Greek Tragedy Coming to a Theatre Near You
Posted by Doug Rice on Wed, Feb 10, 2010 @ 10:51 AM
Global markets are focused on the situation in Greece and the need for Germany to step up and bail out the troubled nation.
Protesters will likely take to the streets if something doesn't get resolved this week as they need to borrow money by next week or go into default.
It's likely that either Germany by itself or with a nudge from the EU and ECB will take steps to avoid widespread panic. But that's not guaranteed and has never been done.
Anytime you are in uncharted waters, you can hit icebergs you didn't see coming.
The solution to Greek situation is financially simple, but politically almost impossible.
Simply increase taxes and decrease benefits to put their fiscal house in order.
To put it in personal financial terms, work more and spend less. (Not many politicians running on that platform are there?)
They have proposed raising the retirement age from 61 to 63, and predictably, the baklava hit the fan.
While the extension to 63 doesn't seem like a Greek Tragedy to us, it sure does to them.
Why this matters to you
California has the lowest debt rating of any State and both Moody's and Fitch rate it below Greece!
Note: California's economy is five to six times larger than Greece.
And California isn't the only state that is in this trouble.
Because Greece is a member of the European Union, they don't have their own currency. So they can't pay their bills by printing money like our Federal Government can or any other truly sovereign nation.
Greece is like California in this respect. They have to pay their bills by borrowing money or collecting taxes. When the lenders stop lending, the only option is to collect more taxes or go bankrupt.
But this won't happen to us. The federal government will save us.
Won't it?
Here's the rub.
For Germany, or the ECB for that matter, to agree to bail out Greece, they are going to have conditions and they are concerned that whatever is done for Greece will need to be done for Portugal, Spain, Ireland, Iceland and maybe more.
So the conditions will be harsh; increasing taxes, cutting programs, other measures to put their fiscal house in order.
Exactly what the protesters are against and what will increase the unrest.
For the US federal government to bail out California, a similar problem exists. They could help us, but then they would have to help many, if not all, the other states.
And the conditions of their help could be more harsh that Californian's would like because they need to stop every other state from asking for the same thing.
Governments are no different than individuals. If you can't pay your bills, your lifestyle has to change until you can.
Most Americans aren't paying attention to Greece or any of the problems "over there" but they should be.
It's a rehearsal of our own version of a Greek Tragedy that could be coming to theater near you.