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Have a cafe au lait and relax.

Posted By Paul Gleiser On May 20, 2010 @ 5:02 pm In Featured Articles | 1 Comment

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The Dow Jones Industrial Average closed Thursday afternoon down by nearly 400 points on fears of, among other things, the debt crisis in Europe. According to the Wall Street Journal, investors are pulling out of equity investments in companies with global exposure and are seeking safety in (get ready for it) U.S. Treasuries.

Greece has civil unrest and is in need of nearly $1 trillion from its neighbors (and us), as a result of being in debt to the tune of 115 percent of its gross domestic product, what its entire economy produces in a year. The rest of Europe is not far behind.

Thus investors are seeking the “safety” of U.S. Treasury obligations. Never mind that the U.S. owes 90 percent of what its economy produces in a year, up from 32 percent in 1981.

If a debt to GDP ratio of 115 percent produces severe economic stress in Greece complete with civil unrest, and if the same metric for the U.S. stands at 90 percent, you have to wonder if there is any safety left anywhere in the world. You must further wonder how much longer before the United States is Greece, only with more commas and zeroes in the numbers.

Europe has been declining for decades and it has largely been very pleasant. Where once Europe was the center of every aspect of art, culture, literature and economic activity, bearing the burden of advancing economic progress throughout the world, today it is a grand museum, filled with magnificent architecture and bucolic landscapes and quaint towns that are forever holding festivals to celebrate something or another that was once important that happened a long time ago.

It’s a lovely retirement. Much like senior citizens living in a facility in which all of the dirty maintenance chores are taken care of by a kindly maintenance man named Charlie, Europe is a continent upon which the dirty chore of defending the peace is taken care of by a kindly uncle named Sam.

Protected by the U.S. military that never left following World War II, European countries have been free to spend their defense budgets on social entitlements. This has allowed Europeans to whittle their work weeks down to 30 hours or so, extend their vacations to a month or more, eat dinner at 9:30 at night, sleep past 8:30 in the morning, take a leisurely lunch, head for the house by four every day and retire at age 50.

When only seven percent of your country’s national budget goes for defense, as opposed to nearly 40 percent for the United States, it’s easy to spend 60 percent or more of the national budget on sugar and spice and everything nice for the citizens.

Go visit Europe and you can begin to think that it is they that have things figured out. The food is great, the art collections take one’s breath away, the climate is nice, (particularly in the Mediterranean countries like Italy and Greece), and the state-subsidized symphony orchestras are the best in the world. On top of this, if you’re a European, you are still able to pose in front of the magnificent buildings that your economy once afforded and convince a lot of people that you still matter in the world.

Some argue that a similar retreat from world leadership would be good for the United States. Why do we need the U.S. to be a super power?, they argue. Why not relax and become more like Europe and let the government take care of us so that we can enjoy our latte? Look at those happy Europeans sitting at their quaint sidewalk cafes at two in the afternoon.

The answer of course is that Greece is now officially broke and most of Europe is not far behind. Two out of three Greeks now derive all or part of their living from the government. There are not enough producing Greeks to provide goodies for the consuming Greeks and the consuming Greeks are upset. Civil unrest has ensued.

If the U.S. continues to grow its debt and pursue a European social model, there is no rich uncle waiting to step in to fix things the way we stepped in for Europe. Our retirement from world hegemony won’t be nearly as comfortable as Europe’s. We’re the last rich uncle on the block.

And at a debt to GDP ratio of 90 percent and growing, we won’t be rich for long.

Ouzo [3], anyone?


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URLs in this post:

[1] Click here: http://www.ktbb.com/clicks/download.php?t=f&i=72

[2] here : http://www.youtube.com/ktbbyoutellme#p/a/u/0/u0nOfYNOUa0

[3] Ouzo: http://en.wikipedia.org/wiki/Ouzo

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