CAROL PERRY: Look to E.U. for warning as to our own fate
For the Nevada Appeal
QE2 , that wacky plan where the Federal Reserve prints money and buys U.S. treasury debt in order to keep interest rates low, ran into a problem last week. In spite of all that printing and buying, rates actually went up.
So this week the European Central Bank decided to do the same thing and instituted large-scale bond buying of some of their weaker players in the Eurozone. Apparently a bailout of Greece did not contain the problems that years of overspending and entitlements had caused, so now it is Ireland’s turn. Next Portugal and Spain or perhaps Italy or France; they all have similar issues caused by similar spending programs.
Many members of the EU have voluntarily started to cut spending in entitlement programs commonplace in Europe. We can see how popular austerity programs are in the Eurozone just by watching the riots on the nightly news. So why not drink a little QE Kool-aid like the Americans?
One potential side effect of quantitative easing is the liquidity it creates in currencies. When you are awash in cash, the prices of commodities tend to rise, and that is exactly what is happening now. Too much money in circulation usually means inflation down the road. The value of the dollar or euro starts dropping against metals or agricultural commodities. Oil is at a 25-month high against the dollar even with lower usage and more than adequate supply. I know it is the holidays and we should all be spreading comfort and joy, but I find these current trends both here and in Europe more than a bit disconcerting. Let’s compare and contrast the USA to the EU.
As we look at all the chaos across the pond, the infighting between the strong and weak members of the European Union has a familiar ring to it. The EU economy consists of a single market using the euro as its central currency. The EU consists of 27 states, of which 16 states use only the euro. Other states have either opted out or are in the process of conversion to the zone. The EU by GDP is considered the largest economy in the world by the International Monetary Fund. Ours is the second largest.
Even though they are one union, not all states run their individual economies the same way. Germany, the powerhouse, makes up almost 20 percent of EU GDP, so can anyone blame them for being cranky about central bank bailouts and bond buying in Greece and Ireland or proposed rescues of other weaker and bigger spending members? Germany and other EU members that are fiscally sound are insisting that those getting bailouts cut back on spending in a big way or “no euros for you.”
Unlike our own “too big to fail” fiasco, EU bailout money appears to have very tight strings attached. Of course, some of that money is coming from the IMF, of which we are contributing members at 17 percent. That is our tax money, people.
Our union of 50 states also has big spender states like California, currently 18 percent of our own GDP. After seeing the election results in our neighbor state, it is apparent that they are going to wait until they face bankruptcy, then rely on the “too big to fail” strategy pulled off by the banks and AIG instead of voluntarily cutting back on spending. Even as the Government Accounting Office continues to warn that our current fiscal policy is unsustainable, we as a nation and as individual states continue to spend.
The next election is 23 months away and there is no real serious discussion about cutting spending or programs. Those wanting to get re-elected would prefer discussing anything else, like “don’t ask, don’t tell” or how to censure Charlie Rangel. Pressing issues in the lame duck session, no doubt.
Perhaps we should view Europe’s problems now as our future if austerity programs are not put in place soon. Just guessing, but I would imagine that Texas is going to say “no dollars for you,” California, unless some fiscal strings are attached.
Go to http://www.pgpf.org, or the Peterson Foundation to read more about our problems and solutions. Do not think that what is happening in Europe cannot happen here. Complacency and apathy have gotten us to where we are today, bankrupt and in denial.
On that note, Happy Hanukkah, Ashura, Bodhi Day, Santa Lucia Day, Las Posadas, Christmas, Canadian Boxing Day and Kwanzaa to you all.
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at email@example.com.