Letters and Lessons from Abroad

Barack Obama, Nancy Pelosi and the rest of the democrat choir continue singing the same old “Blame it on Bush’s failed economic policies” song. If there is any blame to be placed on President Bush for today’s economic disaster, it would be with his leadership skills (or lack thereof).

Had President Bush and the Republicans been more vocal about the problems with Fannie Mae and Freddie Mac perhaps something would have been done to avert this crisis. Unfortunately, it’s too late and we will never know.

What we do know is that Barack Obama’s economic plan is modeled after European style policies of heavy taxation and increased dependence of the populace on the government. Lately America’s attention has been focused on the US economy so Europe’s problems have sort of flown under the radar.

Allen Wilson has been keeping me up to date on the state of things over in Europe, and they are no better off than we are. In fact it sounds like things may even be worse over there. Since George W. Bush has not been the leader of any European country, the democrats can’t blame Europe’s problems on Bush’s “failed economic policies.”

About the state of things in Europe, Allen Wilson writes:

Leaders from France, Italy, Britain and Germany met in Paris on Saturday to discuss the economic slump in Europe and whether they need to adopt a rescue plan similar to one approved this week for the U.S. financial sector. The leaders rejected a proposal from the Netherlands to create a $415-billion US (€300-billion) European Union fund to help the banking centre.

Note that the Netherlands weren’t at the table. They along with their Benelux partners ponied up the money to bail out Fortis last week. The rumor on the ground here in EU is that the 23 members that weren’t there were happy that action was being taken but miffed that they weren’t involved. What the attendees did announce was a $25M facility to help small businesses.

Italy said that they do not have a problem because their banks are solid and most homes in Italy are owned. True that they don’t have a policy which supports the rights of all to own a home, but they are intricately involved with the EU banks and will suffer along with the rest of Europe as this works though the EU. Think of it like Alaska stating they would not participate in the bailout because they are sound and California on the hook for 9B. Alaska couldn’t remain on the sidelines.

There have been 5 bank failures in EU in the past few weeks. Liquidity is a major problem in the alliance which is home to about 330 million people. They have a very big problem that does not lend itself to the SA in that each country will, when it hits the fan, blame the other countries just as they now all blame the USA.

I’ll keep you up to speed on how things are shaping up in EU as they develop. The quiet talk is that there are some real problems which are being kept quiet and the hope is that the USA bailout will keep them from surfacing.

On a related note, in Britain 95% fewer mortgages were granted in August than in the previous month. Lending has all but disappeared. Many small businesses that have done well for the past decades are rapidly depleting their reserves to deal with the credit crunch. I see the more subtle effects. More people are taking the train and bus. We are seeing more and more of the same commercials on TV as production budgets (are cut). Car lots are full of SUV’s.

In follow up I asked him whether Europeans have become as materialistic as Americans. He replied:

When I was here in 1990 there were only a few cars on the roads and few people owned houses. Most took trains and lived in rental flats. Now the roads are full and people that can’t afford them have houses. Overconsumption is rampant here as well. But, in the EU there is not a safety net like the USA. The problem is they already tax the people at high rates and have a 17.5% VAT (sales tax) on everything. Productivity is lower than in the USA. It doesn’t look very promising. Most of the developing Eastern European countries don’t have much capital.

This morning Allen sent me another update on the current state of affairs in Europe.

After the high level meeting this weekend one of the largest banks in Germany is on the verge of collapse.
 
“BERLIN (AFP) — Germany weighed the fallout Sunday from the failure of the country’s biggest financial rescue in history, after Europe’s top four economic powers pledged a coordinated approach to the credit crunch.German bank Hypo Real Estate (HRE) dropped the bombshell late Saturday that a planned 35-billion-euro (48-billion-dollar) rescue fell through after the banking consortium involved pulled out of the deal.”
 
“Merkel told reporters that “each country must take its responsibilities at a national level,” and added: “It is important to act in a balanced way, and for countries not to cause harm to each other.”
 
“We thought we were not as stupid as speculators in the 17th century who traded in Dutch tulip bulbs and annihilated everything,” he said. But, he added, “we have been just as stupid.”
 
That comment appeared to be aimed at Ireland, which has issued a blanket guarantee to bank depositors without consulting its neighbours.”
 
Here’s the dope. Ireland has stated that they will back all deposits (ala FDIC) which is causing a massive transfer of funds from other European countries into the Irish banking system. In the UK the deposits guaranteed were increased from 35,000 to 50,000 pounds sterling.

With regard to liberal tax and spend economic policies, Allen has seen first hand the consequences of those policies, both here at home and abroad.

When Northern Rust Belt states taxed businesses and corporations to bail out their failed state fiscal policies those businesses fled to Sun Belt states with more favorable tax policies. This philosophy of tax the productive and give to the non-productive eventually led to globalization. We all recognize that globalization is another term for exporting jobs. This is not unique to the USA. Here in Europe companies and jobs have been moving to Eastern Europe and Asia for years. 

Factory jobs were lost because of short sighted corporate tax policies by the states and the federal government. With Obama’s tax policy we risk pushing the remaining strength of America (innovation) overseas. Europe’s already travelling down this path. Let’s hope we’re not following their (or Obama’s) lead. 

Europeans apparently haven’t been satisfied with decades of leftist economic policies, hence the election of conservatives such as Angela Merkel in Germany and Nicolas Sarkozy in France. After decades of liberal economic policies, the financial crisis seems to be hitting Europe faster and harder than here in the US. Will Americans heed the lessons from abroad, or repeat their mistakes?

We will find out soon enough.

My thanks to Allen for his correspondence and insight.