Friday, May 7, 2010

Greece Should Simply Default

The idea that that the Eurozone can start a series of rolling bailouts is a joke. Greece should simply default. That would be followed by further sovereign defaults. Banks, who own these debts may end up defaulting as well. That is what should happen when you make bad decisions and buy securities that you shouldn't have bought.

The problem is not the debt. The problem is the spending levels: entitlements and the public employee costs. These aren't affordable anywhere. Further, entitlements destroy incentives to save and destroy incentives to protect your health. Once you assume that someone else is going to take care of your every need, you are in trouble. That's why Greece is in trouble. That German and French banks provided over $ 100 billion to Greece by purchasing Greek bonds is too bad. They should sustain the losses they deserve and move on.

Doubling down is not a solution. The solution is to eliminate the entitlements and reduce the size of government. If you don't do that now, you will simply have to do it later.

Our friend, President Obama, said it best: "The United States is the only civilized country in the world who cannot afford universal health care." He was dead wrong. No country can afford universal health care, if, by that, you mean "free" and "universal" health care. No country in the Eurozone can afford it and the US can't afford it.

Anyone can afford anything for a while, until the creditors demand to be paid back their money. That time has arrived for Greece. It will arrive for every other member of the Eurozone in time and it will arrive for the US in time.

There is no easy out.

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