Share the Debt?

As we begin a new year, our country, and in fact the entire world, faces what could be considered the most severe debt crisis in history. Many Americans have been ruined by personal debt over the last year or two, and now we even have entire countries going bankrupt. I have written in previous posts about the crisis in Europe, where riots have taken place in Greece, France, Great Britain, and Italy. I have discussed the EU bailouts of both Greece and Ireland, and the possible upcoming bailouts of Portugal and Spain. I have also made the point that these are hardly third-world countries we're talking about here. That is what makes this reality all the more frightening for the rest of the world.

I have also discussed the situation here in the United States, where several states are on the verge of bankruptcy. The ones in the worst fiscal shape are California, Illinois, New York, and my home state of New Jersey. When you look at what has happened in Europe, you can only wonder if they are but one step ahead of us. Is it possible that these states could go bankrupt in 2011? And if they do, will the federal government bail them out as the EU has bailed out Greece and Ireland? The question is as troubling to ponder as it is difficult to answer.

Let's start by going back to Europe for a second and taking Germany as an example. Germany has the largest economy of all the European countries, and they are not nearly in as much financial trouble as most of their EU counterparts. Why? Because the Germans live up to their reputation as being extremely disciplined and having a solid work ethic. They have not handed out as many entitlements to their citizens as so many other European countries have over the past several years. In countries like Greece, where people retired young on fat pensions and received free healthcare from the government, the powers that be eventually ran out of things to give and started to take back. That's where the trouble began. That's when the riots started, and that's when the EU had to step in to save them.

In Germany, people have actually worked for a living rather than sitting on their derrieres and living off the government. Now, Germany is in a position where it will most likely never need a bailout from the EU. They are one of the most sovereign credits in the entire world, and that is why they would rather cut spending than agree to financial consolidation among the European countries. I back them one-hundred percent in this decision, because to me it is a question of fairness. Why should a country that has done the right thing for so long be forced to help bail out the countries that sold the house, gave it all away, and are now on the verge of collapse?

Let's translate that situation over to our country. If California, Illinois, New York, or New Jersey should go bankrupt, will the federal government bail them out? I would answer that question with a question: "Why should they?" Why should other states that have not mismanaged their funds nearly as much, have not been so overrun by corruption, and have not catered to the unions in exchange for votes now watch their federal tax dollars go toward bailing these states out? Do you think the citizens of North Dakota, Montana, or Kansas will tell their local congressmen to hurry up and rush those funds along to poor California and Illinois? Will the people of Wyoming, Wisconsin, or Oregon start letter-writing campaigns to send money to New York and New Jersey? Uhh...I don't think so.

In a recent interview, Senator John McCain was asked if he would vote in favor of a bailout for these troubled states. He actually laughed when he was asked the question, then responded by saying that he would express his deepest sympathy and wish them all the best. In other words, "Not a chance, my friends." Even as a resident of New Jersey, I would back the federal government if they took a stance against bailing us out. I look at it this way. If I had a neighbor who mired himself in debt to the point where he lost his car and his home, and he rang my doorbell and asked for a donation to bail him out of his predicament, what would I do? Honestly, I think my response would be very similar to the one given by Senator McCain.

Thus it is my position that those states which are suffering financial crises CANNOT count on being bailed out by the federal government. It would be naive and presumptuous to do so. There is no way out of this debt crisis other than to cut spending. Chris Christie has certainly done everything he could possibly do in his first year as governor of New Jersey to rein in spending, making an inordinate amount of enemies in the process. There is no doubt that the process is painful, and it's sad to see education, police departments, and fire departments suffer deep budget cuts. But there is simply no other way. We have reached the point where we need to choose between the lesser of two evils: bankruptcy or massive, unpopular cuts in spending.

So which one would you prefer? Should we just ignore the situation in Europe and keep spending the way we've always spent, expecting a bailout from the feds just as Greece and Ireland received a bailout from the EU? Or should we follow Germany's example and move to cut spending, thus remaining sovereign and not having to worry about whether we would receive a bailout? Personally, I prefer the latter. The Germans are on the right track, and I only hope and pray that U.S. state governments will follow their lead. Time is running out, as many experts predict that states could start going bankrupt as early as the end of this year. But the window is still open ever so slightly to start doing the right thing and return our states, and our country, to fiscal health. Let's hope that we can squeeze through that opening before the mountain of debt squeezes us.