Tuesday, June 28, 2011

Prepare: From Choas Will Come Order

Check out Greece this morning. The locals are protesting the government's austerity plans for government spending. The situation is near riot level in some locations, but peaceful in many others.

How did this happen? Some bullet points:

- Greece has a limited economy dominated by tourism as its largest industry.

- One out of three workers in Greece is employed in the public sector. Most of the country is on some form of government assistance or stipend for daily survival. The government has been financing this with deficit spending.

- Unemployment is over 20% and higher for younger people. The private sector does not create enough jobs for sustainable employment to meet the demands of the available labor pool.

- Greece was "bailed out" by the European Union last year under the conditions that they reduce their government spending (fewer public workers, less government spending programs) and raise taxes to offset their deficits.

- The general population is protesting as so many work in the public sector (and austerity means layoffs, reduction in benefits, pay) or depend upon government assistance to get by (welfare programs, school assistance, unemployment).

- The EU has stated there will be no more money unless the austerity program continues.

There are no quick fixes to this problem. The same problem is also facing Ireland and Portugal.

In the USA, the federal government's ability to borrow (deficit spend) money to meet its obligations is about to hit a "debt ceiling" the amount of which is approved by Congress.

One side says to cut spending equal to the requested amount of raising the debt ceiling. The other side says the requested amount should be met with spending cuts as well as tax increases.

Again, in the USA, many are employed in the public sector or dependent upon government assistance for their daily living expenses or to meet financial obligations like university tuition.

The USA has a much more diverse and larger economy than Greece and will probably weather this crisis through some sort of compromise at the federal level. This time.

Eventually, there is no amount of money which can be borrowed, here, in Greece or the rest of the world, which can satisfy the demands of government obligations.

At that point, some societies will adjust. They will either raise taxes on their populace, reduce services or simply redo their government and force it to live within the actual revenues collected from current taxes.

My opinion is most other societies will take the alternate route. They will allow their government to continue to borrow and spend, make obligations they cannot meet and then protest any changes or cuts to government spending which affects them.

Eventualy, the system will break. No more money will come from the government and those that attempt to rule by fiat (allow people to purchase food, energy and housing with paper money based upon nothing) and force vendors and businesses to reduce their prices (price controls) to meet the new economic reality with crash, Zimbabwe style.

In the end, there will still be people. There will still be resources to feed, house and clothe people, but they will not be available due to the laws of supply (you have something) and demand (someone wants it and thus, has to come to terms with you to get it).

In some of these societies, a new system will arise. Order out of chaos. It has happened before. The result historically has been Hitler, Mussolini, Lenin/Stalin, Mao and others.

The thing to watch is whether this spreads or is isolated. If the economic conditions improve world wide soon, then Greece can be advised and restructured with the help of other more fortunate nations.

If not, well, pick up a history book and read how that turned out.

Personally, I hope a third path emerges. Responsible, yet limited government which governs from the middle and helps those truly in need yet shares the responsibility among all citizens, not just a few.

Cross your fingers.

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