Posted by
Terry Paulson on Thursday, May 06, 2010 5:05:55 PM
Is it any wonder that the markets have been spooked? You've got an inexperienced leadership in the White House. He's trying to drive a liberal transformation while the economy continues to stagger in the face of his reckless spending and uncertainty over the future.
I fear we are in for continued tough times. The $150 billion European Union/International Monetary Fund bailout of Greece has been signed, but it hasn’t been fully funded. It has to be approved by the German parliament in a vote scheduled for Friday. With the UK election suggesting a possible Cameron conservative coalition victory, the spend-borrow policies that have been in vogue may be changed. Since Merkel faces problems of her own in Germany, the parliament may not vote for the bailout for fear of setting off inflation.
Merkel is trying to sell Germans on the need for the bailout while saying that Greece's extravagant social-welfare entitlement system of bankrupt promises is a disgrace. Maybe citizens understand what politicians don’t want to face—fiscal-discipline is easy to promise and hard to pull off when citizens are taking to the streets demanding their government goodies.
In today's column, Lawrence Kudlow states, “As Nobelist Robert Mundell has argued, while the unified and fixed exchange rate of the euro currency system, along with liberalized trade, has been good for economic growth, things have broken down with the failure of the so-called fiscal-stability pact that was never enforced.”
Margaret Thatcher used to say that the problem with socialist governments is that they finally run out of other people's cash. That may be coming to Greece. If the temper tantrums in the street result in politicians refusing to say no to extravagant spending, this will just spread to Spain, Portugal and Italy where the spend-and-borrow approach continues unchecked. In the US, we face our own challenges with states like CA stuck in deficit madness.
This spend-and-borrow debt mess will continue until financial-market forces and voter discipline force politicians to radically change course. Yet, maybe that is the most optimistic message possible. You can’t keep spending and borrowing your way out this.
This economic disaster may force governments to say NO may just unleash that free-enterprise creativity that is the only reliable force to turn things around. I think this is a sad chapter in what I hope becomes a more fiscally sound future for the global economy and for the US.