The people of Spain learned the sad news that they’re in a debt crisis recently, and things have just gotten a little bit worse. On Friday, Fitch ratings downgraded Spain’s national credit score from AAA to AA+, meaning that the many investors who rely on Fitch ratings will now view lending to Spain as a little bit riskier. Most likely, investors will demand higher interest rates from Spain to compensate for the higher risk. This is a problem for any debtor, because when one is in debt deep enough to be a concern credit-wise, one is paying enough interest that a raise in interest rates will just further burden the economy. Spain’s recent debt crisis (and things are similar right now in Portugal, Italy, Ireland, Greece, the United States, and Japan–the last two are not yet officially in crisis but have a deeper debt burden than the countries that are) is just another illustration of the fact that the social welfare state driven by deficit spending cannot work long-term, no matter what proponents of ever-increasing government spending might say. So Spain is working on measures to cut public spending, but they’ve had little progress, and all they’ve done so far is passed a measure that would reduce the deficit, which is nothing more than saying that, provided these measures work (and the opposition is strong), the monstrous Spanish debt will continue to grow, but just a little more slowly. But even this small (and it is small, no matter what they say) step toward fiscal responsibility has got statist economists worried:
Some economists fear the cutbacks to appease the bond market may help kill Europe’s hesitant economic recovery by withdrawing government stimulus efforts too soon.
These econimists forget that the very thing that has gotten Spain into this crisis is overspending itself, and that a “recovery” driven by massively increasing debt is no more real than the “financial recovery” a nearly bankrupt person experiences when he borrows yet another $100,000. And following the ridiculous trend of modern economic thought which thinks everything is to be solved by greater and greater government intervention, these fellows try to smear budget-balancing as “appeasement,” and though acting responsibly with one’s finances is a cowardly thing to do. They act as though financial reality is the wrong-doer, and as though the government’s role is to ignore it. And it’s that nonsense thinking that’s leading the US down the same exact road. And unless we can turn our thinking around, we also will perish (financially).
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