Monday, June 27, 2011

Failing To Learn From Europe

As President Obama meets with Congressional leaders to squabble on whether or not to raise the debt ceiling, I am amazed at how our leaders fail to learn the lessons of what is going on in Europe.  As we argue about the ramification of raising or not raising the debt ceiling, how much government spending we should have and what our tax rate should be, we act as if what is going on in Europe will not happen to us here. 
For example, France, Ireland and Italy have either had their credit rating lowered or are under threat of having their credit rating lowered by Moody’s Investors Service. Moody's isn't the only one lowering the credit rating of these nations. Other companies have lowered them too. For example, one company has lowered Greece to junk bond status.
Yet, we act like the consequences of the reduction in credit ratings felt by these countries won't happen to us despite the fact that Moody's and other credit rating companies have been threatening to reduce America's credit rating.  Moody warned us that it would reduce our credit rating back in January of 2011 and has just recently issued another warning. Having our credit rating would be bad news for America and yet we continue to ignore these warnings.
As as result of massive debt and a loss in credit ratings, many countries in Europe such as Spain, Portugal, Ireland, England, France, Italy, Latvia, and many other European countries have enacted tough austerity measures in order to reduce their public debt. Yet, many of these countries are experiencing massive social unrest because people are unhappy with the austerity measures. Greece is constantly getting rocked by protesters who demand to keep the status quo. Spain is now experiencing protesters too. 
John E. Silvia, chief economist at Wells Fargo, has warned that the United States is on a path of insolvency much like Greece and Portugal are: 
To me—being in Europe for a few days—the plot in Greece and Portugal sounds an awful lot like the same plot that's going on in the United States. But the characters have different names," he said.
As the deadline for a budget agreement looms in Congress, Silvia told CNBC that the US must recognize that the moderate economic growth forecast by most economists for the country will fail to generate the tax revenue necessary to fund long-running government entitlement spending.
"We have to make some arrangements in terms of cutting back the promises that were made by prior politicians for these entitlements," Silvia said.
"(We've had) forty years of political promises to give people certain entitlements, certain benefits. And we've now come to understand that the United States is in a very difficult position than it was in the early post-World War II period. We're not the dominant economy. And our pace of growth has moderated. Our ability to finance this is all limited." 
Judd Gregg (R-Nh) is another voice who has raised concerns about the U.S. spending and how it contributes to the increasing U.S. deficit. He has stated that the financial future of the United States looks grim unless makes major changes in its spending habits:
Chief among Gregg's concerns is the massive deficit under which the U.S. is currently operating. Gregg says the economy is on an "unsustainable track" that, if continued at its current pace, "will double the federal debt in five years, and triple it in 10 years." Gregg compared financial problems here in the U.S. to those Greece is currently having, noting that while the U.S. is a "more vibrant nation, we are still on the exact same track" as the troubled country when it comes to finances.
Gregg insists we need to cut spending, especially as the nation gets ready to take on "70 million retirees" as opposed to the "35 million retirees" the U.S. is currently sustaining via Social Security, Medicare and Medicaid programs.
The Dallas Federal Reserve Bank President Richard Fisher has issued the same warning as well stating that unless we make serious changes now, then the debate will revolve around when will America go bankrupt:
"If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt. "The short-term negotiations are very important, I look at this as a tipping point."
But what is going on in Europe will happen here, if we fail to take immediate action to fix our economy. We have the ability to avoid the problems that Europe is going through. There are many people who have been warning us that we are following down the same path as Europe. 
However, the President doesn't want to learn from Europe. He wants to emulate Europe by enacting expensive programs like starting new rail road projects, ObamaCare, and a host of other unfordable government projects. 
George Santayana famously said that "those who do not learn from history are doomed to repeat it." Unless we learn from the mistakes of Europe, then we are doomed to repeat it too. 

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