by Bill Baker, J.D.
Editor and Publisher, The San Bruno Beacon

On January 23, 2010 there was an Associated Press story titled, ECB President: Greece Must put Finances in Order. The article discussed how the European Union was pressing Greece and other countries with excessive budget deficits to reign in spending and put their finances in order. Why? Because the financial condition of all EU Members affects the value of the Euro.

Greece is getting the headlines about its shaky fianancial condition. However, other EU Members also have severe economic problems that have been pointed out in a Telegraph  article titled, Monetary union has left half of Europe trapped in depression. This January 17, 2009 article observed:

"Events are moving fast in Europe. The worst riots since the fall of Communism have swept the Baltics and the south Balkans. An incipient crisis is taking shape in the Club Med bond markets. S&P has cut Greek debt to near junk. Spanish, Portuguese, and Irish bonds are on negative watch."

Not unlike the United States, the Greek, Spanish and Portuguese governments are spending more money than the private sector can support.

Why should you be concerned about what happens in Greece or any other EU Member nation? Ever heard of the domino effect? The collapse of one or more EU Member nations would cause a panic in the equity and debt markets that could lead to further collapses in other financially weak EU Member nations (i.e., Spain, Portugal) that would in turn lead to even more collapses as investors and other lenders stop lending money and interest rates skyrocket This news, about the possibility of the financial collapse of one or more EU Member nations, has already started exert downward pressure on international equity markets.

Bankruptcy and hyperinflation

You could say that Iceland's bankruptcy in 2008 was the harbinger of worst things to come. The financial collapse of any nation causes off the charts panic, terror, and social instability as people watch their money become worthless and their ability to buy the necessities of life frozen as the ability to exchange currency for goods stops. This currency collapse scenario results from hyperinflation. What does hyperinflation look like? An article on Wikipedia points out that In 1923, the German Weimar Republic, "was issuing two-trillion Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government's Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000; 100 billion on the long scale). At the height of the inflation one U.S. dollar was worth 4 trillion German marks. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×10¹⁹, or 33 quintillion) Marks". This is the wheelbarrow full of money to buy a loaf of bread scenario.

The heroin addict school of economics

We are now starting to see that while massive government borrowing and spending have given the  global economy a short term hot shot in the arm, these ill advised measures have actually done catastrophic overall damage to the world economic picture because world governments are now buried in a mountain of additional debt that did not exist before. The result: higher taxes, devalued currency and hyperinflation.

I call the Obama style borrow and squander approach to the U.S. economic crisis the heroin addict school of economics. Trying to spend yourself out of a financial crisis, by piling more debt on top of an existing mountain of debt that caused the problem in the first place, is like a heroin addict trying to kick their drug habit by injecting themselves with more heroin. They feel an initial surge of euphoria followed by death or a worse heroin addiction.

When I was predicting that the United States was headed into a recession or depression, a year before the Lehman / Bear Sterns collapse, my friends said that wasn't going to happen. However, I was and am  amazed at how galactically stupid people were and are in actually believing that welfare state politicians and bureaucrats (who earn their living by feeding of off of other people's tax dollars and justify their existence by creating more taxes to pay for their jobs and benefits) could provide a solution to the worst financial crisis to hit the world in a generation. That's like asking a dog to be a cat.  The answer from these government functionaries was and is to spend more taxpayer money on more government jobs and raise taxes.

There is a point at which too many people are working for the government. The government debt resulting from this destructive level of government workers results in taxes and interest rates that cannot be supported by the shrinking private sector. This results in economic collapse. As is true in any host-parasite interaction, there must be symbiosis for the parasite to survive. If the host is overwhelmed, by an opportunistic pathogen, both the host and the parasite die.

End game

Now, as I have predicted, things are getting worse and the United States is headed for an economic  catastrophe that will create dramatic social change.