Greece Probably Gets a Bailout…California and New York Probably Don’t

Posted by Michael A. Kamperman on January 29, 2010

The global sovereign bond markets have been shaken in the last few days.  The same speculative short interests that ran like a pack of wolves and took down one bank after another until the federal government stepped forward with a national guarantee of Too-Big-to-Fail are looking to see if Greece and other fiscally weak nations in the euro get a bail-out of their own.  While thereis hot rhetoric that Greece must stand on its own, in the end we all know if they fall the wolf-pack will come for another and another and then they will come for us.  As a member of the euro Greece doesn’t control its money supply.  For all practical purposes there is little difference between being in the euro or being on the gold standard.  A sovereign nation is either situation doesn’t control its money supply.  It cannot print or devalue its way out of its problems.  One of FDR’s biggest tools in stopping the steep 1933 slide into the economic abyss was ending the use of gold as money and then devaluing the U.S. dollar by 40% against the price of gold.  Greece will either accept severe austerity and budget pain, or they will get a bail-out, of they will be forced out of the euro.  In Greece severe austerity will lead to unsustainable riots in the streets and so the options are either a bail-out or a force out.  Since multiple other nations like Spain have similar to problems to Greece the time has come for the European nations to ban together or end the euro.  Hence, the odds favor Greece getting an economic lifeline to heal its budgetary pain.  The global depression has lowered tax revenues for all and raised social costs for all.

Yet after the State of the Union speech it is doubtful states like California or New York (not Nebraska) will receive the same economic lifeline probably coming to Greece.  The President embraced a spending freeze, wink wink after the elections in 2011, and a pay-as-you-go philosophy for handling the federal fiscal budget deficits.  Therefore he left the states on their own to deal with substantial budget shortfalls despite bragging about saving the jobs of fireman, teachers, and police.  New York City Mayor Bloomberg just unveiled a new city budget that cuts all 32 school nurses from elementary schools with less than 300 kids.  And, the Mayor stated that if Governor Patterson’s state budget that calls for a $1.3 billion cut to NYC is enacted, then another 18,000 fireman, teachers, and police will join the nurses on the unemployment lines.  The states cannot print money and unlike Greece they don’t have the option of pulling out and going it alone.

The President has sent a clear message, he is not serious about solving our economic problems.  He embraced populist rhetoric when he should have use a chalkboard to explain why the federal government needs to bail out the states and put America back to work again.  He should have said the value of everyone’s home and everyone’ 401(k) is on the line.  Instead he threw an angry electorate the soundbites they wanted to hear.  But few Americans with a vote understand the root causes of the economic crisis and fewer still understand the solutions needed to right the ship.  All they know is things are not going the way they should and like the people of the middle ages they are willing to find witches and burn them.  So anyone who stands up and says witch-witch will get an audience.  Sadly it appears the Whitehouse is not only willing to give in to mass hysteria to win votes, it also appears the Whitehouse doesn’t have a clue as to how to solve the economic crisis.  The big idea to get the economy going was to double exports in five years.  Well I wouldn’t look to Greece to double its purchases of U.S. goods and I didn’t hear the President demand China open up its markets to us.  While the President sounded good the subtle message to NYC is get those pink slips ready.