IT’S THE END OF THE WORLD AS WE KNOW IT
There is a single, workable solution to the European crisis and we can have every confidence it will be adopted and will succeed: everyone will become poorer. Lifestyles will diminish so that they fall in line with productivity (what do you think is happening in Greece and Spain right now?) Those who loaned will be stiffed to one or another degree, those who borrowed, whether nations or individuals, to maintain lifestyles will welch, celebrate for a time, and then submerge into a sustainable standard of living — say circa 1980. Those who have lived well on entitlements will live less well. The Kennedy family used to have a stupid game where they tossed a football back and forth while skiing rapidly downhill. It is a good metaphor for the bail-outs – just tossing paper back and forth while following the fall line down the economic slope. Gravity still works, both in skiing and economics.
We’re getting there too, we Yanks. A death of a thousand cuts is bringing our American lifestyle into line with productivity: downward pressure on manufacturing wages due to globalization; mild impoverishment of students as real educational costs are transferred to them via loans; a steady increase in the Social Security retirement age; lower interest rates for seniors and savers; high unemployment; a two or three year job search after graduation (really just a cut in lifetime income); plummeting family net worth (now at 1992 levels) as housing prices collapse — it is a long list.
Mild impoverishment is the only real-world antidote to a sustained but unaffordable prior life style.