Is Spain the next Domino?

And the dominos keep falling, this time it is Spain. Again, they spend more than is brought in via tax revenue so they need to go to financial companies ("bankers") to buy the bonds to finance a government they can not afford. When the bill comes due the government realizes they need to curb spending and protests break out. A sad script playing out before us and it may not be too long before we see it in the US. The money quote:

On Sunday, protesters insisted that workers and the unemployed would not passively accept spending cuts to help ease a crisis they had no role in causing.

"The banks and the governments that caused this situation must know that we do not agree with the measures and the budget cuts, that we intend to be heard", the "indignants" movement said in its call for nationwide protests.

Greece and Austerity

As the previous post points out, Greece is in trouble. To get out of this trouble (as we talked about in class) they rely on the bonds market. The only way people will finance this spending (by buying their bonds) they need assurances that the spending will get under control. This results in what the media calls "Austerity" movements.

The problem arises when its citizens do not accept the fact that they are basically broke. They need to curb the spending and increase taxes to satisfy the bonds market. It appears as if they are catering to the Wall Street element, but it is really like learning to live within your means. This is the problem going on now in Greece as protests cripple the nation.

Dominos

Deficits are financed by issuing bonds. When the credit rating falls for those bonds, it signals an increased risk of default. This is currently the case in Greece (no nation is rated lower). When those bonds fail, those that hold those bonds suffer. This is one major reason why the nations in Europe are so closely intertwined. Why many of those nations are suffering because of their neighbors (Iceland, Ireland, Greece, UK, etc…). It is why when Spain and/or Portugal get into the same problem that Greece is in the other will feel it. And here is news of private US companies intertwined with Greece. Not good.

Solving the Deficit

The article we went over in class. Try solving the deficit on your own and see what our Federal Government looks like. Imagine the political will it would take to do it.

More on Debt

Another interesting piece on our National Debt. This time it does not come from an Op-Ed piece. A slightly different angle, interesting non the less. This issue is not going way.

Options When it Comes to Debt

Here is a good piece be David Brooks (from the NY Times... Op-Ed). He points out how unrealistic it is to get a handle on our debt problems by small tweeks in our spending. His point is that we have to change what we think of our role of the government. Money quote:

The coming budget cuts have nothing to do with merit. They have to do with the inexorable logic of mathematics. Over the past decades, spending in nearly every section of the federal budget has exploded to unsustainable levels. Each year, your family’s share of the national debt increases by about $12,000. By 2015, according to Douglas Holtz-Eakin, the former director of the Congressional Budget Office, Moody’s will downgrade U.S. debt.

Health Care and the Debt

There is plenty of confusion about connection between the Health Care legislation and our current fiscal situation. The main question is if repeal of the Health Care legislation would reduce or expand the deficit. This piece clarifies quite a bit.

Cutting Our Debt

We talk about what is happening in Europe and say the we are going down that path. We decide we need to get our deficit under control, and begin cutting our debt. We agree that we need to cut government spending and raise taxes to do this. But WHAT exactly do we cut, and WHICH taxes do we increase? This article gives us a good idea. It is worth the time to figure out.

Many people believe we will have to do this, the only question is if we do it before or after our nation get to the point that our European friends are in.

Deficit vs. Debt

Yet another example of how politicians try to play on words. This is a typical article about how our federal government needs to cut the deficit. What should be the serious discussion is what to do about the debt. I don’t know who to blame, the politicians or the journalists who never mention this to them. At stake are your generation’s future austerity packages. As we learn in class, cutting the deficit every year will still result in increasing the national debt.