It seems to me, when your roof is leaking, painting the ceiling is worse then doing nothing. That is exactly what they are doing in Europe, covering up the stain, and not addressing the underlying problem. In the case of Europe the basic problem is the welfare state. While bailouts may make the picture look better… until the next bailout, they only make matters worse. The structural rot gets worse and worse, while the European leaders pretend that all the house needs, is a new coat of paint. The people of Europe are in for a very rude awakening, when the house collapses, due to the leaking roof rotting the structure of their economy. Unfortunately, their collapse will lead to dire consequences for the whole World.
In micro economics, the spendthrift’s profligacy must lead inexorably to bankruptcy, but in macro economics, mistakes can be covered up… for awhile. The State has many options for disguising their extravagance, while the individual must suffer the consequences… immediately. This results in States piling errors upon mistakes and kicking the can down the road. It is only possible to cover the frivolous spending of the state for so long however. Once the errors are piled high enough no amount of shoring can hold it up.
One option that the “leaders” of Europe have been talking about, to shore up their heap, is a European wide bond system. This is no different than giving someone with a FICA score of ten, an unlimited credit card, and cosigning on it! I propose an experiment… If the “economists” that believe in this solution, really trust in it, then why don’t they get a gold card and give it to a heroin addict. Then they can see how well their “solution” will work in the real world.
The other option, the one that has been called innovative, is to have European wide banking deposit insurance. This is merely wall paper to cover the discoloration. It solves nothing! The banks will still be forced to make more bad loans, to the insolvent drunks who run Europe today, until the entire system is riddled with ship worms! The only possible result, is the prodigal European states will continue borrowing money, and going out to eat with it. Every adult knows that if you borrow money, it is foolish to spend it on consumables, you spend your own money on consumables. When you borrow money, it must be used for investing, in something that will add value or result in an income stream. To go out to eat with borrowed money is a sure path to insolvency… for the individual as well as the State.
The only real way to fix it, is the one no one is talking about, stop the out of control spending! There will be pain but it must be done. It will be forced on them sometime in the rapidly approaching future. The only real question is, manage the pain… or let it run out of control? If they control the slide, they can avoid the most dire outcomes but an uncontrolled fall will leave everyone to the vagaries of a chaotic collapse.
Those that espouse spending cuts are vilified by “economists” and the unbiased press. The siren call is that Europe can grow out of the mess if they only spend a little more. Fiscal responsibility is confused with what they call austerity. The European economists seem to think that spending cuts can’t get spending under control. They must also include tax increases! This is just as stupid as those that think spending more is the solution! European taxes are far too high today and more taxes will only serve to lubricate the slide to economic oblivion. How they cannot see this escapes me… unless they do see it, and are so corrupt they want a European economic collapse, with all the negative consequences that go along with it. This seems like conspiracy theory to the nth degree… or is it?
The macro solution is to cut spending, lower regulation, cut taxes and let the market work the debt out. There is no other way. But this solution is seen as too politically dangerous. The poltroons in Europe have made their bed, now they must sleep in it, but they quiver in terror at the thought. There will be pain with the real solution, but there will be far worse suffering and negative consequences for Europe, and the World… if someone doesn’t go up on the roof and fix the leak. Too bad they are so afraid of heights.