How many Titanics can fit in just one ocean? We’ve got the U.S. budget disaster heading towards 100% debt/GDP, along with Greece, Portugal, Italy, Ireland and Spain careening out of control. Is there hope? Well, not from President Obama, who may soon call in Jimmy Carter for advice. Instead, let’s look at countries that have steered clear of catastrophic icebergs – just in time — with daring emergency maneuvers.
In the early 1990s, Canada’s finances were cratering, with over one-third of the budget going to debt payments and the government running over one-half of the economy. Likewise in 1993 Sweden faced bankruptcy with a budget deficit hitting 11% of GDP. To escape punitive taxes, even IKEA fled the country (on balsa-wood skis?). Astrid Lindgren, author of Pippi Longstocking, wrote a short story lampooning the absurd 102% tax rate she faced. To protect the Swedish Krona from a ruinous run, the central bank jacked up overnight interest rates to 500%!
Both countries realized that democratic socialism had not just run its course – it had run amok. Canadian leaders (led by Liberals) and the Swedes (led by the Moderates) ran to the kitchen drawer and whipped out a sharp and heavy meat axe. Canada slashed federal jobs and department budgets by 14-20 percent, cut unemployment benefits and privatized railways and other industries. Today the Canadian dollar is worth more than the once-almighty buck. In the 1990s, Sweden sheared jobless benefits by 20-25 percent, zapped housing subsidies and severed trade union subsidies. The Swedish debt ratio plummeted by 40 percent. Now Canada and Sweden, which are handling the 2000s with poise and relative prosperity, look at the U.S. and wonder what ever happened to the guts behind Old Glory.
Bottom line: there is hope, but it comes only from tough choices by tough leaders. We used to joke that Canada could be the 51st state in the union. Now I wonder: “Would Canada be willing to take in the U.S. as its 11th province?”