Europe & the U.S.: Spending All
the Way to the Poor House
Thursday, July 21st, 2011
By George Leong, B.Comm. for Profit Confidential
First it was Greece, then Ireland, followed by Portugal. There are also issues in Spain.
This group is widely known as the “PIGS,” an acronym for the four countries and appropriately named for its greedy sucking of emergency capital (except Spain so far).
What the PIGS have in common are their severe debt loads and inability to pay down interest, potentially defaulting. Spain is the exception at this juncture, but there has long been speculation that the country may eventually need some sort of handout.
Greece has gone to the well twice after recently agreeing to a new five-year austerity program in order to receive more funds to repay its initial emergency loan. The country will have to cut spending and sell off government businesses in order to raise money, but it will be a difficult path and messy. And there is no promise of success.
But guess what? The situation is bad in Europe, but things are not that much better here.
President Obama wants to raise the debt ceiling from the current $14.3 trillion or risk default, as the country’s coffers don’t have the funds to pay down its interest obligations. And, unless there are truckloads of excess gold under Fort Knox, the U.S. national debt will continue to rise. President Obama will cut spending to reduce the deficit and debt, but this may hurt the economic renewal, which is already showing some stalling. And we still have the issue of job creation and the soft housing market.
You just have to think about the debt situation in the U.S.and realize there are similarities to Europe, albeit not to the same degree.
America has over $14.0 trillion in debt and rising deficits. Comparatively, Italy has $1.4 trillion, or one-tenth of the U.S.debt, but Italy’s population of just over 60 million is around one-fifth of the U.S. This suggests the enormity of the U.S.debt load and this need to be addressed.
The increase to the $14.3-trillion debt ceiling was done in January 2011. Just over six months later, the country is looking for more money. In prudent economic analysis, this has to stop somewhere. If not, the country will be burdened with so much debt that it could default.
Even if there is no default, having so much debt could drive a cut to the country’s AAA credit rating. And can you imagine when interest rates rise?
At the end of the day, something drastic needs to be done to control the spending. Maybe this country also needs its own austerity programs to cut the debt and avoid the financial mess we are currently witnessing in Europe.
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Tags: austerity programs, debt ceiling, economic analysis, Europe, Fort Knox, Greece, Ireland, Market Veiw, PIGS, Portugal, Spain, U.S. debt, U.S. national debt
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
