Angela Merkel to Eastern Europe: Drop Dead!

You remember that famous cover story of the New York Daily News? New York was nearly bankrupt in 1975. The city asked the feds for a bailout. To his everlasting credit, Gerald Ford had the backbone to just say 'no.'

Had he given the city a bailout, Ford might have won his race against Carter. He believes that that headline cost him the New York vote...and the election. Then again, had he given New York a bailout...the city might be more like Detroit.

The kindness of strangers is one of life's delights, but once you begin to count on getting something for nothing you are on the road to Hell. At least, that is our view here at The Daily Reckoning.

Welfare ruined the lives of millions of people. (More on that...below...)

Easy credit - coming largely from the Fed and the kindness of strangers in Asia - ruined the American consumer.

Bailouts, handouts, bribes and giveaways threaten to sink whole industries.

And now the whole world economy will be ruined by printing press currency - something-for-nothing money coming from the central banks.

But that will take time...maybe years. For the moment, we are enjoying the show...

Europe is plagued by debt too - just like the United States. Individual households are generally in better shape than those in America, but governments tend to have more debt than the United States. And in the fringe countries of Europe - Ireland, Spain, Greece, Italy, Poland, and the Ukraine - consumers borrowed far too much money to buy houses. Unemployment is soaring to 15% of the workforce in Spain. Irish banks are going under. And in Eastern Europe, the problems are worse. Typically, a man who wanted to buy a house found that he got a better interest rate if he took out a mortgage in euros than in his home currency. In Poland, for example, many homeowners must now make their mortgage payments in euros, while they earn their money in zlotys. As the financial crisis developed, the zloty fell against the stronger euro, by half. This leaves the Polish householder paying twice as much on his mortgage.

Not surprisingly, consumers are in trouble...so are the banks than lent them money...and so are the countries where they live. Nine of these nations - an Eastern European bloc - got together and asked the European governing council for help. They said they needed $380 billion to get through this crisis. Angela Merkel, speaking for the French and Germans, said no. She might have mentioned, too, that they had already spent $380 billion recapitalizing Europe's banks.

In America, the government is more accommodating. It is spending trillions to try to bailout the entire global economy. And by the look of things...it is failing.

O! Bama! Where is thy bounce? The whole world needs it.

The Dow did not bounce much yesterday. It was up only 31 points. A disappointing showing. Usually, you can count on a healthy bounce after a big drop, such as stocks got on Monday. But this market has been short on bounces. After Obama got elected, we expected a big bounce. Instead, there was a feeble ricochet of about 15%...and then, stocks headed down again. In the United States, they've lost 20% so far this year.

And the more the government tries to pump up the ball, the flatter it seems to get.

HSBC said it was cutting 6,100 jobs...closing offices all over America...and trying to earn back the $10 billion it lost in the US consumer finance business.

AIG is getting another $30+ billion - after burning through the last $133 billion. 'Can't let this insurance giant go under,' say the pundits, "or the whole insurance business will go down.'

AIG was "irresponsible," said Ben Bernanke in his little chat with Congress yesterday. He said they made speculative bets that they shouldn't have made.

But what did he expect? The Fed - under the leadership of Alan Greenspan - threw the biggest financial party in world history. What did they expect the pros to do...stay home and watch TV?

And now the IMF says the global banking system needs another $500 billion. The real figure is probably two to three times that amount. But who knows? We're still in a period of aggressive price discovery. Until we find out what's in their vaults...and what it is worth...we won't know how much it will cost to save them.

Ford and GM sales have been cut in half - sales fell to a 27-year low in February. Blockbuster is eyeing Chapter 11. And skilled immigrants are leaving the US.

*** Obama has, of course, announced his $3.6 trillion budget...and all that goes with it. Including a $1.7 trillion deficit. But his estimates were based on a recovery in the last part of this year. That seems increasingly unlikely. Our guess: the deficit will go over $2 trillion.

Congress has hunched over the numbers. The solemn chicanery of federal budgeting is underway, in other words, as politicians pretend to weigh the merits of the spending plan...

Of course, they are spending other peoples' money...and none forgets it. The idea is not to reduce spending, and certainly not to return it to its rightful owners, but to make sure it goes to the groups most important for re-election. Besides so much of this money is borrowed from future generations...and foreigners...and who-knows-whom...it is like money from Heaven.

As any system of government matures, more and more people are able to get a purchase on it. It could be a tax break...a licensing requirement that keeps out competitors...a tariff...a subsidy...a job...free food or a welfare check. And as more and more people get something from the government, more and more have a stake in making sure the government stays in business. This phenomenon contributes to the stability of the institution in the short run...in the long run, it guarantees its failure. For each little hustle is a cost...like a leech on the back of a water buffalo. The animal may be strong and fit; but put enough leeches on him and he'll wither like a dried up grape.

Of course, after a while, the beast begins to stagger and people notice something is wrong. Then, the reformers come out...promising change. But change is just what people don't want and just what the system won't permit. There are too many leeches - and the leeches vote.

Obama's new budget is the biggest bag of leeches to come along since the Roosevelt Administration. We have not seen it in detail. But from what we've gathered from the press reports, it has something in it for almost every bloodsucker.

The raw numbers are breathtaking. Whereas the feds have taken about 21% of the nation's income in recent years, now they're going to take 28%. The deficit alone will equal more than 12% of total GDP.

Put the feds together with state and local hacks, altogether they will consume 40% of the nation's total output. Whoa...that's put it close to the levels of such free-market bastions as Zimbabwe and Algeria, both with 43% of spending done by government...and Hugo Chavez's Venezuela, where the government spends 41% of GDP.

By contrast, in France, that socialistic, bureaucrat-saturated country with the croissants, 53% of GDP is spent by the government. But wait...in France healthcare is a government industry and so is the passenger train system. In America, 17% of GDP is spent on healthcare. As for the passenger trains...forget it...in America, we scarcely have any. So, if you add the 17% spent on private healthcare to the 40% you actually get a total higher than that of France. Ooh la la...the age of big government is back!

Who pays?

Ah...that's an interesting subject in itself. Obama says he's going to soak the rich. But the rich are already pretty well marinated. Reagan's tax cuts freed them to earn more money - and pay more taxes. Now, the top 5% pays 60% of the costs of government. The bottom 40% pay no taxes at all. They get all government 'services'...which is to say their boondoggles...for free.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.