Senate Greece and Illinois - the Public/Private debt crisis spiral

Greece's problems remind me a lot of the problems we're having in Illinois. The EU is trying to figure out what to do about the country: force austerity measures down their throats, bail them out, try to work out a palatable combination of the two, try to keep the the debt crisis from causing wider Euro inflation, try to keep the crisis from spreading to other iffy EU economies also in precarious deficit situations, like Spain, Italy, Portugal, etc., all while domestic politics inside Greece melt down under widespread strikes and disgruntlement.

Clearly it's a different situation than what Illinois is facing. Greece and Illinois have a similar population size, but Greece has a GDP of $350 billion and a national debt 125% of its GDP, a deficit of something like 14% of GDP, whereas Illinois has a GDP nearly twice as high and a state debt of well under $100 billion. Obviously, because Illinois and the Federal government share and split various functions of government, Illinois doesn't have the same level of burden as a sovereign state would have to provide various services. Also it collects a relatively small percentage of its residents' income as tax revenue.

Anyway, Greece and Illinois share a budget crisis long in the making but brought to a head by the private sector financial collapse and global recession. Because of the recession and high unemployment, Illinois tax revenues fell dramatically last year, just as federal tax revenues dropped heavily.

The private sector crash brought on a public sector catastrophe in several states, deferred somewhat by a round of federal bailouts. Because the effect of the economic downturn on tax revenue lingers, the effect on states is magnified and may take a decade to sort out, maybe longer if the economic recovery is not robust and high unemployment persists for several years.

To me the threat that the EU and the U.S. are both facing together in a certain extent is that the chain of cause and effects is likely going to be extended back into the private sector. Private sector downturn >>> U.S. state and EU member nation budget crisis >>> austerity measures and bailouts >>> more economic hardship and inflation >>> another private sector downturn.

Bailing out Greece may not cause undo European-wide hardship, but the EU could beat itself senseless bailing out Spain and/or Portugal and/or Italy. Similarly, how many rounds of federal bailouts of how many states can the federal government afford, which is to say, to what extent do we want to transfer the trials and tribulations of Illinois taxpayers onto the backs of Federal taxpayers.

To make a long story short, the Greek and Illinois crisis signal that the U.S. and European economies are likely going to slip back into recession by 2011 at the latest.

Looks like it's up to Canada and Australia to save the world again then.

Do we have to do everything for you people?

Long live the Commonwealth!

Excuse me? I'm not a fan of the US being the dominant world superpower, but where does Australia and Canada come into this equation?

Canada is a hard act for the rest of the world to follow. Their per capita gold medal count is off the hook.

Excuse me? I'm not a fan of the US being the dominant world superpower, but where does Australia and Canada come into this equation?

Just a joke on where our finances are compared to that of the US, Japan and Western Europe.

Canada essentially went through a bad crisis years back before other nations -- or maybe in the case of Western Europe, acknowledged before they did since it never got as bad as it has in Greece -- and finally turned things back around circa 1995-7. We were forcasted we'd need about 20 years of budget surpluses in order to adequately pay down the debt.

Well we didn't get that, but we got enough to make things more manageable. Budget surpluses were maintained (although consistently dwindling) from about 1995-97 until the financial crisis began, probably around 2007 or 2008. Since then we've finally lapsed back into deficit. But since we've actually been accruing no net debt for many years and our GDP has grown during that time, things look much better than they could have.

Alberta tar sands.

It's like the British economic renaissance under Thatcher. Not really caused by Thatcher, but rather by bringing the major North Sea oil fields online and letting Britain be a major oil exporter for two decades. Now they are a net oil importer again and swiftly returning to the economic malaise they experienced in the 60s and 70s.

Without Alberta to balance the decline in Mexican oil exports, the U.S. would be in a much worse economic situation than it is today.

Alberta is responsible for less than 15% of national GDP, and they do have industry other than the tar sands. While the tar sands are an important part of the economy, attributing them to Canada's success in balancing budgets over the past fifteen years is incorrect in my opinion.

15% of its GDP, but what percentage of its export revenue? Canada had a positive balance of trade for all of 2008 when oil prices peaked. Its balance of trade went negative only after oil prices corrected as the result of the global economic downturn.

Canada is one of the few highly industrialized nations on earth that is a net energy exporter. You account for 20% of U.S. oil imports. Thank you, Canada, for practically giving away your most precious strategic resource for mere pennies a cup.

But back across the Atlantic (WSJ):

Flights were grounded and trains suspended amid a nationwide general strike Thursday, as Greek police fought running street battles with anarchist youths in fresh and violent signs of anger at the government's austerity plans.

(AP)The Finance Ministry said that through spending reductions and tax revenue increases it had limited the budget shortfall to euro903 million ($1.2 billion) in January and February ? down 77 percent from euro3.9 billion in the first two months of 2009.


I could see a teacher's strike in Illinois this coming fall if the proposed education cuts come through. Also protests at state universities, possibly a CTA or city worker strike here in Chicago. But in general American unions no longer have a pair, so don't expect too much unrest here.

I'd agree somewhat with Raven on the Tar Sands.

The Tar Sands are significant but even now have still yet to quite come into thier own. And certainly when the Liberals posted thier largest surpluses circa 1995-97 or whenever it was, the Tar Sands were then less of a factor.

Actually I think I've heard Paul Martin did some sneaky things with Social Security... something like took the interest from that money or gains made by that money and used it to pay help reduce the deficit.

I'm hazy on exactly what it was they did, but we know that it worked. If today it's the Tar Sands that would make or break the difference, I'm not certain. All I know is that I'm thankful for Chretien and Martin for getting us to where we needed to be, and relatively tolerant of Stephen Harper so far for having enough sense not to break it.

Yes! Dinosaur fossil sites! You left that out.



J/K. I love me dem Albertans.

Since I live in Illinois and have been to Greece, I feel I have a unique perspective on this topic. The solution is to burn Cook County to the ground and build a parking lot in its place. Sure I was born and raised there, but **** them and there emissions tests, taxes, bogged down courts and extra car stickers.

Tar-sand extraction also tends to kill, uhm, ducks. We know what happens to enemies of ducks in Canada.

Unfortunately Cook county is the only thing Illinois has going, otherwise it might as well be Iowa or Kansas.

Frankly, that's a brilliant solution to Greece's problem. Instead of having the EU bail out Greece, they can subsidize non Greek Europeans who want to vacation in Greece. Next thing you know, Greece is running a budget surplus.

I recommend Thasos by the way. Spent 10 days there a few years ago. Just beautiful. Two words: nude beach.

No such luck for Illinois, which is sort of the prostate exam or colonoscopy of tourist destinations.

I can imagine a nude beach on Lake Michigan during a frosty late winter day with a cold breeze.

Uhhmmm........

Stocks Resume Fall on Fears Over European Debt Crisis

After S&P downgraded Greek's debt rating yesterday, the srhtf. Markets fell worldwide and are having a second bad day in Europe. Europe cannot avoid a massive bailout for Greece, which can no longer find buyers for its debt. Portugal and Spain are next.

Meanwhile, in Illinois, 15,000 teachers, state employees and others rallied in Springfield last week to support a state income tax increase to help fund the continuation of their jobs. There remains a fundamental disconnect between the amount the Illinois income tax would have to be raised to cover our annual deficit and the amount people are willing to pay. The end result is that the state will have to do a little or a lot of both.

True, Chicago is an awesome city, although unfortunately nearly invisible to European and Asian tourists. I believe in most European atlases the entire midwest is just a featureless white blank space with the words "here there be rednecks" printed over it.

It will never get the love that NY and California get for reasons that are entirely reasonable.

Spain was just downgraded.

edit: Merkel has pledged her country will support a Greek bailout.

I love how Germany is taking center stage in Europe again.

All the nations around her are slowly falling into a financial quagmire.

This feedback loop is going to keep circling in the Europe and the U.S.

Major private sector downturn --> government bailout of the private sector, tax revenue downturn --> government debt crisis --> government bailout of itself, government spending downturn --> government employee job losses, fewer payments to the private sector --> private sector layoffs --> higher unemployment --> private sector downturn, tax revenue downturn --> government debt crisis --> major currency crises for dollar and euro? --> major government defaults? countries leaving the Euro regime?, inflation and hyperinflation?

As everyone knows, the answer to this crisis is 2010 FIFA WORLD CUP SOUTH AFRICA!!!

Including theme song by Ricky Martin?

But yes, this will come back to the U.S. In fact, it already is.

edit: Spain is more problematic though. It's much larger. After Portugal, I've heard rumblings about Italy too. This becomes like a domino effect...or feedback loop like you said.

I prefer Neil Young and Crazy Horse's feedback loops to this.