From First Trust’s Brian Wesbury (italics original)
There is a simple rule in monetary economics, which many seem to have forgotten. A weak currency cannot replace a strong currency. In other words, the existence of the euro will force the countries of Europe to confront budgetary problems fiscally, not monetarily. No wonder governments are collapsing across the continent.
The Greek government, and some misguided economists, think the failure of the welfare state could be averted if Greece would only devalue its currency. This is a sad statement. A de-valuation is just a default by another name. It puts most of the burden on creditors, savers, and income earners, who face the pain and loss of reduced purchasing power.
Without the ability to devalue, the pain of restructuring falls on those who benefit from the largesse of government spending. Government jobs, pension payments, subsidies, and services will all need to be cut. The pain will fall inordinately on those who count on government for some form of support.
No wonder governments often choose devaluation instead of austerity. Devaluations can be blamed on the markets and Wall Street. But spending cuts hit constituents – those who voted for politicians who promised that government would never run out of money. This is why governments are collapsing, and will continue to collapse. Voters are completely disillusioned and they are facing a great deal of pain as they get a very expensive education in basic economics.
Read the rest here
Unsustainable political economic systems, particularly the Welfare state, will eventually get undone by the laws of scarcity.
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