Government Spending

Greece At Debt's Door

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Robert Samuelson looks at the Greek debt debacle and says the real problem is the welfare state:

The central cause is not the euro, even if it has meant Greece can't depreciate its own currency to ease the economic pain. Budget deficits and debt are the real problems; and these stem from all the welfare benefits (unemployment insurance, old-age assistance, health insurance) provided by modern governments.

Countries everywhere already have high budget deficits, aggravated by the recession. Greece is exceptional only by degree. In 2009, its budget deficit was 13.6 percent of its gross domestic product (a measure of its economy); its debt, the accumulation of past deficits, was 115 percent of GDP. Spain's deficit was 11.2 percent of GDP, its debt 56.2 percent; Portugal's figures were 9.4 percent and 76.8 percent. Comparable figures for the United States—calculated slightly differently—were 9.9 percent and 53 percent.

There are no hard rules as to what's excessive, but financial markets—the banks and investors that buy government bonds—are obviously worried. Aging populations make the outlook worse. In Greece, the 65-and-over population is projected to go from 18 percent of the total in 2005 to 25 percent in 2030. For Spain, the increase is from 17 percent to 25 percent.

The welfare state's death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day—no one knows when—doubt governments' ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

Nor is this is a problem that's limited to Greece. Other European nations and the U.S. are all hurtling toward debt-and-deficit disasters. As Matt Welch says frequently, "we are out of money." The country's fiscal situation is unlikely to get better until our policymakers accept that we have to change our spending habits accordingly. 

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  1. To quote a Warren, “DOOOOOOOOOOOM!!!!”

    1. Contrary to what many people (especially leftists) seem to think, the collapse of the Bismarckian welfare state is NOT going to be the end of the world, it’s merely going to be the end of the world as they have come to know it.

      People will just become accustomed once again to living the way that man lived for 99 percent of humanity’s existence, that’s all.

      1. So, you feel fine?

      2. People will just become accustomed once again to living the way that man lived for 99 percent of humanity’s existence, that’s all.

        You mean where 5% owned everything and the rest of us were slaves and serfs?

        No thanks.

        1. “You mean where 5% owned everything and the rest of us were slaves and serfs?”

          Almost sounds like the welfare/ nanny state utopia you people want.

          1. I know, it took me a while to understand what he meant. I thought 95% equal paucity was what those motherfuckers wanted.

            Dammit, Dan, you’re going too fast for me!

        2. You mean where 5% owned everything and the rest of us were slaves and serfs?

          No, I mean where people lived in a prudent manner, didn’t waste all their money on unnecessary rubbish, and actually knew how to do things on their own.

          In any event, it’s not as though we really have a choice in the matter.

          1. I don’t know which 99% you are talking about, but currency problems and budget deficits have plagued mankind ever since the invention of currency.
            Neither Greek tyrants, Roman Emperors, or feudal barons have a strong reputation for fiscal responsibility.

        3. Ahh, wealth envy… a liberal’s first line of defense.

          1. Ahh, wealth envy… a liberal’s first line of defense offense.

            FIFY

            1. Works either way, really. But, good call!

      3. “People will just become accustomed once again to living the way that man lived for 99 percent of humanity’s existence, that’s all.”

        I don’t think that is a very good or accurate way to sell it, considering that for 99% of mankind’s existence most people lived short filthy lives. A return to the past is not desirable. A new exciting world of freedom and personal responsibility, on the other hand…

      4. “Bismarckian welfare state”. I like it. I’m gonna use it too.

  2. For any libertarian, this is a moment of delicious schadenfreude.

    1. It depends on what constitutes his investment portfolio.

      1. personally, i’m worried about them eventually siezing retirment accounts “for your own good” and making you buy treasury securities. This is exactly what they did in argentina. Don’t think it will happen now, but the next crisis?

        1. Yep.

          When faced with either becoming part of the masses or pulling out all the stops, the ruling paper wealthy elite will seize all assets and suspend all liberties.

        2. They did something similar in Brazil, too, a “compulsory loan” to the government which was eventually paid back in the form of worthless stock in government-owned companies.

          1. Shit, try California. The state government quit paying cash tax refunds and was still short, so they started withholding 10% more than the taxpayers actually owed as nothing more than an interest-free loan.

            Now all the links I can find are old… did they actually go through with this batshit idea? And even if they didn’t, why the fuck didn’t someone torch the Governators’s Hummer? Fuck, that would make me mad.

            1. That was exactly the mechanism Brazil used, and folks were not happy about being repaid in paper more useful in wiping one’s ass than constructing a portfolio. How those shitbirds escaped getting their throats cut, I do not know.

            2. “did they actually go through with this batshit idea?”

              Yes.

    2. If “schadenfreude” means possibly witnessing (again and forever) the inevitable result of welfare statism, yeah. But we’ll never see a complete, rejuvenative cleansing of markets and collectivist legislation. We’ll keep getting halfway-measures for decades, until sooner or later the whole thing blows up or we finally resign ourselves to voluntary slavery.

  3. Stand by for philo-whatsis to tell us all how wonderful these state-action-fueled wild market swings are.

    1. I would, but last weeks wild market drop was (partly)caused by a lack of state intervention, particularly foot dragging on the part of Germany.

      Hell, this isn’t that complicated. The rest of the EU could announce they are perfectly willing to let Greece, Portugal, etc. go bankrupt if they don’t pull themselves up by their own bootstraps. But nobody believes that Greece can actually do so, so they will default on their loans, just as assuredly as the janitor who got a million dollar house with a subprime loan will default. This fear has been driving up government bond rates in Southern Europe, which can only accelerate the decline of Club Med.
      Problem is that Greece, Spain, and Portugal owe German, French and British banks hundreds of billions of dollars, and a default will cause those banks to fail.
      Now imagine you are a wealthy depositor in a French bank. You realize that if the bank fails, you will lose a lot of your money. The only sensible thing to do is take all your money out of the bank, convert it to dollars or yen and deposit it in a foreign bank.

      This is called a run on the bank, and will destroy any bank, no matter how healthy. The innocent are destroyed along with the guilty. France can’t allow that to happen, so they’re willing to guarantee the loans.

      It’s naked self interest, which I think is a reasonably libertarian position. Nations have a right to look after their own survival.

      This is a blog by contrarians, for contrarians. I’m just playing my part.

  4. “As Matt Welch says frequently, “we are out of money.”

    That is simply not true. State and federal revenues are quite high. During the Bush years they reached an all time high in fact. They’ve dipped slightly but by no means are we “out of money”. We are overspending, plain and simple.

    1. do you have a link or something to prove that?

    2. “We are overspending, plain and simple.”

      I think that is what he means by “we are out of money”. I think it is pretty clear that some money still exists.

    3. so if i owe a million dollars, but still have one cent in my pocket, i’m not “out of money”?

      that’s a relief

  5. That actually makes a lot of sense when you think about it.

    Lou
    http://www.anon-vpn.cz.tc

    1. You know, you’re right. I didn’t think about it at first and I was all like “this doesn’t make any sense!” but then I thought about it, and it totally made sense.

  6. The country’s fiscal situation is unlikely to get better until our policymakers accept that we have to change our spending habits accordingly.

    In other words, we’re fucked.

  7. That is simply not true. State and federal revenues are quite high. During the Bush years they reached an all time high in fact. They’ve dipped slightly but by no means are we “out of money”. We are overspending, plain and simple.

    We Lawn Gnomes cannot help but notice the foolishness in your statement, especially financial statements. If you are spending more than you bring in, you are in the red and are indeed out of money. If you are referring to the source of revenue, yes businesses are still generating wealth and capital, but how liquid will that be as your titans of industry and small business owners realize that they will be soaked more and more until no more liquid can be wrung from the thirsty towel?

    We Lawn Gnomes are a financially prudent people and do not overextend ourselves. We invest wisely and are adept at finding good deals in travel related industries.

    1. Despite your repeated claims that lawn gnomes are rugged individualists, I detect an alarming tendency to speak of yourselves using the collective “we”. Is the lawn gnome constituency truly monolithic?

      1. They live in constant fear that they will be mistaken for their perverted underwear stealing cousins, hence ‘we’ is used for categorical purposes.

        1. Thank you alan for recognizing our unfortunate cousins. The “We” that you speak of, Mr. Peitzche, is purely rhetorical and endemic to the Lawn Gnome tounge. Since, Lawn Gnomes are bred for lawn spying, it’s a bit hard to diversify via comparative advantage, but we keep trying. We as constituency want as many of the public as possible to hire us instead of Lawn Jockeys, Pink Flamingos, and Wish Frogs. But we accept the final answer of the free market without complaint

          1. As a Florida resident and faux-avian, I have to go with the flamingos. Sorry.

            I am willing, however, to steal one of your compatriots to bring along on a European trip, and take pictures of him next to famous landmarks to show his owners on his return.

    2. In high school we used to hunt you guys at night, for sport. Then you’d be placed in the parking lot and smashed into thousands of little pieces.

      You did not protest, or even show any signs of resistance as we smashed your brethren into porcelain detritus. BWAHAHA!!!

      Know this gnome, I am your master. Get smashed.

      1. RACIST! You probably are a liberal and voted for Obama!

  8. Back when I advised a subprime lender, I recall customers who made boatloads of cash who spent far more than those boatloads–thus explaining their resort to subprime loans.

  9. If you have a salary which provides you with a million dollars in take home pay, but you spend a million and a half, you’re broke.

    1. “If you have a salary which provides you with a million dollars in take home pay, but you spend a million and a half, you’re broke.”

      Well, you’re obviously disqualified from elected office.

    2. Kind of depends on how you spend it.

      For some reason you guys seem to think that “spending” money means it vanishes into thin air, forgetting that you are getting something in return for it.

      1. You would think that. Unfortunately, government is seldom that interested in “bang for the buck”.

        1. In many cases, government is interested in exactly the opposite of “bang for the buck.” For example, requiring contractors to pay union wages for projects paid for with stimulus funds.

      2. Greece is spending it on lazy ingrates. Are they a depreciable asset or are they actually worth more ten years from now?

        1. We’re here too!

        2. Euro-trash has very low resale value. Trust me, one of my ex-GFs was one.

          1. I disagree moydroog! The expected financial return on one of those devoesjkas is quite tidy.

      3. If you spend more than what you have, you spend on credit, so that’s someone’s else money. It doesn’t matter what YOU get.

      4. perhaps, but it may be something of lesser or no lasting value, like an expensive vacation, or a rapidly depreciating luxury car

      5. What is Athens getting for those 13th and 14th months of salary paid to Ouzo-swilling layabouts? Or maybe they’re paying them not to throw bricks through windows and incinerate bank tellers?

      6. I’ve got you all on a string,
        I’ve got you all eating my poop,
        Picking out the peanuts,
        You ignorant sluts,
        Why would you go to stoop
        So low as to make me your king,
        Answering to and threading under me?

      7. For some reason you guys seem to think that “spending” money means it vanishes into thin air, forgetting that you are getting something in return for it.

        Come on, Dan that is too easy. What have we gotten for the $1 trillion we spent on stimulus already. And please don’t try to use the old “things would have been much worse if we hadn’t spent the money”. You are a better troll than that.

  10. Mama put my Euros in the ground,
    I can’t use them anymore.
    That welfare state is comin’ down,
    Feels like I’m knockin’ on debt’s door

  11. For some reason you guys seem to think that “spending” money means it vanishes into thin air, forgetting that you are getting something in return for it.

    That’s especially poignant, coming from you.

  12. it is actually surprising to see a reliably center-left (“liberal” in US terms) columnist taking the position that it is possible to overspend and that higher taxes is not the automatic answer

  13. I don’t recall which paper, but today I read a very good letter to the editor by a 64-year-old man who works full time. He wondered why his country would take his money and use it to prop up the lifestyle of some guy in Greece who retired on a state pension at the age of 50.

    I’d say that sums it up rather well.

    1. The money goes straight to German, French,British, and even American banks that loaned Greece, Spain, and Portugal a lot of money.

      It’s a bank bailout. That’s all it is.

      1. If it works the way they want it to it’s a bank bailout. If Greece just continues to blow the money on buying votes then we’ll need a second pot of money to bail out the banks directly.

        1. Right. There’s a little spending money for Greece in the kitty, but the vast majority of this package, as well as the new European Central Bank policy, is to either insure or buy up shaky government bonds. So if those loans default, the EU or ECB will foot the bill, very much like a credit default swap (a form of insurance against defaulting bonds).

  14. Our forefathers needed to add another amendment to the Constitution:

    “Congress shall pass no law which directly or indirectly transfers wealth of any form from one individual or group of individuals to another individual or group of individuals.”

    Of course that would have probably resulted in the overthrow of the U.S. Gov’t sometime during the 20th century.

    I’m starting to believe that the welfare state is an inevitable, albeit contradictory, part of human freedom and affluence. The affluent nation can only let it run its course until its financial system collapses and the nation is no longer affluent, at which point it can start over.

  15. what is it with americans anyways? you fight modern terrorism venomously and yet your country was founded by terrorists who fought ancient gorilla warfare and were afraid to face the world power of the time face to face like cowards. and then your phobia of government influence stemming from your independence has helped create the financial crisis we are in (not to mention the waste from an ongoing war) because of the lack of your own government regulation of corporations and banks. whats the difference between greek bribe taxes or russian insider deals to friends or american backroom deals with insurance and pharmaceutical companies just to get a medicare deal done? there is no difference. its just as corupt as the other.heres an idea…..stop spending on your military, security, and intelligence which are deep seeded principles (of paranoia) in america, like you say to scrap the social ideals in greece (and other countries) and see how much you like it. whats a bigger waste? funding of an intelligence community that caused a war on misinformation? paying too much companies for weapons we dont really need stockpiled? or helping the residents of a country live in comfort, health and peace? its easy to sit on the outside and criticize how other countries operate but what about your own country? your version of capitalism and democracy are known to be flawed and are not even wanted by the countries you are trying to colonize for oil in this modern age through economics and war. maybe the new world powers (china and india) will learn from your mistakes and help create a better world than americans have. maybe their ideals will be more easily translated into reality than the american ideals.

    1. No, no, no. Our country was founded by the last remaining members of the Merovingian dynasty in concert with the followers of the angel Moroni. The ancient gorillas were brought over to build the Mayan temples, which we used for Masonic rituals to power the world engine so that we could siphon prosperity from you hapless Europeans. And it was all going great until those meddling kids in the van and their damn dog chased off the gorillas. Now the temples are falling down and our prosperity siphoning machines are in disarray. We’re using our military and intelligence assets to find the components to fix our prosperity generators. Oil is the red herring that you all fell for because you think it’s important. We have 100 mpg water carburetors and know oil is only the lifeblood of our dying mother Gaia. We pump oil back into the ground to rejuvenate the earth and reverse global warming. Other countries could live in peace and have what we have, but they stubbornly refuse to realize the agents of the Illuminated are both the problem and the solution, much like light is a wave and a particle.

      Anyway, what was your question, again?

    2. Huh.

      A little more wordy than the usual troll – but not any smarter.

    3. “ancient gorilla warfare”

      don’t let those gorillas get too close, they’re really strong and faster than they look

    4. Ancient gorilla war? Were Steve Smith’s ancestors involved?

    5. you fight modern terrorism venomously and yet your country was founded by terrorists who fought ancient gorilla warfare

      Terrorists deliberately try to inflict the maximum number of civilian casualities.

      Geurillas seek to avoid combat against a stronger power until conditions are favorable for a battlefield victory.

    6. The sad part is he got that from some cheap ass Third World chap book that some cleric hustled a couple of hundred bucks out of him for because he wanted to know the truth about who runs the world (Satan, of course, and the Herald of Satan, USA).

    7. This guy is a facist….I mean really, you sound like Hitler….if you don’t like America stay the F*&% out and mind your own business….commie

  16. I’m surprised Greece is having money problems. I thought the Olympics would be such an economic boon!

    1. the Olympics are more like an economic
      ka-boom.

  17. I thought the Olympics would be such an economic boon!

    It’s just a damn shame; Chicago wuz robbed.

  18. Welch does like to say “we are out of money.” I suppose he’s speaking metaphorically, but he must realize that the U.S. is no longer on the gold standard, and cannot really run out of money. The U.S. Treasury has two options. One, borrow more or less unlimited sums from the Fed, who have the power of creating money out of thin air, as long as buyers can be found for Treasury bonds. U.S. interest rates are okay right now. Of course, eventually market confidence in the U.S. could collapse and drive up interest rates ala Greece.

    At that point, the U.S. still has the option of devaluing it’s currency: printing as much money as they need to pay the bills. That will weaken the dollar, it’s true, but it will also make U.S. exports more competitive.

    You can make a slippery slope argument that we’re heading for a Zimbabwe future. 30 year bonds Treasury bonds are trading at 4.5 percent. Yesterday Greek 10 year bonds were trading at 11%! Dollar inflation has been roughly 0% since January 2009.
    I think it’s a little early to hit the panic button.

  19. I’m not broke!

    I still have checks left.

  20. Greece and Spain won’t pay back. This was a calculated Risk, and a Lesson for the Banking System. What is happening in Greece, is a very well orchestrated show, to get granted ?110bn aid, to avert meltdown. A new deception compared with the old Trojan Horse. The only thing Germans can do is:
    REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
    U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, ? the rest is gone with the wind ?forever ?
    Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.
    Greece’s problem is too much debt. Greece has a budget deficit of 12.7% of GDP ? meaning that the country is spending 12.7% more than the value of one year’s economic output.
    Greece is no different to a serial credit card borrower who can’t pay back his loans. But just like a serial credit card borrower, as long as Greece keeps relying on borrowed money to fund itself, the problem won’t go away. It will just get worse.
    http://www.defenseindustrydail…..der-05801/
    But don’t worry; the ECB, the Fed or both will print the money.
    And all of us will share the pain, with our hard-earned money.
    Bad is never good until worse happens.

  21. Greece and Spain won’t pay back. This was a calculated Risk, and a Lesson for the Banking System. What is happening in Greece, is a very well orchestrated show, to get granted ?110bn aid, to avert meltdown. A new deception compared with the old Trojan Horse. The only thing Germans can do is:
    REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
    U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, ? the rest is gone with the wind ?forever ?
    Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.
    Greece’s problem is too much debt. Greece has a budget deficit of 12.7% of GDP ? meaning that the country is spending 12.7% more than the value of one year’s economic output.
    Greece is no different to a serial credit card borrower who can’t pay back his loans. But just like a serial credit card borrower, as long as Greece keeps relying on borrowed money to fund itself, the problem won’t go away. It will just get worse.
    http://www.defenseindustrydail…..der-05801/
    But don’t worry; the ECB, the Feds or both will print the money.
    And all of us will share the pain, with our hard-earned money.
    Bad is never good until worse happens.

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