London, England – Over the weekend… it rained!
As we predicted, the Greeks voted against their creditors’ conditions for further aid.
When you ask a debtor if he’d prefer not to pay, what else would you expect?
And imagine what would happen if he had never gotten the money in the first place. When government elites borrow, the money rarely gets to the voters. Small wonder they don’t want to pay the bills.
So, Europe holds its breath, waiting to see what will happen next. We are sitting in the lounge at the Hilton Hotel in London, having just flown over from the U.S. An airport TV tells us “Markets Fall.” (More on this below in Market Insight…)
And in China, the stock market has lost nearly 30% in the last three weeks – wiping out $3 trillion in “wealth” that never really existed.
Mountains of Debt
“She so completely mishandled the riots,” said a friend. “She’s working hard to redeem herself.”
Politicians ensure reelection by giving away things that don’t belong to them. They dedicate a bridge, built with stolen money. They promise lavish pensions to firemen and policemen – and pay for them by squeezing the pensions of bakers and bricklayers.
But political redemption is based mostly on amnesia… and debt. After a few years of dedicating monuments and bribing public employees, most people will have forgotten the dirty dealing and civic disasters.
And heavy borrowing allows them to push the cost onto people with no memories at all – many of whom aren’t even born yet. By the time the bills come payable, most people have forgotten who contracted them or what they were for.
The renovation of the Washington Monument takes place once every 100 years. This was the first monument built to honor George Washington. Built in 1815, it was begun with private financing; later, the state of Maryland helped out.
As far as we know, no debt was involved.
But today, debt is everywhere… mountains of it. And the more it rains bad news, the greater the danger of mudslides and avalanches.
“Governor pushes for bankruptcy as default could still be a reality,”USA Todayinformed us last week.
It was not talking about Greece, but about another small economy – this one under the protection of the United States of America.
Puerto Rico has plenty of debt too. Here’s how colleague Chris Lowe described it last week:
The situation in Puerto Rico is 100 times more worrying for U.S. investors than Greece.
The governor of Puerto Rico says the island’s $73 billion in debt is “not payable”… and that it’s in a “death spiral” as a result.
That amount is more than 70% of Puerto Rico’s GDP. For perspective, there’s not a single state in the U.S. with debt of more than 20% of its GDP.
Also, Puerto Rico’s debt load is about half of the entire debt of the state of California… even though the population of Puerto Rico is only one-tenth the size.
Small potatoes?
So is Greece. But that’s the problem with a mudslide. You never know which drop of rain will set it off.
Regards,
Bill
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