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Americans will walk in the same footsteps as Europeans – possibly sooner than anyone imagines.
That’s the nature of financial crises: they tend to sneak up on you when you least expect them to. How we handle our own version of this sovereign debt crisis will probably look a lot like how Europe is handling their crisis now.
And over the weekend, as you may know, the euro zone finance team of wizards agreed to lend heavily indebted Spaniards up to 100 billion euros.
Just take a minute and think about that… in order to solve the Spain debt conundrum… Spain borrowed MORE money.
On the face of it, purely by knowing what we know about debt and how to get out of debt, it’s clear that 100 billion euros will not be enough. We also know that you can’t borrow your way out of debt. I’m not being glib here – it’s no secret that debt is a lousy cure for debt.
And perhaps even more shocking … Spain is STILL RUNNING DEFICITS.
This year, even with huge amounts of “austerity,” Spain leaders expect to add 6% of GDP to their deficit.
Faced with the choice between true austerity and more debt, Spain chose more debt. I expect that American leadership will have to make similar choices as well. And I firmly believe American leaders will make the same choices as Spain’s leaders.
Let’s back up and ask ourselves – what is the end-goal for Spain? Outwardly, Spain’s leaders might tell you that they want to improve the Spanish economy, to create true growth, employment and prosperity for Spanish citizens.
So we then have to ask – how does bailing out broke banks on the dime of the Spanish government help to achieve any of the aforementioned goals?
The choice really isn’t between austerity and debt. The choice in Europe, as it has and will be in the United States, is between saving bankers or pursuing responsible government.
Time and time again, we’ve seen governments save bankers. I don’t believe that decision will change anytime soon. The U.S. government will bail out the banking system for as long as they have the ability to mint currency.
Which – to belabor the point yet again – means you and I should continue to shift our wealth into non-European, non-American paper currency, and into real assets like gold and silver.