What caused Greece and Spain to be in their current scenario?

Loose lending standards of course.

Mish over at his blog continues to believe  that… “Big government and absurdly strong unions destroyed Greece and Spain.”  He then compares the mess to California.

 

Mish’s view on the cause is distorted.  Governments do not collect taxes based on services rendered, but they collect taxes based on a percentage of revenue.  As a result, they spend based on a percent of revenue.

If you follow the logic, loose lending standards help increase revenue… Once the lending standards were tightened, we saw a loss in revenue, which resulted in a serious belt tightening.  In essence, under our current financial system, lenders control the government spending.

While I do not hold big government spending totally unaccountable for the scenario they are in, it would naive to say they are to root of the evil that has created the scenario we see today.

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