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Austerity Measures: Why They Will Happen in America Next
Austerity measures have come to Europe—why they will happen in American next.
Invariably, I wander off to government austerity measures. I apologize in advance to my readers if I have been talking too much about this as of late. But that’s all I hear from people here. They are upset. Governments in Europe are cutting fast and deep.
Portugal, Greece, Spain, France, Italy and the U.K. have implemented what are called “austerity measures,” a phrase to describe a combination of government spending cuts and higher taxes. In the U.S., I have yet to see major austerity measures introduced, but I believe they are on their way and my readers should be aware of what the government will act on.
Italian Prime Minister Silvio Berlusconi, dogged by corruption and a sex scandal, was able to get some deep austerity measures passed by the Italian Parliament two weeks ago. Berlusconi, a politician made of steel, survived two confidence votes by the Chamber and the Senate on July 14 and July 15, respectively, on his way to getting his austerity plan approved.
The plan…a freeze on civil servant wages, cuts to regional government funding, an increase in the retirement age, higher taxes on stock options, and higher taxes on trading accounts holding more than 50,000 euros.
Berlusconi’s austerity package of higher taxes and spending cuts, if they are not eliminated by the next government, will get Italy to a balanced budget in 2014, only two years away.
After decades of economic leveraging, led by the United States, the world is deleveraging itself. It’s no longer in vogue to have big government debt. The Keynesian Economic Theory has proven to be ineffective. The bond market has served notice on governments all around the world: get your finances in order or your interest costs will skyrocket.
Governments really have only three choices: cut spending; raise taxes; or do both. All over Europe, governments are adopting new policies aimed at the dual strategy of cutting spending and raising taxes.
America will not escape implementing her fair share of government austerity measures. Just look at the U.S. Post Office. It’s scheduled to run out of money in September. A total of 3,700 post office outlets may be closed in the U.S., as staff is slashed. But this is what I refer to as “quiet austerity measures;” the cutting of operations that lose money.
Cutting mailing delivery on Saturdays, as the postal service is asking of Congress right now, is a situation where a service that has been provided to citizens is taken away…an austerity measure that affects citizens.
Investment advice: my dear reader, place yourself in a position where you have enough steady income coming in to provide for you and your family. For capital growth, I personally see the stocks of junior and senior gold-producing stocks offering the best opportunities for investors right now.
What He Said:
“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips. I predict a major homebuilder will go bankrupt in 2008.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10, 2008. WCI Communities, the largest U.S. luxury homebuilder, filed for Chapter 11 protection on August 4, 2008.
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