Detroit aka Little Greece

We have watched over the past few months as Greece has come to grips with its decades of living beyond its means and with its debt now equal to 170% of its GDP, the country has reached a tipping point.  Greece is being forced to accept austerity measures from the EU and the citizens are starting to realize that the government handouts and sweet union contracts are a thing of the past.

Lest we get too smug in America and think this can’t happen here, I will offer evidence below that at least one American city, Detroit, is facing the same stark realization. 

I have pasted quotes from various news articles that are hyperlinked in the headings “Detroit” and “Greece” so you can see for yourself that this massive debt reckoning is already coming to American shores.  Remember that the US debt to GDP ratio recently passed 100%.

Borrowing Money To Pay Bills

Detroit

GOVERNOR RICK SNYDER: Detroit has run a deficit since 2005 of significant dollars. It’s borrowed over $600 million just to get by. It’s just borrowing another $137 million to continue the old way of doing things that just didn’t work here.

Greece

A total of 199 lawmakers voted in favor and 74 against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV early today. When, on Nov. 16, Papademos won a mandate from the Parliament to implement budget measures and secure the bailout of 130 billion euros ($172 billion) he received the support of 255 lawmakers in the 300-strong chamber.

Oversight From Outside Body

Detroit

KLINEFELTER: The governor is pushing for a consent agreement with city officials that would enable the state to impose a new board analyzing budgets crafted by Detroit’s mayor and city council and a new project manager who would have the final say over financial matters. If the deal is not approved by this week, the governor says he’ll have no choice under state statutes but to appoint an emergency manager with sweeping authority, effectively leaving the mayor and city council with no power.

Greece

Greece’s cabinet has approved fresh austerity measures demanded by the eurozone and IMF in return for a 130bn-euro ($170bn; £110bn) bailout.

The draft bill must now be passed by the Greek parliament and approved by European finance ministers.

Five ministers have resigned from the government over the issue, with one junior party in the coalition saying the demands were “humiliating”.

Prime Minister Lucas Papademos has warned the country faces “uncontrolled economic chaos” if it fails to agree spending cuts and defaults on its debts.

“We cannot allow Greece to go bankrupt,” he told his cabinet, saying it was an “hour of historic responsibility”.

“A disorderly default would plunge our country in a disastrous adventure,” he said.

Malaise

Detroit

CONRAD MALLETT: They have reached a point where the disorganization and dysfunction associated with the regularly expected delivery of city services is so bad that people have concluded that: Why should I pay my taxes for the services that I’m not getting?

Greece

“There is a kind of resigned acceptance, but this resigned acceptance is not a stable equilibrium position. People do get fed up with being made to feel guilty for their horrible situation,” said Professor Erik Jones of Bologna’s Johns Hopkins University.

Violence and Unrest

Detroit

SANDRA HINES: You don’t have the right to come in and take our city from us and tell us what to do. I’m so tired of being in war mode. This is a war, y’all. They literally have declared war on us. And we are assembling our troops to fight you back.

KLINEFELTER: Such protests are as much a part of Detroit’s history as the automobile. But right now, the city is precarious financial straits, facing a roughly $200 million budget deficit, its credit sharply downgraded by Moody’s and Fitch’s rating services and needing a loan just to meet payroll for the next few months. Governor Rick Snyder has repeatedly appeared on local talk shows and staged town hall meetings, stressing that he does not want to take over the city, but cannot let Michigan’s signature Motor City drown in red ink.

Greece

“Once that happens, we are going to find not just a rapid turnover in incumbent governments that happen to go to the polls, but also an increase in the general level of disquiet that will be expressed in the form of strikes and other forms of social disobedience,” Jones told Reuters.

Jean-Paul Fitoussi, an economics professor at the Sciences Po institute in Paris, told reporters at a business conference in northern Italy on Friday that austerity measures were “a dangerous approach that could trigger social unrest”.

Unions represent only a fifth of workers and many people crossed picket lines on Thursday in fear of losing their jobs.

However, the strike had a much bigger impact than a previous stoppage 18 months ago in a sign that patience may be wearing thin in a country with the European Union’s worst unemployment.

Hundreds of thousands attended protest marches and factories and ports ground to a halt. There were brief outbreaks of violence on the streets.

A lot of people accept austerity and economic reforms like some kind of divine punishment. But when the high unemployment drags on, I am convinced the social protests will take off,” said Jose Antonio Garcia Rubio, economic secretary for the United Left, a minority leftist party that did well in the November general election.

The situations for Detroit and Greece are both equally tragic but there is no magic wand that we can wave to fix the problems.  The entire world should take notice that Greece and Detroit are providing us with a lesson about what will happen when Liberal policies have to be reversed.  Actions have consequences and when you live for decades on borrowed money, provide government handouts to citizens and offer sweetheart union deals there will come a time to pay the piper.  Atoning for these fiscal sins is going to be painful but there is no alternative when a city or a country runs out of money. 

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