As the euro crises races forward with Greece hitting the economic wall and spinning out of control, we see the country of Portugal closely on their tail now caught up in the mayhem of a classic Formula 1 crash! However to make matters even worse for our friends on that side of the pond is this doesn’t appear to be the end as it’s clear that the killer wall of “economic over indulgence” now has its sights set on Spain and possibly even our French friends which leads me to ask two questions.
The first is why “Germany” as they have similar social systems as their European brethren and especially their comrades in euro (currency) arms who are in trouble today. While they sport the world’s fourth largest economy (America, China, Japan and Germany) there has to be limits as too how much money they can dole out before the economic reaper shows up in Bonn to collect his due.
Also how much are the working German people going to stand for becoming the central bank (lender) to a bunch of countries who for one refuse to acknowledge their spending indiscretions and two have done nothing really to change their ways either. Seems to me that this is simply a kin to another Fukushima Daiichi waiting to happen all over again as the economic tsunami will strike further inland this time.
However in fact we might find part of the answer to the second (question) in the first as the second is “why“, why are our Germanic friends bailing out all of these folks, is it simply the goodness in Angela Merkels heart as she says with a frown she is 100 percent behind supporting the euro at basically all costs. However what is the cost and back to question and answer to say how is that Germany the world’s fourth largest economy anyway?
The answer is simple as with the US and China, who are buying products from the one bailing them out. Say for example if the cash stayed inside of say Greece would there be this issue? The answer is no as the cash would have recycled itself, however in an unbalanced economy, open economic systems spell doom.
Now this isn’t protection talk either as it’s the application of common sense that budget being “budgets” must be balanced by nature otherwise you start to fund at least in essence your countries GDP with debentures meaning bonds which are loans, and “loans” are intended to be paid back. As GDP (Gross Domestic Product) is the output of a country, basically it’s sales if you will. So the out flow (spending) of a government is an under pinning part of that GDP, therefore when a government borrows money to fund its debt. It is in fact creating a false GDP when its borrowings cross from being simple operating efficiency as there are good reasons for governments to borrow somewhat.
However the issue arises when borrowing turns from providing an operating advantage, to being a strategic necessity to support countries GDP. This is not only true on the euro side of the pond however this side of the Atlantic too as the American debt is pushing 10% of GDP meaning we are 20 percent short as we owe 10% and have a gap of 10% meaning my friends we too are looking at a deep hole if you what I mean, wonder if the Germans will bail us out too once the Chinese grow wry of contained currency devaluation…