Greek Debt Downgraded Again

One of the buzz words that made me chuckle last year was austerity. Austerity this, austerity that, as if it would actually solve anything. I’ve mentioned before that this crisis isn’t going to be solved through austerity measures and higher taxes. This is becoming clearer by the day as Standard & Poors downgraded Greece’s debt once again. In keeping with the pattern that has been persisted throughout this crisis, analysts and global leaders are baffled by Greece’s inability to mount a recovery.

When people speak of austerity, they are referring to the government. So if the government reduces spending to be “austere”, this means they will have to cut public sector workers and/or cut wages. Fine. But people seem to forget that the majority of the population in Greece was employed in the public sector. So the EU was effectively pushing a program of economic recovery via higher unemployment and lower wages. What a betrayal of common sense.

This doesn’t have to be so complicated. Make creditors take a haircut. Restructure the debts. Stop adjudicating in favor of banks at the expense of the people. Break from the Euro and devalue. The solutions to this crisis are pretty obvious and you would think EU officials would catch on. But what are they recommending a year after seeing their programs fail? More of the same failed medicine. More austerity and more bailouts.

Now let’s bring this back to America. The reason budget cuts haven’t been deeper is fear of the potential outcry from public sector employees and labor unions. Because cuts are so politically unviable, there is a very good chance that no meaningul reforms will be made until a major crisis hits. Until then, government officials are trying to veil our problems through higher inflation.

It’s true, we are not Greece. The U.S.government can get away with a lot of incompetence because the dollar is still the global reserve currency. However, the individual states in America are pretty indistinguishable from Greece. They will likely be the source of the next crisis in America, probably in a 2-3 year timeframe. In part because the Federal government will have to bail out larger states, our budget deficit is set to skyrocket. We are talking deficits in the $2-$3 trillion dollar range.  When that happens, I believe the dollar crisis won’t be too far behind. All of this is not too hard to predict; it is happening in slow motion.  

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