North Korea

North Korea
The always bombastic and unpredictable North Koreans go hysterical again. This time the country is prepared to "go to war" with South Korea because that country is playing loudspeakers directed at North Korean territory. A headline from a UK paper reads, "More than 50 North Korea submarines 'leave their bases' as war talks with South continue "

Saturday, August 6, 2011

Debt worries around the world

For many western countries, increasing debt loads and other financial stress are resulting in increased incidents of protests and challenges, two years now after the 2008-2010 global financial downturn. In the U.S., the issues surround stimulating the world's largest economy which in turn raises or lowers much of the world's own economic fortunes. In Europe, the costs of an extensive welfare state (for example, retirement age at 60 in France was raised last year to 62 in spite of violent rioting over the injustice) are eating into the government's abilities to pay. It is of interest that this culmination of concern is limited to Western democracies, while the governance of many Asian countries do not include as extensive provisions for their poor or elderly.

After a bitter 3 month debate in the U.S. over raising its debt ceiling limit, preceded by the "shellacking" of the mid-term elections when many conservative lawmakers were elected, an agreement had been reached hours before borrowing by the federal government would technically been illegal. However within two days of what was hoped to be the end of that particular crisis, one major rating agency downgraded the U.S. bonds and obligations ratings from AAA to AA+ - the first time since modern ratings agencies were established. The administration was noticeably upset and disagreed with the decision by Standard & Poors. The S&P decision was explained by the rating agency's leaders as one due to the political wrangling and apparent lack of ability to make firm decisions, rather than the actual confidence in the U.S. ability to pay.

U.S. debt (government spending not covered by revenues = borrowing from other countries, and therefore accumulating debts and interest to repay.) The drop in the U.S. credit rating allowed China - one of the U.S. largest lenders - to blast away, warning Washington lawmakers to “cure its addiction to debts” and “live within its means.”

Since November 2010's elections, the debate has shifted from further extending government spending (and borrowing) in order to stimulate the world's largest economy, to one of balancing spending and revenues. Conservatives are stressing reduced spending to close the gap between revenues and expenditures, while liberals are calling for more taxes on the wealthiest. The issues are many - who's responsible for health care and its costs, social safety nets that have morphed from modest retirement and health care provisions to large programs extended to a variety of populations with perceived needs, military expenditures including policing of many world trouble spots as well as funds for two war operations, etc. That debate shows no sign of letup in the face of the ratings downgrade, and will likely be the leading arena fueling the campaigns for the 2012 elections, now just 16 months away.

Unhappy U.S. leaders, left to right - John Boehner, Speaker of the House; President Barack Obama; and Harry Reid - Senate Majority leader

In Europe as well, concerns over governments' abilities to provide a social welfare net have grown from providing emergency European Union (EU) loans in recent years to Iceland, Ireland, Portugal, and Greece in exchange for reduced government payouts, to similar concerns for the stressed economies of Spain and Italy. Italy's shaky finances are especially a concern, as it has the 3rd largest economy in Europe after Germany and France. We've briefly mentioned before the riots in Greece and massive demonstrations in Spain, but more protests are likely in the future as governments across the continent work to balance programs expenditures with the ability to pay for them.

While these Italians seem unconcerned about the state of their country's finances, nearly everyone else is

Rather unexpectedly in the news, Israel has had unprecedented street protests the past several days. Demonstrations actually began last month, the Associated Press reported, "with a few tents set up in an expensive part of Tel Aviv to protest real estate prices. The tent encampments quickly sprouted in other city centers and the movement further expanded as protesters later joined in over a wide range of economic issues. Young parents are protesting high child rearing bills, doctors are striking due to strenuous work conditions, teachers are marching over restrictive work contracts and others are in the streets over low salaries, ever increasing gas prices and food costs."

This is considered a serious challenge to Israeli President Netanyahu, and it has quickly gotten his attention. While the protest is not over debt per se run up by the government (and Israel's annual economic growth is relatively healthy, averaging 4.5% since 2004 while in the same period unemployment has fallen from about 11% to 6%), it's occurrence shows that all around the relatively affluent Western world, people's choices and expectations, and governments' promises and abilities to pay for them, are in a state of churn.

100,000s of thousands of Israelis have taken to the streets, not in demonstrations over their own government's spending, but the high costs and challenges of their own. However, at least in Western democracies, the people's concerns are quickly the governments' concerns

1 comment:

Sarah said...

It just seems so short termed and self-involved to be protesting over losing SOME benefits when the alternative is (or at least should be but apparently isn't because there's always a bailout somewhere, so far...)losing everything when the government has nothing in the coffers... (I'm remembering all of the Greek riots)