Why is the Financial Crisis in Europe so important to us here in the US? Who needs those pesky Europeans, right? Well... besides the fact that over 22% of everything we export overseas is BOUGHT in Europe, and the fact that..... .. ok.. lets just stop there. 22% is reason enough to sit up and listen.
The European Union is an economic and political institution forged over decades, sealed with a treaty in 1993 but only, truly made real in 2002, when most of the current member states dropped their currency in favor of the common euro. For centuries a breeding ground for war and imperialism, Western Europe had bound itself together in peace and apparent prosperity, with a supranational government all its own to be quartered in Brussels.
Things have changed. While most major banks remain multinational (with interests around the world) their errors — some would say crimes — have brought renewed focus on the sovereign state. Today, Greece, Italy, Ireland, Portugal and Spain are on the edge of default, the euro zone nations have a new catchphrase: “Exposure.” As in, how much “exposure” do our banks have to the bad debt held by yours. This is the least you should know.
Why are these nations in debt? Like any state (or person, for that matter) it spent more money than it took in. Sound familiar? Sounds like the good ole' US of A to me!!
Traditionally, but especially, after switching over to the euro, these nations' governments paid out huge amounts of cash they simply did not have. To compound this, the retirement age there is low by modern Western standards, and benefits are generous. Public sector employees are well paid. Sounds good, right? So when the money ran out, these nations have turned to European banks for loans. Soon, these governments were... AND ARE.... borrowing hundreds of billions and those debts, like subprime mortgages in the United States, are toxic and insolvent.
Just like here, European banks will take 50 cents for every dollar owed to them by these nations' governments. In exchange, these countries must impose what many have described as a crushing austerity. That means no more early retirement, reduced pay for public workers (the ones who manage to keep their jobs), large-scale cuts to social programs, and a staggered repayment of the reduced debt.
There have been riots in cities across Europe by thousands who want their cake, pie, STEAK, seconds, valet parking... and Eat it too! EVERYBODY WANTS SOMETHING FOR NOTHING... or I should say. They dont want to PAY for what they HAVE received and continue to wish for.
What will happen if Greece or any of these other EU nations default on its foreign debt?
The first thing you would notice is a massive drop in stock markets from the U.S. to Japan, and all across Europe.
German banks, and maybe French too, would need massive bailouts. The prospect of those defaults in other debt-ridden countries could cause a run on the banks. Even more money would leave the market. And when money leaves the market, demand drops. When demand drops, economies go in the crapper.
It is for this reason, you are seeing the US work through the IMF to prop up these European banks with...YES... PRINTED MONEY... from our ever printing, never stopping, dollar presses in the basement of the Treasury Department. (15 trillion and counting........)
My prediction? All of these measures are fingers in the dike stop gap moves. They have not even begun to address the REAL problem.. and that is the enormous FLOOD behind the dike wall that is not likely to go away any time soon.
And what is that flood? To much debt. To much government, to much spending, the politicization of economic fundamentals and the violation of those economic fundamentals. Lets simply say that 1 - 1 = ZERO and always WILL equal ZERO no matter what your local politician says. And when you blow hot air into a balloon... at some point, if you dont stop.. IT WILL BURST.
