One old saying goes: “Pigs get fed. Hogs get slaughtered.” In general that advice to not be too greedy tends to be true. However, Grandma wasn’t thinking about the PIIGS of Europe. (Portugal, Italy, Ireland, Greece and Spain). In this case if we are not careful, these little PIIGS are about to bring the Eurozone down and most of the world with them. After year upon year of socialist programs rewarding those who don’t want to work and punishing those who do, Greece is on the verge of financial collapse. Greece has created more debt than its economy can support, and the global financial market knows it. This is also the case for Portugal, Italy, Ireland and Spain but they aren’t yet in full-fledged financial collapse like Greece is today. Yes the other players in Europe are all scrambling to prop Greece up but eventually this will end badly. It is either going to end badly for Greece and the other PIIGS or for Europe as a whole. Ultimately it will come down to the actions of Germany. Germany is the only European economy with the strength to assume Greece’s debt and thus bail Greece out for the time being. However this move will destroy Germany’s economy. Of course, the German public isn’t at all excited about going to back to the days of rapid inflation in the Weimar republic. And then what will you do with the other PIIGS? France is acting like it can help with the Greek debacle but the reality is that the French are one financial misstep from joining the PIIGS.
Of course, the right thing to do is to let the Greeks bare the fruits of their poor financial management. They lived through the days of wine and roses so they can now deal with the days of pork ‘n beans. Let Greece out of the Euro, and let it go back to printing its own currency. Ultimately the Greeks would either print currency to continue to pay back their debt or go into default. Either scenario doesn’t destroy Europe. It just forces Greece to rebuild over a couple of decades. Countries go bankrupt and still survive. Look at Brazil and Argentina. Besides allowing Greece to live with the results of its actions will force the other PIIGS to enact the austerity measures that Portugal, Italy, Ireland and Spain desperately need to implement immediately. If they need to, the Eurozone countries can let the PIIGS out of the Euro one at a time so that each of these countries can manage their own currency. Yes this will undoubtedly lead to the end of the Euro as a currency. However the Eurozone’s socialist agenda is totally incompatible with managing a common currency across numerous countries with different fiscal and social policies. The reality is that Europe is going into a recession anyway. Letting the financial markets clean up the sovereign debt of the PIIGS through the recession is the way a global economy should work.
However the disaster scenario for the United States is not a default of all the PIIGS. That default would be painful and also deepen the Obama caused recession we will be in during 2012. The disaster scenario is to have the other Eurozone countries continue to kick the can down the road by continuing to bail out the PIIGS. Eventually that move will collapse all the economies in the Eurozone with the two most important being Germany and France. Then they will all be looking to their Big Brother to bail out the Eurozone. If the United States then assumes the debt of the all the Eurozone countries or continues to print US Dollars to cover the debt, then we’ll be slaughtered. Even without assuming all of this European debt, the current trajectory of the US economic policy is headed to reduce the net worth of all Americans. Reagan said, a rising tide lifts all boats. To paraphrase Obama, the rocks exposed by a low tide sink all boats. All boats run aground. I guess that is the picture of equality Barack Obama has been working toward. If you want a preview of where the United States will be in 3 to 5 more years of our reckless government spending, just take a close look at Greece today. You were almost right Granny. PIIGS and hogs get slaughtered.