The $1 Trillion Euro-Bailout, Riots in Greece, and Turbulent Markets – Should Americans Care?

An editorial piece in The Wall Street Journal this week states that: “The EU’s bailout postpones the day of fiscal reckoning.”  What does that mean for Europe and for America?  What do they mean by a day of fiscal reckoning?  Plus, why were Greeks rioting any way?  And, why should that make our markets so turbulent?  Should Americans really care that much?  Let’s talk about it now.

Last week, Greeks were rioting and the NY stock exchange was crashing.  It’s certainly been a real roller-coaster on Wall Street and not for the faint of heart.  When the European Union decided to create a joint European Union and International Monetary Fund (IMF) bailout plan of 750 Billion Euro (equal to nearly $1 Trillion U.S. dollars), the bond markets in Europe calmed down and the Dow Jones rebounded.  What’s going on?

It’s actually quite straight forward if you study economics.  Europe in general, and certainly Greece in particular, practice welfare state socialism.  Public employees in Greece (40% of the entire workforce) are given generous salaries, lavish benefits and have been able to retire at age 53 with considerable pensions too.  That’s great, except for the fact that someone needs to pay for all these expenses.  We live in a world of scarce resources.  That’s where economics comes in.

It’s easy for politicians under welfare state socialism to PROMISE ever-increasing benefits to the poor and middle class, heaping new, more expensive benefits upon older, generous benefits.  Recall, for example, the recent call in Europe for government-paid vacations … that’s not paid time-off, but actually payment for the vacations themselves.  PROMISES are cheap.  But, WHO PAYS THE BILL.

From economics, we know that wealth is created in the private sector.  Governments only tax and spend.  Governments DON’T create wealth.  Plus, when governments tax money and take it away from the private sector, there is less money available for investment in new wealth creation.  Wealth creation and economic growth require investment in new businesses that in turn, create new products and services and, of course, in the process, create new jobs.

Why were there riots in Greece?  People used to lavish pay, benefits, perks and pensions, don’t like the idea of giving them up.  They are frustrated with their government’s inability to keep their promises.

Why the $1 Trillion bailout plan?  Simply, to forestall the potential economic bankruptcy of governments that refuse to stop spending lavishly and that refuse to stop stifling economic growth with high taxes and burdensome regulations.  But, the problem with the bailout plan as The Wall Street Journal points out is that there is a day of reckoning.  If governments continue to spend wildly and tax the private sector to the point of limiting economic growth, the $1 Trillion bailout or any bailout will only work for so long.  As I say in my book, America’s Economic War, socialism always leads to economic bankruptcy.

What might the day of reckoning look like?  Rioting in the streets, political instability, draconian austerity measures, monetizing debt, hyperinflation, and considerable citizen suffering (on a level similar to the Great Depression).

Should Americans care?  Yes!  America is on the fast-track to socialism with high (and increasing) spending, high (and increasing) taxes, and high (and increasing) borrowing.  America is not that far behind Greece in many ways.  America needs to cut government spending, taxes, and borrowing.

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