America Has Its Own PIGS

By Greg Hunter’s USAWatchdog.com 

The Markets breathed a sigh of relief yesterday after word of an European Union bailout of Greece.  The Dow was up 150 points.  Greece is one of, what is called, the “PIGS,” which is an acronym for Portugal, Italy, Greece and Spain.  All of these Southern European countries are facing severe debt problems.   The most immediate problem is Greece, and it looks like a “Big Fat Greek Bailout” will postpone a debt crisis for now. 

Meanwhile, Money Week has its eye on a future and much bigger debt crisis on the way.   Its headline earlier this week says, “Forget Greece – the real debt crisis is still to come.”  The story says, in part, “Sure, financial markets are fretting that within two years, Greecewill have racked up public borrowings equal to more than 120% of GDP.  But that’s nothing compared to the global picture.  Dylan Grice, at Société Générale, has crunched the numbers for the whole of the EU, the UK and the US. He’s found that the average total net liabilities – including unfunded pensions, social security and healthcare – of these countries’ governments emerged at a terrifying 400% of GDP.”  (Click here for the full story)   

Meanwhile, here in America, we have our own “PIGS”; only the U.S. has many more, and they are much fatter with debt.  According to the Center on Budget and Policy Priorities, a group that looks out for the poor, says, The worst recession since the 1930s has caused the steepest decline in state tax receipts on record.”  As a result, 48 states are facing shortfalls of nearly $200 billion in 2010.  A recent report goes on to say, “Total shortfalls for 2010 and 2011 are likely to exceed $350 billion.” (Click here for the full report)  Just California, New York and Illinois alone project a nearly $41 billion shortfall for 2010.

According to a recent Business Week article, America has a big debt problem that Congress needs to address now.  It says, “The mire facing California, for example, makes Greece’s woes look somewhat manageable.  California, staring at a $20 billion budget gap over the next 17 months, accounts for about 13 percent of the U.S. economy.  Greece accounts for just 3 percent of the economy of countries that use the euro.” (Click here for the full story)  

Yesterday, the President said, once again, that we must reduce our “soaring deficits.”  The President took questions from reporters at a White House briefing.  Not a single reporter asked about the probable bailouts of states facing severe budget shortfalls.   Also, there was not a single question about the government taking on all the liabilities of failed mortgage giants Fannie Mae and Freddie Mac.  The $400 billion in spending caps were lifted for the next 3 years, and that totals more than $6.2 trillion in liability on mortgage backed securities. (The Fed has bought at least $1.25 trillion in this debt.)  Fannie and Freddie aren’t just “pigs” but giant budget “hogs” that will scarf every spare dollar in sight.  And, can anyone tell me how we are going to reduce our deficit when the debt ceiling was just raised $1.9 trillion to $14.3 trillion?  This is another real oink-er!

To be fair, President Obama is not solely responsible for our “soaring deficits.”  The blame can be shared equally between Democrats and Republicans over the last 20 years.  However, it’s an election year, and it sure looks like bailouts of just about any state, bank or business are going to continue.  Any talk about reducing the deficit seems to be just that—talk.  Oink  Oink!

Comments
  1. marbee

    State tax receipts have gone out the window of their own doing with smoking bans in privately owned businesses that have literally shut them down. It’s their own fault!

    • Greg

      Marbee,
      Thank you for the comment!
      Greg

    • George

      Marbee,
      I don’t think that’s the case and the facts are on my side. The stats show that bars and restaurants are not impacted and in fact, business increases. There are places getting my business that I stopped going to due to the level of cigarette smoke. My thoughts are that if someone can not control their addiction long enough to eat a meal, get a nicotine patch. I am anti-government regulation but I know from personal experience that I can not count on someone’s kindness to allow me to breath. And I think my right to breathe trumps someone’s right to smoke any day. But then again, there are nicotine addicts that will disagree.

  2. Mark Mudgett

    Hello All,

    Susan T. wrote in an earlier thread:
    “Freeze all government spending by cutting every budget by at least 10% for years to come. Fire Geither and Bernake. No new taxes and keep the capital gains and dividends at 09 rates.”

    Susan, you have the correct idea.

    I would like to add to your idea that we need to abolish the Department of Energy and Department of Education.

    Also, we need a hard freeze on new regulations on business and development. Goverment’s focus needs to shift to streamlining and coordinating with state and local goverments the regulatory process for businesses. The private sector needs to be unleashed so that they can create TAXABLE wealth.

    The only jobs programs the federal government should have is the US military.

    Thrash thinks that it would be a good idea for the US to decrease its worldwide security role or to charge higher tarifs or a VAT on imports to pay for our keeping the sea lanes and airspace open worldwide. History is not one of Brad’s strong suites. The world was a much more dangerous place before the US controlled Europe and the Pacific rim with our military and diplomacy. World War I and II are recent proof of that.

    We are an import/export economy; kill imports with tariffs and our exports will be killed-off as well.

    I get tired of European immigrants coming to our country and trying to bring European union socialism here. European socialism worked, till now, because the US military presence keeps them from killing each other as they have throughout history. When the Europeans were not killing each other, easterners moved in and killed Europeans, and visa versa. Remember Greg’s article about PIGS; progressivism is bankrupting them too.

    By cutting our federal and state budgets, unemployment and dislocation problems will increase in the short term. Remember, many government union workers have been receiving welfare for too long–paybacks are a bitch! Keynes was proved wrong decades ago; history repeats itself.

    The world needs a strong benevolent leader; the US needs strong trading partners and open lines of communication including electronic, air, and sea.

    Unfortunately for us, the US is that benevolent leader! Life is not fair.

    markm

  3. Ron

    Solutions to problems that have been created over many years by leaders(?) that are unwilling to make hard decisions that leaders should make are not going to be passed by our current congress. Spending will continue to go uncontrolled, taxes will be opposed by anyone right of center, the debt will continue to rise, individuals like Greg will continue to warn us of the impending financial crisis and one morning we will be told the country is in financial bankruptcy and then congress will act. America will survive like it did during the depression, it will come back and life will go on. Just not where evryone owns two $40K cars parked in a garage of a 350K house with big screen TV’s in multiple rooms. Greed, both governmental and personal got us where we are today and it appear the only solution is a crisis!

    • Greg

      Ron,
      I agree… crisis is where we are headed but people can protect themselves. I hope folks are doing that.
      Greg

      • Brad Thrasher

        Respectfully disagree as to the degree of protection Greg.

        We can partially, even mostly protect ourselves. Sadly, one should retain some presence and exposure to our corrupt and bankrupt system in order to do business. It does provide certain worthwhile conveniences and efficiencies.

        For example, maintain your free checking and minimal savings account requirement at your friendly bailed out bank. Move everything else into a sound local, regional bank or credit union.

        • Greg

          Brad,
          There are some things folks can do. For one, try to pay things off so capital can be directed to benifit you, not creditors. There is no way we are not going to have to deal with some pretty harsh inflation coming soon. Thanks for your comments.
          Greg

          • Pat

            Wouldn’t it be better NOT to pay off my debts if we get increased inflation? I would be paying off old debt with cheaper dollars, and I could use the larger stash of cash to get me over the hump. I only owe a small mortgage of $30,000, but maybe it would be even better to refinance, save the money, and pay off the mortgage with cheaper dollars.

            We have bought gold coins, are totally out of the stock market with our retirement funds, and even bought Australian dollars as a hedge for emergency. Australia does not have a trade deficit, they export oil and gas to China, and they have raised their interest rates. It seemed like a good idea at the time.

            • Greg

              Pat,
              That depends on what kind of debt it is …A house with a $30K mortgage…don’t pay it off because you are probably paying mostly principle. A car? Credit cards? Probably a good idea if you can pay that kind of debt off. We are in uncharted territory in this economy…there is no telling what will happen or how bad this will get… and I guarantee you the economy will be getting much worse for a much longer time than most people think. Please protect yourself.
              Greg

      • George

        Are there really any safe institutions? Things are more interconnected now than in the so called “Great Depression”.

        • Brad Thrasher

          George, you speak for tens of millions. Who or what can we trust IS the pertinent question of our time. Generally, I prefer credit unions for safety.

  4. Brad Thrasher

    Meanwhile back at the PIIG Ranch. Two I’s because Ireland has joined the club.

    From The Baseline Scenario, Revised Baseline Scenario 02/09/2010

    The following material was the basis of testimony to the Senate Budget Committee today by Simon Johnson.

    2) But thinking in terms of these headline numbers masks a much more worrying dynamic. A major sovereign debt crisis is gathering steam in Europe, focused for now on the weaker countries in the eurozone, but with the potential to spillover also to the United Kingdom. These further financial market disruptions will not only slow the European economies – we estimate growth in the euro area will fall to around 0.5 percent Q4 on Q4 (the IMF puts this at 1.1 percent, but the January World Economic Outlook update was prepared before the Greek crisis broke in earnest) – it will also cause the euro to weaken and lower growth around the world.

    3) There are some European efforts underway to limit debt crisis to Greece and to prevent the further spread of damage. But these efforts are too little and too late. The IMF also cannot be expected to play any meaningful role in the near term. Portugal, Ireland, Italy, Greece, and Spain – a group known to the markets as PIIGS, will all come under severe pressure from speculative attacks on their credit. These attacks are motivated by fiscal weakness and made possible by the reluctance of relatively strong European countries to help out the PIIGS. (Section B below has more detail.)

    4) Financial market participants buy and sell insurance for sovereign and bank debt through the credit default swap market. None of the opaqueness of the credit default swap market has been addressed since the crisis of September 2008, so it is hard to know what happens as governments further lose their credit worthiness. Generalized counter-party risk – the fear that an insurer will fail and thus bring down all connected banks – is again on the table, as it was after the collapse of Lehman.

    5) Another Lehman/AIG-type situation lurks somewhere on the European continent, and again G7 (and G20) leaders are slow to see the risk. This time, given that they already used almost all their scope for fiscal stimulus, it will be considerably more difficult for governments to respond effectively if the crisis comes.

    6) In such a situation, we should expect that investors scramble for the safest assets available – “cash”, which means short-term US government securities. It is not that the US has anything approaching a credible medium-term fiscal framework, but everyone else is in much worse shape.

    The entire report is available here:

    http://baselinescenario.com/2010/02/09/revised-baseline-scenario-february-9-2010/

  5. Artha

    The financial crisis will be over when the average income of Americans is equal to the Chinese and Indian workers.

    • Greg

      Artha,
      I hope you are wrong but I fear you are right. Thank you.
      Greg

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