Buying Time with Borrowed Money

I remember when the man in Tunisia set himself on fire to protest how he was treated by local officials while he tried to sell his produce. He came from a town that was suffering from a 30% unemployment rate and was trying to provide for his family. As I watched the protest drift into other countries, I just had a notion that this was going to be the start of something huge. Indeed it was huge; developing into the Arab Spring. (Interesting note-I was guest blogging when that started to spread.)

I can’t help but feel that way about the burgeoning austerity measuring spreading across Europe and the Middle East. I know it’s been going on for several years, but I think countries try to quell the financial fears of people very strenuously. No country wants to be responsible for collapsing the entire financial domino so precariously built by all. Still, I see this getting bigger and bigger, with immense consequences.

After all, it really only makes sense. The financial crisis spreading over the globe has to land somewhere; it’s only a matter of time – things have to come to a head, both in the US and around the world. Dennis is much better suited to discuss the intricacies of the financial balance; I just want to point out some of the headlines that keep rising to the surface, because they are indicators of things to come.


The biggest news of the day comes from Tokyo, where the IMF is meeting.

Cuts may not be best way to tackle debt, says IMF chief
In a surprising reversal, Christine Lagarde, IMF head, suggests that stringent austerity programs may not be the answer after all for severely depressed economies like Greece and Spain. She suggests that austerity methods may have hurt countries more than helped them, perhaps shifting them into a double-dip recession.

“Ms Lagarde said eurozone countries should not blindly stick to tough budget deficit targets if growth weakens more than expected. She argued that they should allow "automatic stabilizers" -- higher welfare spending and lower tax revenues -- to kick in if the economy deteriorated."

"It is sometimes better to have more time," Ms Lagarde said, noting that if countries tried to cut their budgets simultaneously it could multiply austerity's impact on the economy.”

Now, I’m not by any stretch a financial magnate, but first of all, I would think that the policy people like Lagarde, who do this for a living, would have known there might be unintended consequences.

Then there’s the rebuttal from the German Finance Minister who made a very good point: “When there is a certain medium-term goal, it doesn't build confidence when one starts by going in a different direction," Mr Schäuble said. "When you want to climb a big mountain and you start climbing down the mountain, then the mountain will get even higher."”

Again, I’m not a finance wonk by any definition, but like I always tell my children, the only way to eat an elephant is one bite at a time. You strap on your bib and grab a fork. No sense in hiding the front half in another room and either hope it shrinks on its own or gets eaten by someone else. Seems to me to be the same with faltering economies, is more welfare pumped into the system from borrowed money really going to help long term? How much money needs to be pumped into countries like Greece and Spain to increase their spending? When will it end?

Luckily, Dennis’ audience is smart enough to figure this out. Sure, it’s easy to point out that so many of these countries are being held hostage by low retirement ages, high pensions and government subsidies; the point now is, what to do? How much longer until a world currency that everyone’s tied to?

Anyway, enough from me. I just want to compile some of the headlines that indicate what kind of mess the world is in right now.

Eurozone crisis as it happened: Spain downgrade ups bailout pressure
Spain was downgraded by S & P from BBB+ to BBB-, a step above junk. Interestingly enough, I saw a picture of a protest on a Spanish street. They were protesting cuts of free medical assistance for illegal aliens.

Italy Austerity Protests Force Closure Of Colosseum, Roman Forum
At 10.7%, Italy’s unemployment is the highest since 2004.

Croatians stage first protest against austerity drive
Due to join the EU, Croatia wants to improve their financial standing ahead of that transition. Unions are not pleased.

UK's Cameron won't ease austerity after IMF downgrade
"What we need in Britain is not 'Plan B', which is more borrowing. How can you borrow your way out of a debt crisis?" Cameron told Sky News.

Lithuania set to eject government
They have yet to join the Euro, waiting for the eurozone to sort out its problems. Still, the people are tired of the belt-tightening.

For Ireland, More Austerity Is a Strain
Rising unemployment and the prospect of a long stretch of tepid economic growth have cast a shadow over Ireland's hopes of keeping its austerity plan on course as the country emerges from its financial crisis.

Germany in 'great danger' of falling into recession - this is a big one
Once considered the bedrock of the eurozone, “The euro crisis is negatively impacting economic activity in Germany,"

Tear gas fired at French job protests
France's unemployment rate stands above 10 percent and the number of jobless has topped 3 million for the first time in 13 years.

Greece's Biggest Company Quits Country
"This [Coca-Cola] is a healthy company that does not want to suffer from Greece's high country risk," said the analyst, who spoke on condition of anonymity.


And in the Middle East;


Iran government likely to win battle of wills over currency
“The slide in the rial is boosting inflation, officially at around 25 percent already, as imported goods become dearer. Last week riot police clashed near Tehran's Grand Bazaar with crowds protesting at the currency's drop, while Ahmadinejad is under fire from parliament for his economic management.”

Austerity budget forces early Israel election
"'At this time, in the face of the turmoil around us, security and economic, it is my obligation as Prime Minister to put the national interest above all,'' Bibi said in a national televised address.”

The Muslim Brotherhood and Egypt's Coming Economic Storm - big one too
“Egypt faces four economic crises: rapidly rising food prices and budget deficits, a precipitous economic slowdown driving high unemployment even higher, and a long-term crisis over the water resources of the Nile River.”

I’m sure there are more, because I glanced at them. But I think we get the picture. Pray for people in these countries to turn and rely on Jesus to get them through this.  This would be a time when they would be questioning the big pictures in life.

Don’t wear yourself out trying to get rich.
Be wise enough to know when to quit.
In the blink of an eye wealth disappears,
for it will sprout wings
and fly away like an eagle. – Proverbs 23:4-5