Credit seems to make the world go round. We all use it, even if we pay our bills in full each month. When my wife and I go on a trip we use a credit card, as do all of us I am certain. Some like to have a mortgage, even though they could pay off their home in full. (This mystifies me). Let me try to explain how the euro crisis got to where is is. I have no solution, and maybe some will disagree with me as to what caused it, but here goes.
Joe Doe has a credit rating that is good, and he has lots of credit cards with lots of reserves which he can borrow on, and he decided to do just that. Irresponsible? Of course, but the credit card issuers think his credit is so good, that they allow it to happen. He lives his life as if there is no tomorrow, buying everything in sight, making the minimum payments each month, and never paying the balances in full. He couldn’t possibly pay them in full, because he only makes $20 an hour, he has run his credit card debts to over $150,000, and it is becoming a real strain to make even the minimums each month. Within a year, he’s in deep trouble with the credit card issuers, so he takes out a 2nd mortgage on his house, to continue to pay the minimums, and naturally, he still spends. Eventually, he has used up all that credit cards will allow, and he has spent his 2nd mortgage money. Result? He’s totally bankrupt.
Suppose, rather than Joe Doe doing the above, it is Greece, Italy, Spain, Portugal, and even France? Is there a difference? Yes, and here’s why. If Joe Doe blows his credit, that’s his individual rating, not a nation’s. Joe Doe also is bankrupt in dollars, which is the currency of the United States. He can’t take America down with him, because he did it on his own, and the whole thing is in dollars, which is the exclusive currency of the United States.
Greece did just about the same thing as Joe Doe did, but on a national scale. They acted utterly stupidly, and with not even a thought of what their action would bring upon them. Italy, Spain, Portugal, and Ireland did the same. The common thread here, is not that they did it to themselves, but they all shared a common currency, which is the euro. If four mountain climbers are hooked together, for ’safety,’ and one falls, he might well take the other three with him, unless the other three are really securely tied, Same with members of the euro family. Joe Doe dealt in dollars only, and dollars are not tied to any other currency, so when Joe Doe went bust, he took himself down, and wasn’t tied to his nation. If he was climbing a mountain and fell, he went down by himself.
The euro was a boon to tourism. Euros made travel extremely easy. The euro and its 27 nations, made crossing borders effortless, and having a common currency everywhere, was and is wonderful to a traveler. The individual nations may have gotten used to not having their own currencies by now, but initially they hated it, many still do, and I can’t blame them. If all your life, you have dealt in francs or drachmas, and suddenly, francs and drachmas are no more, and a strange new currency is forced upon you, it will make you unhappy, I am certain.
Benefits to tourism and even trade, seemed to make up for the inconvenience of not having one’s original money to buy and sell with, but there was a fly in the ointment, and it took but ten years to screw up the system. That fly in the euro ointment, was that several of the euro nations had no economic sense at all, and they are taking the euro down with them, just like a mountain climber may take his companions with him if he falls. “A little yeast contaminates the whole batch,” or something like that anyway.
America, really isn’t much better that Greece, Spain, Portugal, or Italy, if the truth be known, but America has one or two things going for it. (1) America can print dollars to the high heavens and not take another currency down with it, because dollars are not tied to other currencies other than in an exchange rate. (2) America has the largest economy in the world, which helps a lot. When the euro nations were independent and each had their own currencies, they could do as we have been doing for 80 years, and that is spend lavishly, and print what taxes do not cover. It may increase the exchange rate for dollars or other currencies, as a currency lost value or reputation due to reckless spending, but it would be Greece’s or others problem, and they wouldn’t take the rest down with them
If Greece goes bust, in spite of the huge bailouts, I doubt that it will take the euro with it, unless Spain, Portugal, Italy, Ireland, and France go with it. At that point, each nation will resume their own currencies, and be individually responsible for their own destinies, like America is, and like America is jogging down a well worn path to economic failure. Got gold and silver? You need to protect yourself.
Greece, Spain, or Italy, as long as they had their own currencies, could act as foolishly as they chose to act, and only hurt themselves, not other nations. If Greece goes, and prints its own money, the exchange rate will probably be ridiculous, and make tourists flock to Greece. Defaulting may be good for Greece!