Monday, March 18, 2013

The Euro and Dollar

The Euro is used by 17 nations that are part of the Eurozone and the currency went into effect on January 1st 1999. It is the second largest global currency behind the dollar. In addition, many African currencies are pegged to the Euro. In all, over 500 million people globally use the Euro. Originally, the Euro was used as an exchange system between member countries, but within three years most of the Eurozone countries adopted the currencies. The formation of the Euro made sense since there were dozens of independent European currencies. The Euro simplified travel, eliminated exchange fees, removed the currency risks involved with European trade, and is managed by the Central European Bank. It essence, the Euro was supposed to create continental unity. Several countries in the Eurozone took advantage of their new currency and spent lavishly over the course of several years running up debts higher than their national GDP. Ireland, Greece, Portugal, Italy, and Spain were the biggest culprits. France and Germany made these countries enforce massive austerity measures to qualify for bailouts. This has led to not only economic, but civil unrest. Today, the Eurozone has record unemployment levels and Greek riots are common. For the Euro to continue to exist, Germany and other stable Eurozone countries want a balanced budget agreement or some authority given to the Central Bank to oversee and control state budgets.

Does this sound familiar? It should, many Tea Party and fiscal conservatives want to amend the U.S. constitution to include a balanced budget agreement. The U.S., like several Eurozone countries is facing 16 trillion dollars of debt (near 100% of GDP), and another 87 trillion dollars of unfunded liabilities. However, this is only part of the story. The U.S. is made up of 50 independent states and each faces their own fiscal problems. The states face debt and unfunded liabilities equivalent to an additional 4 trillion dollars. Like the Eurozone, some states are in worse fiscal shape because of lavish spending. To complicate matters more, individual municipalities face even more debt and unfunded liabilities. Dozens of cities nationally have already filed for bankruptcy. Detroit councilwomen, JoAnn Watson, demanded Obama give Detroit a bailout because their constituents voted overwhelmingly for him in the 2012 election. States and municipalities expecting federal bailouts are becoming a common discussion these days.

Just like the Eurozone, it makes sense for the United States to have one currency, the dollar. The founding fathers understood this and gave the federal government sole power to create and maintain the United States currency. However, when a few states and municipalities lavishly overspend it is going to be up to fiscal responsible states and taxpayers to bailout these failing entities. This is not fair, nor is it right.

I am not saying each state should have its own currency, but I am saying that the federal government should demand each state have a balanced budget agreement and understand that they will never be allowed a federal bailout. Yes, the federal government can come to the rescue in some unforeseen circumstances such as a natural disaster – but that is it. States and municipalities should be responsible for their own fiscal matters.

People and corporations have choices in the U.S. If they do not like the tax rates in a certain state, then they can move. This can put added pressure on state governments that like to overspend and overtax. State competition is good, but not when the fiscal burden falls on responsible states to bailout failing states.


  1. Hi Patrick,

    I’ve been too busy to blog lately. Don’t know if I’ll ever get caught up.

    I’m not sure how it becomes the responsibility of solvent states to bailout those that have mismanaged their finances. It shouldn’t be the federal government’s business to bailout states, especially since it has no money of its own and would simply steal from other states to subsidize the poorly managed ones. If the Constitution actually allows for this, it should be amended to strictly forbid it. If debt-ridden states need money, let them beg for donations from individual citizens.

    Every day I see one more example of how each of us is being forcibly strapped to others without our consent, then we are forced to sink with those who can’t or won’t swim on their own. I just get madder every day.

    1. I have stopped watching news altogether and mostly only read news headlines and cannot even read the articles because it just gets my blood pressure up. It is sad to live in a country where just about anything our politicians do gets me mad.