By Teresa Vise
North Jefferson News
So, 10 doctors walk into a bar… OK not the beginning of the best joke ever, but I did have a dinner meeting with several of my customers this week and the conversation quickly turned to politics.
From banking to schools, medicine and the local restaurant around the corner, it is important to understand how we came to be in, well… so much debt.
It begins here at home. I call it trickle up debt. It becomes a pervasive mindset that in order to have something you have to pay for it later. The conversation with my customers over dinner began with a bit of finger pointing. “Look at Greece! Geez what a mess!” said one.
Like many countries, the Greek government, like the U. S., relies on borrowed money to balance its books. The recession has made this harder to achieve, because tax revenues are falling with people spending less, just as entitlement and welfare payments start to rise. To be fair, using public spending to even out the bumps in an economy is what most large developed economies do right now. This is all well and good as long as the investor money keeps coming in to the system. We aren’t even close to a balanced budget here in our own country. In fact, economists warn that to get there we would pretty much need to eliminate all spending on defense and social security. Yikes. The lesson here is that debt is not all bad. Debt that you cannot repay is very, very bad.
Unfortunately, investors have lost confidence in the Greek government’s ability to walk this tightrope, so they have been demanding ever higher rates of interest to compensate for the risk that they might not get their money back. The higher its borrowing costs, the harder it is for the Greek economy to grow itself out of trouble. Money really doesn’t grow on trees, and while countries like the U.S. can print more, it just works to devalue the currency.
When Greek debt downgraded to “junk” status, the cost of borrowing money became too high. Fearing bankruptcy, Greece had to turn instead to the European Union and the International Monetary Fund for money to float their debt. But, just as money doesn’t grow on trees, it ain’t cheap, either. EU members took issue with just giving more money without constraints to a struggling Greek economy, as did Washington. This time there had to be some strings attached and a tough series of public sector cuts, known as austerity measures, were designed to reassure international investors that the government can become creditworthy again.
Dial back a few years to the mid 2000’s when Greece was strong and solvent. During this time and prior, the Greek government took advantage of this by running in a deficit. With an economy dependent on shipping and tourism, it headed south quickly when the economy worldwide started to cool. Austerity measures have been the source of massive protests as the Greek government seeks to shake the couch cushions of its economy for loose change. Public sector pay cuts, pension reductions, new taxes on corporate profits, luxury and sin taxes, and value added tax (which is for an entirely different article) are the tools of a government seeking to sustain itself and it has the people crying Uncle.
But, let’s get back to my doctors and our dinner conversation. Greece is a long way away, so what does that mean here in little old Jefferson County? Well, the story for Greece sounds pretty similar to Jefferson County if you get right down to it. Weak leadership, poor accountability, and simply spending and promising to spend money that you don’t have can be found across the world or even around the corner.
And what about some of the towns right here in North Jefferson County? Time will tell how the balance sheet fares, but spending just because you have it, especially when it is on salaries and not infrastructure or improvements, is just not a good idea. A recent Birmingham News article reviewed the balance sheets of two of our big towns here in North Jefferson. Both passed budget increases for 2012 with bigger coffer requirements needed to support employee raises and debt obligations. And don’t forget the add-on of “just a penny more” to your tax burden at the store.
Suddenly, Greece doesn’t sound so far away.
Teresa works for Sanofi-Aventis Pharmaceuticals and supports the Fultondale Chamber of Commerce. You can find additional readings on her blog at http://businessadvise4u.blogspot.com or contact her at email@example.com.