By Gwyn Morgan
Headlines following the September 11, 2001 terrorist attacks declared “The world changed forever,” leaving us to enter the new millennium fearing for our physical security.
Now, this first year of the second decade of the millennium is destined to be recorded, as when the financial security of much of the Western developed world changed during our lifetimes.
More than a dozen serious Islamic terrorist attacks occurred between 1993 and 2000. Yet, it wasn’t until the twin towers came tumbling down that the world woke up to the true threat of the terrorist scourge, setting off the “war on terror” that has claimed so many more lives.
Similarly, the march towards financial disaster started a decade before this current time of reckoning. Between 2000 and 2010, Great Britain went from a fiscal surplus to a deficit of £163 billion, more than 10 per cent (%) of gross domestic product (GDP). Portugal’s deficit grew to more than 9 %of GDP, while Spain’s reached a stunning 16 %.
Meanwhile, deficit spending drove Italy’s federal debt to over 120 % of GDP. Then there’s the United States, currently spending more than $3.4 trillion versus revenues of less than $2.2 trillion.
The year 2011 will go down in history as when countries that rank among the largest in the developed world became so burdened with debt that their credit ratings fell below that of countries long considered part of the developing world.
More than a decade of debt, funded growth in public service employment and social welfare programs, set the stage for this financial calamity, leaving no other choice but to declare war on government spending.
Unlike the war on terror aimed at an alien enemy, however, this war will pit those with a vested interest in public spending against those burdened with paying for it.
In the United States, we are witnessing a nation more divided than at any time in living memory. Defending one battle-line, we see those who refuse to face the reality that social program entitlements are impossible to sustain, while on the other side, we see refusal to discuss even modest tax changes to increase revenues.
Then there is the euro-zone where failure was predictable. A 17-country monetary union is akin to a large family having access to a single bank account. While some work hard and save their money, others slack off, knowing they can dip into the common bank account.
Lenders, under the illusion the entire family will make good on those debts, hand over the cash. The German solution is enforcement of fiscal responsibility on all member countries. However, the chance of that working among 17 sovereign governments is no more likely than it would be among the 17 family members.
The first year of the second decade of this new millennium will go down in history as the year when much of the West was forced to its knees by the fundamental reality that every dollar, pound and euro of government debt must be borrowed from a lender who believes it will be paid back.
It’s likely the year China became the unlikely creditor the formerly formidable United States depends upon to fend of financial Armageddon.
Gwyn Morgan is a Canadian business leader and Troy Media columnist.
