The Nanny State

The Nanny State is defined as a government that makes personal and private decisions for people that might otherwise make for themselves. This sounds like the elaborate welfare model of Western Europe, and our President's model for our future.

We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Sound familiar? Now they are sub-prime borrowers, so the "vig" (loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?

Unlike our Central Bank (The Federal Reserve), which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids The ECB (European Central Bank) from buying their debt. The German people have long memories of their post WW1 inflation. Therefore, Western Europe does not have a solution using monetary policy.

President Obama has added over $4 trillion to our debt in his almost 3 year presidency. Approximately one half of this amount came from borrowing from investors (banks,individuals,China etc.) other than the Fed. Because the market is still confident in our ability to repay our $15 trillion debt, our interest costs have temporarily stayed low. I emphasize the word temporarily! Unfortunately for Western Europe, the market does not have the same confidence, therefore, they do not have a stimulative fiscal solution. Their only fiscal alternative is to restrictively cut spending, which in the short run would lead to a greater economic slowdown and even more chaos.

They are " between a rock and a hard place", a spot we will find ourselves in sooner than we think.