An alternative to popular faith
AP 5/7/2010: “European leaders sought Friday to convince fearful markets that the Greek debt crisis won’t spread to other countries and derail the continent’s hesitant economic recovery. France and Italy approved their share of a euro 110 billion ($140 billion) bailout to keep Greece from imminent default [...] EU leaders have insisted for days the Greek financial implosion was a unique combination of bad management, free spending and statistical cheating that doesn’t apply to any other eurozone nation, such as troubled Spain or Portugal.”
As I’ve noted elsewhere, GREECE has problems neither unique nor unanticipated. In a June 5, 2005 SPEECH at the University of Missouri, Kansas City, I said, “I mentioned Germany. They are in trouble, again. Their economy is stagnant. They want to increase their supply of money by cutting taxes. But, because of the Euro, no European nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.“
We have a similar, though thankfully different situation here in the U.S. Replace “Greece” with “California,” and you have an identical problem. Until 1971, the U.S. was on a gold standard, which limited its ability to create money. Today, Greece is limited by the “euro standard”. California is limited by the “dollar standard.” All standards have the same function: Limit money creation.
Like Greece, California is unable to create money at will. It has borrowed as much as it can, and no sources of money are on the horizon. Now try to imagine the other states, Illinois, New York et al, giving or lending money to California to bail it out of its immediate problems. Obviously, that wouldn’t work:
1) The states can’t afford it.
2) The “solution” would, at best, be temporary. It merely would delay the inevitable, while putting California deeper in debt.
3) It would exacerbate the looming bankruptcies of the other states.
Now, the E.U. proposes a “hair of the dog” solution for Greece. It is asked to commit financial suicide by raising taxes, reducing spending and borrowing even more money, the very thing that got it into trouble. Meanwhile, the other E.U. nations will commit suicide along with Greece, by lending it precious money they can’t spare.
The solution for the U.S states is clear: Federal creation and input of money. The federal government has this power, in fact, gave itself this power specifically to prevent American bankruptcies, and has used this power many times, most recently to end the recent recession.
The solution for the E.U. states is equally clear, and that solution is not loans from wealthier E.U. nations to poorer E.U. nations. The solution is for the E.U. to function just like the U.S. Fed. Create money and supply it to the E.U. states. Until then, the E.U. will live in a dream world, or rather a nightmare world of ongoing financial desperation.
More than 200 years ago, the U.S. was a group of independent nations, each with individual mores and beliefs. Yet for mutual survival, they had the good sense to ignore their differences and come together under one rule. The EU should do the same.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity