Where Is The Money Coming From?

The video below is a humorous look at the European economic crisis, sometimes called the PIIGS Crisis (Portugal, Ireland, Italy Greece, Spain lending their first letters to the acronym). It’s actually very funny in an extremely unsettling way. Have a look and judge for yourself. From the Australian comedy team Clarke and Dawe.

What’s not so funny is that the question that is asked repeatedly- “But where is the money coming from?”- is THE pivotal question of the day.  Since most economists are Keynsian it is assumed that these countries economies MUST be bailed out in order to keep the world economy from falling like dominoes. But of course that presupposes several things. The primary presupposition is that “failure is not an option.” Well, of course it’s an option.


As any mortgage payer can tell you, if you can’t make your house payment the mortgage company will take it away from you. Well, at least that was the case in the recent past. Many branches of government are now attempting to make it possible for mortgagees to keep their houses without bothering to make the payments. No one is even bothering to try to make any kind of rational argument for why government should interfere with the mortgage contract in favor of the borrower at the expense of the lender. The arguments are all purely emotional, playing on the natural feelings of pity (and as we will demonstrate in a moment, envy) in the listener. But the facts are that it is dangerous and counterproductive to not allow failure. That is because, eventually (paraphrasing Margaret Thatcher) you run out of other people’s money. This principle is exactly the same for governments as it is for individuals and families.

The consequences of failure for families is bankruptcy and damage to the ability to borrow money. This is not necessarily a bad thing because it forces the individual or the family to do what it should have done in the first place; to buy only what is needed and to save for special expenses and pay for them in cash. This can wreak havoc on families who have come to expect to live the “good life” on credit and can lead to marital strife and, often, divorce.

The same can be said for countries, except that citizens of bankrupt countries who have come to expect to live the “good life” in the form of “cradle-to-grave” care with guarantees of food, clothing, housing, transportation, etc. paid for by the public treasury filled in large part by taxes levied progressively against the more productive members of society, rather than by the proceeds of their own labor. As these nations begin to exhaust the capital available from their more productive elements to pay for the support of the less productive elements of society, they have no choice except to either borrow from nations which do still have capital available or default on all obligations. The latter can be accompanied with threats against neighboring nations of impending unrest leading to civil war or  revolution which could cross borders into neighboring nations also on the verge of economic collapse.

The now obvious danger lies in the second major presupposition which is that that there is some large (Marxists and some Keynsians believe inexhaustable) pool of capital somewhere that can be tapped for these bailouts. The nurturing of this idea breeds an attitude of entitlement to the fruits of others’ labors. That is, the successful must be forced to bear a large portion if not the lion’s share of the burden for those who are not successful or refuse to try to become successful because they have no incentive to do so.

This is usually sold as the more “fortunate” being required to support the “less fortunate” but of course that begs the question. What makes some more “fortunate” than others? Usually it’s a combination of wit, the ability to calculate risk, proper timing, management savvy, knowing the market, filling a need, etc. The word “fortunate” implies that there is luck involved. None of the things listed describing the “fortunate” include luck as a factor, do they? That’s because it’s hard work to make a fortune. But it’s very easy to convince people who had nothing to do with creating the wealth that they are somehow entitled to a piece of the pie that was baked by someone else.

So, after an indefinite period of governments artificially “creating” wealth by inflation (actually a form of confiscatory taxation) and seizing more and more of the capital that would otherwise invested by the wealthy in order to create even more wealth in the private sector we find that there isn’t anything left to confiscate for redistribution. As Gary North demonstrates in this article “There Is No Money,” once that point is reached, and we’re getting dangerously close to that precipice, there is nowhere to go but default and that spells the end of the welfare state gravy train.

Of course, we here in the United States are not in any way inoculated against what is going on in Europe. We owe China billions,  if not trillions, for the US bonds they hold. Yet we have pledged huge amounts of money, over $108 billion dollars, to bail out central banks worldwide. Forty billion dollars of that is going to Greece so that they can continue to provide cradle-to-grave care for a people who have come to expect to be carried by their government whether or not they work. Don’t even try to convince them they should sacrifice by becoming more productive.

Since many of these loans are from the International Monetary Fund (IMF) they must theoretically be repaid for the member states to be able to continue to be eligible to continue to borrow. Let’s ask a question then. Who do you suppose would loan you money at all, let alone at a high interest rate, if you disclosed that not only were you had spent 14%  more than you made last year and that when you already had a personal debt that equaled more than 115% of your entire yearly income and were expecting to spend significantly more than you make this year? No one who had even a rudimentary sense of mathematics would. And yet this is where Greece, and several other countries in Europe stand currently. And this doesn’t include Central and South America, Africa or Asia, each of which have countries at least as bad off.

And so we ask- Where is the money coming from?