Has America also passed the point of no return?
By Craig R Smith
For the first time in 60 years a nation will announce the complete "restructuring" of its debt. By any other name this is a DEFAULT on obligations, as reflected in last week's Fitch Rating downgrade for Greek debt from "C" rating to "RD" or "Restricted Default".
Everyone is going to feel the pain as the real effects of default stretch far beyond daily riots to every bondholder, foreign investor and citizen who receives government entitlements.
Everyone, that is, except mega-banking giant Goldman Sachs. It is reported Goldman helped Greece gain membership into the EU based on cooked books.
BusinessWeek and Bloomberg report:
New details have emerged about Goldman's role in helping Greece hide its debt so it could qualify for membership in the European Union.
"It’s difficult to say whether Europe would be in better shape today if Greece had come clean about its debts back in 2001, but helping Greece dupe regulators by disguising billions of dollars’ worth of sovereign debt hardly qualifies as 'doing God’s work',” as Goldman Chief Executive Officer Lloyd Blankfein told a reporter in 2009.
A full and unqualified default would be the best thing for Greece. It would wash the balance sheet clean and allow a fresh start.
While Greece is a smaller country economically than many others in the world, it is a good example of how economic socialism ultimately ends. When a country promises more than it can deliver, it is only a matter of time before the day of reckoning arrives.
My concern today, however, is focused on our nation.
Greece should be a warning signal to U.S.leaders that they must start telling the truth: We cannot pay for all the promises made; painful cuts will be needed to balance the books. One can defy gravity temporarily by getting into an airplane but if the plane runs out of fuel, gravity wins and the plane crashes.
We are racing toward a pubic majority who believe they are entitled to cradle-to-grave government support, much like modern Greeks do. With only half the population paying the bills, we will soon find ourselves center stage in the same modern Greek tragedy.
I keep hearing pundits say, “We are not Greece...We are America!”
True, we are not Greece. We are bigger than Greece and are making much larger promises. We are, in fact, far worse off than Greece if we think ourselves too big to fail.
With long-term obligations now exceeding $100 trillion, yearly deficits north of $1 trillion, government continuing to spend money we don't have and politicians unable or unwilling to do anything about it; America may soon be wishing we had it as easy as Greece. As they say: 'the bigger they are, the harder they fall'.
On a recent flight across the Pacific, I thought about the 'point of no return'. Once the aircraft is far enough away from the originating coast, it is at the point of no return. In the event of a problem, the pilot has to keep heading toward the destination and pray the aircraft arrives safely on the other side.
Is America past the point of no return? Sadly, I think so.
I see no widespread political will or citizen demand to change our financial trajectory. Given that 47% of Americans receive some form of payment or benefit from the government, how many will vote for a politician who campaigns on taking their perks away? Those perks will only stop when this Greek tragedy takes place in America.
One way or another, we the people are going to pay. Either with crushingly high taxes or a massive devaluation of the currency. Or both!
We have heard several Fed presidents, including chairman Bernanke claim we will never default because, "we have a printing press". The Fed fails to mention, however, that printing money is another form of defaulting on the debt.
Both taxation and inflation have the same effect on the citizens' wealth. Wealth has always had two enemies. Taxes and inflation. They both destroy buying power.
If someone earns $1,000 and the government takes 30%, only $700 remains in buying power. Real world inflation takes another 8%, which leaves $644 of buying power. As gas, food and healthcare costs increase, the bite becomes more and more painful.
The lesson we should learn from Greece is not how to prevent a default, but to realize that no matter how much government promises, when income is lower than spending it is only a matter of time before the promises will be broken. As the saying goes, "If your outgo exceeds your income, your upkeep will be your downfall."
If Greek citizens had diversified into physical gold and assets not dependent upon government involvement for value, they would be far better off. But instead thousands held their life savings in government bonds and currency, which will be discounted 50% to 60%, or more.
In the end, citizens always pay the price for government mismanagement.
I suspect Greece is the first of many nations facing a national default. Soon Italy, Portugal, Spain and others will follow suit; unless widespread government handouts stop and free market capitalism returns.
We now have modern day evidence of the failure produced by government controlled markets and currencies.
Gold will soon become the only safe haven for individuals and nations. When that occurs, $1,700 gold prices will look cheap. Imagine a time when what now takes a month's wages to buy takes a year's wages to buy.
Gold provides citizens protection against politicians who are more interested in power than in doing the right thing. I agree with Jim Sinclair, Gold protects us from the things which we cannot protect ourselves.
2.16.12 - Greek Crisis Illustrates Value of A Personal Gold Standard By Craig R. Smith