

What is the cause of the U.S. credit downgrade? (Part 1)

moore

Movie Clip Canadian Bacon Prt 1

What is the cause of the U.S. credit downgrade? (Part 1)

 
Still of Alan Alda, John Candy, Kevin Pollak, Rip Torn, Michael Moore and Rhea Perlman in Canadian Bacon

7 January 2011
© 1995 Metro-Goldwyn-Mayer Studios Inc. All Rights Reserved.
Still of Alan Alda, John Candy, Kevin Pollak, Rip Torn, Michael Moore and Rhea Perlman in Canadian Bacon

Michael Moore is a liberal movie director and his films have been pitiful. However, I did enjoy the movie “Canadian Bacon” which was very funny. Above is a clip from that movie.

Liberal firebrand Michael Moore called on President Obama to respond to the U.S. credit downgrade by arresting the leaders of the credit-ratings agencies.

On his Twitter feed Monday, the Oscar-winning film director also blamed the 2008 economic collapse on Standard & Poor’s — apparently because it and other credit-ratings agencies did not downgrade mortgage-based bonds, which encouraged the housing bubble and let it spread throughout the economy.

“Pres Obama, show some guts & arrest the CEO of Standard & Poors. These criminals brought down the economy in 2008& now they will do it again,” Mr. Moore wrote.

Standard & Poor’s, one of three key debt agencies, stripped the U.S. federal government of its AAA status Friday night and reduced it to AA+ for the first time in the nation’s history.

___________________________

I don’t think that Standard and Poors did anything wrong and I think they would have been wrong if they did not act because of all the political pressure they were receiving from the Obama administration. My views are much closer to those below.

GOPers Romney, Bachmann, Huntsman, Santorum blame President Obama on S&P credit downgrade

BY Aliyah Shahid
DAILY NEWS STAFF WRITER

Saturday, August 6th 2011, 12:10 PM

The GOP‘s cadre of anti-Obama presidential candidates are hammering their nemesis for the first credit downgrade in U.S. history.Late Friday night, following months of bruising, rancorous debate in Washington over the debt ceiling and America’s future deficit, the credit ratings agency Standard & Poor’s downgraded the country’s sterling AAA credit rating to AA+. The other two major ratings agencies — Moody’sand Fitch — maintained the nation’s AAA rating.”America’s creditworthiness just became the latest casualty in President Obama‘s failed record of leadership on the economy,” said former Massachusetts Gov. Mitt Romney in a statement.

“Standard & Poor’s rating downgrade is a deeply troubling indicator of our country’s decline under President Obama. His failed policies have led to high unemployment, skyrocketing deficits, and now, the unprecedented loss of our nation’s prized AAA credit rating.”

The Obama administration slammed the credibility of the analysis S&P used to downgrade the nation’s credit rating, insisting there was a $2 trillion error in S&P’s calculations. The ratings agency conceded the error, but did not alter its conclusion.

Tea Party darling Rep. Michele Bachmann — who voted against the debt-ceiling deal — also laid into Obama, declaring that the “President has destroyed the credit rating of the United States.”

She even went as far as calling for the resignation of Treasury Secretary Tim Geithner.

Former Utah Gov. Jon Huntsman described the downgrade as a result of a “lack of leadership in Washington,” adding that “for far too long we have let reckless government spending go unchecked and the cancerous debt afflicting our nation has spread.”

And ex-Pennsylvania Sen. Rick Santorum blamed Obama for not taking more responsibility.

“I understand the U.S. Treasury is going back to Standard and Poor’s to say that a two trillion dollar mathematical error by S&P contributed to the downgrade,” he said. “So, in addition to blaming President Bush for all of its problems, now the White Houseis blaming S&P – but this happened on the President’s watch – and he has to deal with it.”