Stop the chain reaction

As economic crisis worsens, U.S. must avoid path similar to Europe's
Trade union members in Athens, Greece, burn emergency tax notices during a protest against the government’s plans to suspend public servants on reduced pay. Greece is under pressure from creditors to meet deficit-reduction targets to receive continued emergency financing.

The main economic difference between Europe and America right now seems to be that Europe is simply closer to the point where it will run out of other people’s money.

But America is following Europe’s lead anyway.

Benefit-laden social democracies in Europe are buckling as never before under the weight of public employee costs and unsustainable government goodies for their citizens. Bailouts and austerity measures – which the unions and others have bitterly contested in street demonstrations – have failed to halt what seems to be a chain reaction of financial crises threatening Greece, Italy, Spain and even the euro itself.

Even after much international intervention, writes the Financial Times, “Greece faces the prospect of being unable to make payroll and pension payments by October 10” without an infusion of cash. Ominously, but understandably, the European Union and International Monetary Fund are reluctant to just throw more money at Greece’s problem without concrete assurances of austerity reforms.

Greece, and a growing number of Western nations, are in the delicate spot of desperately needing to slash sovereign debt, but wary of restive publics, some of whom have already taken to the streets over the modest reforms put forth thus far.

New York City Mayor Michael Bloomberg warned last week of similar riots here as a result of chronic high unemployment. The notion isn’t at all far-fetched; we’ve seen some violence in American streets and businesses over virtually nothing – and the economy isn’t as bad as it might yet be. What happens when austerity measures hit here?

Further, the shaking in Europe already can be felt across the pond, in the stock market, in financial markets and even in worries over oil prices. U.S. Treasury Secretary Timothy Geithner reportedly warned in a closed meeting in Poland of the “catastrophic risk” from the Greek debt crisis.

And there’s the little matter of America not getting its own house in order. The president seems to believe that we’ve got a federal revenue problem, not a spending one – and Monday proposed taking another $1.5 trillion in taxes out of the economy. Ask our bailed-out European friends if all they need is more money. It hasn’t helped yet.

And the danger that few are admitting to in public is rampant inflation, if not hyperinflation, from the Federal Reserve’s multiple rounds of money printing, which devalues the money that’s on the market and in your pocket.

“We can’t just cut our way out of this hole,” the president said. Perhaps not; but cutting has to be a huge part of it. The first rule of holes applies: When you’re in one, stop digging.

It’s a lesson the Europeans are struggling with even more than we are. Isn’t it time we learned from them?

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