Other People’s Money
“The trouble with Socialism is eventually you run out of other people’s money”
Margaret Thatcher-1976
Europe is running out of Other People’s money as we speak.
It started with Greece. In the spring of 2010 bond investors began demanding (refusing to buy if they didn’t get their way) higher interest rates to buy Greek bonds. Greece issues these bonds because they spend more money than they get via taxes. Banks and other investors buy these bonds under the assumption that they will get all of their money back with interest. The amount of interest is determined, in part, by the confidence the lenders have that the money will be repaid. More confidence in repayment equals a lower interest rate. When confidence in repayment is not so high, investors want more interest for the risk they take.
Once those interest rates get to a certain level; the countries with very high debt (Greece was the first, followed by Ireland, Portugal, and now Italy is up to bat) can not afford the payments. It’s like when you or I go to buy a car. When the interest rate is 5% we can manage the payments. When the interest is 20% we have to buy a cheaper car.
Most European countries have to buy the expensive car. They have promised their citizens they would. They promise Other People’s money in the form of free healthcare, government child support for single parents, subsidized childcare, cash payments based on the number of children in a household, retirement ages in the 50s, and they have mandated that employers provide benefits such as four weeks of paid vacation, even to part time employees. It is politically difficult, bordering on impossible, to take the benefits back, or to use the analogy above, buy a cheaper car.
“The trouble with Socialism is eventually you run out of other people’s money”
Margaret Thatcher-1976
Europe is running out of Other People’s money as we speak.
It started with Greece. In the spring of 2010 bond investors began demanding (refusing to buy if they didn’t get their way) higher interest rates to buy Greek bonds. Greece issues these bonds because they spend more money than they get via taxes. Banks and other investors buy these bonds under the assumption that they will get all of their money back with interest. The amount of interest is determined, in part, by the confidence the lenders have that the money will be repaid. More confidence in repayment equals a lower interest rate. When confidence in repayment is not so high, investors want more interest for the risk they take.
Once those interest rates get to a certain level; the countries with very high debt (Greece was the first, followed by Ireland, Portugal, and now Italy is up to bat) can not afford the payments. It’s like when you or I go to buy a car. When the interest rate is 5% we can manage the payments. When the interest is 20% we have to buy a cheaper car.
Most European countries have to buy the expensive car. They have promised their citizens they would. They promise Other People’s money in the form of free healthcare, government child support for single parents, subsidized childcare, cash payments based on the number of children in a household, retirement ages in the 50s, and they have mandated that employers provide benefits such as four weeks of paid vacation, even to part time employees. It is politically difficult, bordering on impossible, to take the benefits back, or to use the analogy above, buy a cheaper car.
What is their current solution? Have other, stronger European countries, instead of investors, loan these countries Other People’s money at an artificially low interest rate. But these stronger (Germany and France) have a condition. The takers of these loans of Other People’s money have to institute austerity measures to try to fix their spending problems. Austerity measures for you and me are when you tell the kids that we have to cut back on the cable package or data package for the smart phone. Or that you brown bag it for lunch, or that you cut out movie night. If you are Greece, you cut government jobs, cut wages to government workers, stop or reduce payments to high salaried pensioners, reduce collective bargaining rights for government workers, raise the retirement age and institute new taxes.
What was the reaction to the austerity measures in Europe? Riots and Strikes. Greece and Portugal have had the entire nation basically shut down because the government workers don’t show up for work. There are riots and protests. Do they understand that their government is out of money and can’t continue these lavish benefits? Nope. They protest that their government is not taking enough of Other People’s Money and giving it to them.
Does any of this sound familiar? America is spending more, way more, than it takes in. America is borrowing or printing 40% of every dollar it spends. America spends 60% of it’s budget on social programs. Social Security, Medicare, Medicaid, and the dozens of welfare programs account for those.
Wisconsin instituted their own austerity measures by limiting collective bargaining rights (CBR) of government union works and requiring them to pay more (but still much less than their private sector counterparts) for the their retirement and health insurance. What was their reaction? Riots and Strikes.
Wisconsin teachers protested, and occupied Madison. The Democrat half of their Senate took their toys and went to Illinois, to try to stop the vote on the legislation. The unions backed (paid for) the efforts to recall six Republicans who voted for the measure, and to defeat the reelection of a Supreme Court judge who ruled that law constitutional. Those were unsuccessful. Now the unions have mounted a campaign to recall Wisconsin governor Scott Walker. Did they understand that the State of Wisconsin was spending more than it was taking in and that level of spending could not continue? Nope. They protest that their government is not taking enough of Other People’s Money and giving it to them.
In Ohio, SB5, a modest piece of state legislation was passed in 2010. It would restrict the unionized Ohio government worker’s ability to negotiate their healthcare and sick leave. The unions would still exist and could still collectively bargain for pay and working conditions. Did they (the unions representing the 358,276 Ohioans who are unionized government workers) understand that the State of Ohio has an 8 billion and growing dollar deficit and that level of spending could not continue? Did they understand that Ohio has 9.1% unemployment rate and that their neighbors (the other 11 million Ohioans) were not insulated against the recession like they were? Did they understand that the other Ohioans have to cough up more and more each year to pay their salaries and benefits, while their own pay and benefits decline? Nope. They protested that this legislation is not allowing the 358,276 Ohio public sector union employees to be able to take more of Other (11 million Ohioans) People’s Money and give it to them.
http://www.aproundtable.org/pdfs/faqonOH_SB5.pdf
Here is the bottom line. We don’t have the money. Say it with me. We-Don’t-Have-The-Mun-Eeee. America goes deeper into debt every minute. Obama and his legislation have accelerated that problem. Taking Other People’s money (taxes) won’t pay for the spending. There is not that much money to take.
(Spend six minutes watching this for a really good explanation of this point)
http://www.youtube.com/watch?v=JY8LKII_MNA&feature=youtu.be
To pay for what the federal government spends each year you would have to take every dollar from every earner who makes more than $110,000 per year. Not just raise his tax rate a point or two, but take every single dollar. How many years in a row do you think you can steal all a man earns before he stops working? My guess is one. Then I suppose we can just take some Other People’s money. Like yours.
Germany and France have large economies and are rich. As measured by Gross Domestic Product (GDP) they are the 4th and 5th biggest economies in the world. They have a combined GDP of about 5.9 trillion dollars. The United States is still the top economy in the world with a GDP of about 14.5 trillion dollars. Numbers, 2 and 3 (China and Japan) combined are only 11.4 trillion.
So the 64 trillion dollar question is this. If the #4 and #5 economies are bailing out # 8 (Italy), #32 (Greece), #37 (Portugal), and #41 Ireland. And if #1 (America) is bailing out #4 & #5, in the form of contributions to the International Monetary Fund, by providing most of their military umbrella, and maybe directly, if things get bad enough. Then what Other People’s money is left for America to take?
What was the reaction to the austerity measures in Europe? Riots and Strikes. Greece and Portugal have had the entire nation basically shut down because the government workers don’t show up for work. There are riots and protests. Do they understand that their government is out of money and can’t continue these lavish benefits? Nope. They protest that their government is not taking enough of Other People’s Money and giving it to them.
Does any of this sound familiar? America is spending more, way more, than it takes in. America is borrowing or printing 40% of every dollar it spends. America spends 60% of it’s budget on social programs. Social Security, Medicare, Medicaid, and the dozens of welfare programs account for those.
Wisconsin instituted their own austerity measures by limiting collective bargaining rights (CBR) of government union works and requiring them to pay more (but still much less than their private sector counterparts) for the their retirement and health insurance. What was their reaction? Riots and Strikes.
Wisconsin teachers protested, and occupied Madison. The Democrat half of their Senate took their toys and went to Illinois, to try to stop the vote on the legislation. The unions backed (paid for) the efforts to recall six Republicans who voted for the measure, and to defeat the reelection of a Supreme Court judge who ruled that law constitutional. Those were unsuccessful. Now the unions have mounted a campaign to recall Wisconsin governor Scott Walker. Did they understand that the State of Wisconsin was spending more than it was taking in and that level of spending could not continue? Nope. They protest that their government is not taking enough of Other People’s Money and giving it to them.
In Ohio, SB5, a modest piece of state legislation was passed in 2010. It would restrict the unionized Ohio government worker’s ability to negotiate their healthcare and sick leave. The unions would still exist and could still collectively bargain for pay and working conditions. Did they (the unions representing the 358,276 Ohioans who are unionized government workers) understand that the State of Ohio has an 8 billion and growing dollar deficit and that level of spending could not continue? Did they understand that Ohio has 9.1% unemployment rate and that their neighbors (the other 11 million Ohioans) were not insulated against the recession like they were? Did they understand that the other Ohioans have to cough up more and more each year to pay their salaries and benefits, while their own pay and benefits decline? Nope. They protested that this legislation is not allowing the 358,276 Ohio public sector union employees to be able to take more of Other (11 million Ohioans) People’s Money and give it to them.
http://www.aproundtable.org/pdfs/faqonOH_SB5.pdf
Here is the bottom line. We don’t have the money. Say it with me. We-Don’t-Have-The-Mun-Eeee. America goes deeper into debt every minute. Obama and his legislation have accelerated that problem. Taking Other People’s money (taxes) won’t pay for the spending. There is not that much money to take.
(Spend six minutes watching this for a really good explanation of this point)
http://www.youtube.com/watch?v=JY8LKII_MNA&feature=youtu.be
To pay for what the federal government spends each year you would have to take every dollar from every earner who makes more than $110,000 per year. Not just raise his tax rate a point or two, but take every single dollar. How many years in a row do you think you can steal all a man earns before he stops working? My guess is one. Then I suppose we can just take some Other People’s money. Like yours.
Germany and France have large economies and are rich. As measured by Gross Domestic Product (GDP) they are the 4th and 5th biggest economies in the world. They have a combined GDP of about 5.9 trillion dollars. The United States is still the top economy in the world with a GDP of about 14.5 trillion dollars. Numbers, 2 and 3 (China and Japan) combined are only 11.4 trillion.
So the 64 trillion dollar question is this. If the #4 and #5 economies are bailing out # 8 (Italy), #32 (Greece), #37 (Portugal), and #41 Ireland. And if #1 (America) is bailing out #4 & #5, in the form of contributions to the International Monetary Fund, by providing most of their military umbrella, and maybe directly, if things get bad enough. Then what Other People’s money is left for America to take?
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