The Real Pandemic

This past year brought us urgent and frightening news reports and cautions about the H1N1 (Swine) Flu virus.  The international health monitors were absolutely convinced the sky would fall at any moment.  Such hysterics are unfortunate.  It misleads the rest of us into a false sense of panic in order for these people to secure funding and power without giving us any real security.  They had to water down the definition of ‘pandemic’ to mean a kind of pervasive presence rather than a full blown deadly contagion spreading through the general population.  But, pandemics are real.  They creep into the population infecting and destroying lives without pause.  The real pandemic few are talking about is the rash of spending and borrowing that has leveraged world economies.  It has infected national and state economies so severely, the consequences seem almost unreal.  And yet, little is being done by world leaders to get a handle on this disease.

Greece’s budget and debt is so ponderous and distorted, world lenders are shocked and frightened of supporting it.  The European Union has promised to cover the Greek debtload to protect those who have lended them money.  The EU, and the rest of the world, fear if the Greek debt goes into default, other countries may follow suit.  Portugal, Ireland, Spain, Italy, and England are also in dire straits.  They will find themselves buried in debt and bloated budgets that cannot be sustained. 

In the United States, California and New York also are behind the budget curve.  While they are not leveraged into economic disaster, they have made promises of money to so many groups of people, they cannot cover those liabilities.  Pensions, grants, payrolls, projects, and entitlements are so ponderous they threaten to throw those entire state’s fiscal systems out of whack.  They simply are not collecting enough money to cover their butts.  Tax increases do not appear to help the situation.  In this recession, such revenue grabs will slow the recovery and drive down tax collections. 

As such, both the nation-states of Europe and the states of the United States are begging for bailouts.  They scream they are drowning and must be pulled to safety.  We bailed out the American automobile industry, and especially their unions.  We bailed out the banks and lending industry, and especially their CEO’s.  Why can’t we lend a hand to these states and countries?

We must not do so.  We must quarantine this overspending, overleveraging contagion that is infecting the world.  It must be stopped in its path, not spread throughout the world. 

These countries and states must go through the difficult steps of cutting budgets and fixing debt loads.  They must feel the pain and go through the necessary actions.  Otherwise, the rest of the world is just going to continue down the same path expecting a hand up.  This virus of bailouts will make the whole world sick.  If everyone is ill, there will be no one to help anyway.  The pandemic must be cordoned off.

Our federal government is certainly not in a place to bail anyone out.  Our debt is exploding and revenues collapsing.  We’ve got serious toxic debt still poisoning our mortgage system.  Commercial real estate is about to fall.  Enormous amounts of debt are going to disappear into bankruptcy and with it our ability to finance growth.  If we don’t take the necessary steps now, we will be headed toward chaos.  There will be no certainty and therefore no investment if our monetary system supports nothing but air.  This house of cards will make the financial problems two years ago seem like a hiccup rather than a death rattle. 

This is the coming pandemic.  This is the problem with the financial systems.  It is unsustainable debt and unbacked money that will deflate the economy.  We have to let the poison work its way out.  We have to let the fever break on its own.  If not, there won’t be much to save anyway.