Big Fat Greek Debt
On our off day (at the Strong Towns Blog we try and post Monday, Wednesday and Fridays) I wanted to relay an article I read yesterday in The Economist regarding the Greek debt crisis. I thought it was well written had a lot of parallels with what we are experiencing in America. Especially this quote from the first paragraph:
When the unthinkable suddenly becomes the inevitable, without pausing in the realm of the improbable, then you have contagion.
I'll never forget the news that we needed nearly a trillion dollars to be spent on rescuing banks or our entire financial system was going to collapse. You go to bed one night and the collapse of the world order is so unfathomable that you have never pondered it, even for a second. The next night you go to bed wondering if you will need to barter for clothes or shoot deer off the back porch for food. In retrospect, it is actually remarkable society stayed relatively calm through it all.
But we are different now, aren't we? I think of how strongly the Great Depression shaped my grandpa's view of the world. The only time he ever got mad at me was when I chose a professional job in the private sector over one at the DOT. He told me I was foolish, that if I went to the DOT I would have "a job for life, boy." That was so important to him - the certainty.
It is not clear how this entire financial crisis is ultimately going to shape us. The only thing that is clear is that the shaping is not over yet. Ponder this quote from the same article and consider how analogous it is to the condition of many of our cities.
[Greece] is labouring under a budget deficit of 13.6% and a stock of debt equal to 115% of GDP. It cannot grow out of trouble because of fiscal retrenchment and its lack of export prowess. It cannot devalue, because it is in the euro zone. And yet its people seem unwilling to endure the cuts in wages and services needed to make the economy competitive. In short, Greece looks bust.
So many of our communities, especially our small towns:
- Are being forced to make huge cuts in their budgets, while...
- Their debt climbs relative to their overall taxing capacity, yet...
- They have limited ability (beyond government transfer payments) to export goods and services in exchange for an import of capital, and thus...
- Are finding it difficult or impossible to grow out of the financial situation they are in, while...
- They are resistant to increases in taxation, and...
- Have a hard time envisioning significant long-term cuts in the services they are now getting.
To paraphrase Jon on the podcast from last week; we need to ask ourselves how is it that we are so productive (we are) yet we are continually dealing with such scarcity. The answer is obvious: we've not been very wise about how we have spent the fruits of our productivity or really pondered the long-term commitments that spending requires. In short, at the town and neighborhood level, it is clear that we can't afford our pattern of growth and development.
We are not Greece, but what is going on there should be instructive. Our financial fix will more than likely be a devaluation instead of a debt crisis (Greece cannot inflate their currency because they have the euro and the exchange rate is controlled by the EU). While a slow, painful adjustment to a lowered level of prosperity might politically be the easiest course of action, it should not be acceptable to anyone. We should not delay a deep, national discussion now about the best course for our future if we want to avoid having it imposed on us by the global markets we helped to create.
More on Wednesday.