A world in economic crisis

The PIIGS fallout

Posted in PIIGS by Aussie on July 6, 2011

Whilst the European Union has been busy trying to rescue Greece, Portugal has continued to implode. The latest information via the BBC new site, is that Moodys has downgraded Portugal to junk status. It seems that the credit ratings agency wants Portugal to raise taxes and introduce other measures that will cut their debt.

The Socialist experiment has been a big fail. It has failed for a variety of reasons, and I do think that one only has to go back as far as the 1960s and 1970s to find some of the reasons for the failure that we are witnessing. The decrease in births per family over the years is yet another reason for the current failures. The practice of Socialism via unreasonable welfare payments is another reason. The two actually go hand-in-hand to some extent.

Let me explain why I think that there is a link. The tax base depends upon the number of able-bodied people up until about the age of 65 in the workforce. If the retirement age is lowered any further than 60, and a pension is offered to those no longer in the workforce, then you need a younger base who are coming into the workforce to take their place. Immigration does not address that need for a tax base, since immigrants tend to rely upon welfare payments as well, unless the immigrants are being brought in because there are positions that are available and the current workforce cannot fill those positions.

In the 1960s and 1970s, something changed and I think that something was related to the decrease in the size of families which was due to a variety of social factors, including the introduction of birth control such as the pill, and the widespread (and dangerous) use of abortion procedures (this does not necessarily involve Portugal), followed by an increase in the number of females entering and remaining in the workforce. The dynamics were changing and not necessarily for the better.

With the reduction in family size, there has been an increase in the dependency for government support in later life. Unless there is an increase in taxation receipts, this has the logical consequence of a gap between the welfare spending and the gap of revenue raised from taxation. The government then needs to borrow the funds from other sources.

This is but one example of why this problem has been allowed to get out of hand. The welfare spending on all sorts of things has increased the demand upon government funds, but without the necessary extra funding to meet those demands. When government raises taxes too high on businesses, then the outcome ends up being people losing their jobs as the business will either close down and go elsewhere, thus depriving the government of taxation revenue, or it will reduce the size of the firm so that it can still meet its obligation. The raising of government revenue via higher taxes actually ends up stifling enterprise, with the end result being business closures, as well as fewer business start-ups.

The European nations have a smaller population than say in Australia. They might have thought that they could cope with the provision of medical services for the population (as an example), but they had not forseen how such welfare spending actually attracts people to use and abuse such services, neither did they forsee the medical advancements. Those medical advancements are quite expensive, yet more and more people are demanding that they be treated with this expensive technology for free. In this regard the IVF program is a very good example. There are other examples, including the organ donation and replacement programs. The money going into these programs is being taken away from cancer treatments (yet another example). However, the real abuse comes from the illegal immigrant population who go to another country, be it the UK, the USA or somewhere else for the purpose of using the available facilities and hopefully getting the service for free.

This is a never-ending cycle, yet the abuses point up the failure of the Socialist economic system. It simply is not workable, and in the long run it has been leading to the financial disasters that are now unfolding.

 

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Italy’s turn

Posted in European Union, Italy, PIIGS by Aussie on May 23, 2011

The Eurozone needs to brace itself for another crash, this time it is Italy that is becoming more and more wobbly. The Age reports the following:

The Australian bond market opened firmer as traders moved to safe haven assets amid concerns the European sovereign debt crisis may spread to Italy.

At 0830 AEST on Monday, the June 10-year bond futures contract was trading at 94.700 (implying a yield of 5.300 per cent), up from 94.685 (5.315 per cent) on Friday.

The June three-year bond futures contract was at 95.020 (4.980 per cent), up from 94.970 (5.030 per cent).

Standard & Poor’s rating agency has downgraded its credit-rating outlook for Italy to negative from stable, citing its slowing economic growth and diminished prospects for a reduction of government debt.

Please read the whole thing. This is, however, the first report that I have seen on the financial situation in Italy. It is yet another country that has problems with a migrant population. At the present time Italy is coping with an influx of refugees from Tunisia and Libya. This is no doubt straining the government resources to a point where it is struggling with debt repayment.

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