The 7% Solution?

After Italian Prime Minister Silvio Berlusconi’s resignation last week, the first thing new Italian Prime Minister Mario Monti must face, now that he has survived his first confidence vote, is a second 7% borrowing rate in almost two weeks. Monti is a technocrat who is obviously well versed in the winding ways of national and global economics, but I wonder if even an expert can get Italy out of the mess it finds itself in.

So far three European nations have hit the dreaded 7% borrowing rate: Ireland, Portugal, and Greece. Now that Italy has joined this infamous club, all of Europe seems to be wondering if the downward spiral will spread. In fact, the word on the street (and by the “street” I mean not just the street, but halls of parliaments throughout Europe) is “contagion.” It’s interesting that the world economic and political forces are likening the current economic downturn to a plague. Now Spain seems to be heading toward the 7% borrowing rate. The remaining powerhouses of Germany and France are bickering over strategies and the rest of Europe waits for the tailspin to catch them up.

The Eurozone is in real danger as the southern countries continue to hover around the 7% borrowing rate, while the northern countries and those in Eastern Europe are preparing themselves for what seems like inevitable dark days ahead. Meanwhile, China, which does have the money to lend, has decided for the moment to wait and see just what European assets they will demand in exchange. The news coming from Europe is indeed bleak.

So what does all of this mean for the economy of the United States? Nothing positive I’m afraid. As much as the United States like to think of itself as the last remaining superpower, that term is no longer relevant in the world economy. The economy of the United States is not in the dire straights that Italy and Greece find themselves in, but if the rest of Europe continues to slide our own markets will be affected. I do not understand exactly how global economics works, but I do know that just the hint of bad news can send the markets plunging into free-fall. The anxiety in Europe is quite high, and with good reason. The anxiety in the United States, while not as high, is still alarming. The Occupy Wall Street Movement represents just a small percentage of that anxiety which is manifesting itself in many different ways.

The thing that strikes me the most, however, is that in order for the world to get out from under the crushing 7% borrowing threat, we must begin spending our money on goods and services. So, in an atmosphere where the Republican candidates and the Tea Party nut cases are talking about “responsible government spending,” they also claim (along with the left, to be fair) that Americans have to spend more. So, if I understand this correctly, the average citizen can go into debt, but governments cannot? Moreover, governments and big corporations are eligible for stimulus packages while ordinary citizens are not. Therefore, the only way out of the economic downturn is by asking citizens of the world to spend money they just don’t have.

The above argument makes no sense to me. Therefore I propose the following: Every American should take an additional 7% of his or her pay (net pay—even after deductions for 401s and IRAs) and put that money into an ordinary average savings account with a local credit union. This money should be considered “off limits” for any reason. 7% is not much and once this is done a few times we will not even notice that it is missing.

7% need not be a dreaded number when it comes to world economic thinking. After all, it’s Italy’s reaching 7% that finally drove Berlusconi from office. We place too much faith in the market, when it is in reality just a craps shoot. It seems quite clear to me that in the last few years we have seen that capitalism (at least in its current state) does not work on the global level. However, there is, at this time, no alternative.


2 thoughts on “The 7% Solution?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s