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Running Out of Cake: Greek Crisis Reveals Consequences of Socialism

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Conventional wisdom holds that “you can’t have your cake and eat it too.”

That is unless you live under a socialist government in cahoots with central bankers. Then you can have all the cake you want and eat it to your heart’s content.

Until, of course, you run out of other people’s cake.

15 07 09 greece socialism comic

The crisis in Greece illustrates this reality perfectly. But despite the warning, it seems like the United States is hell-bent on following a similar path.

Bailouts from the European Union (EU) and International Monetary Fund (IMF) allowed Greeks to continue to reap the benefits of a bloated welfare state. Health care, education, unemployment benefits, housing benefits – the entitlement list goes on and on, all on the government dime. But the money spigot long ago ran dry. Now, with the EU reluctant to pitch in more euros without significant reforms aimed at addressing government spending and debt, Greece has a real problem.

Now that the Greek people have it, they don’t want to give up their stuff. Last weekend, Greeks went to the polls and voted to forgo austerity. In other words, they want to keep right on eating their cake.

The entire situation reveals a couple of important truths.

1. Money isn’t infinite.

2. Governments have no money of their own.

Without taxpayers, government gets nothing. Loans and bailouts become the only revenue sources. Once other people get tired of baking cake, the system begins to collapse.

A structural problem exists in the Greek system. Along with a robust welfare state that discourages work, the pension system in Greece allowed vast numbers of workers to retire from the workforce at a relatively young age. According to the Guardian, “pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries.”

On top of that, Greeks stopped having kids. According to the World Bank, the Greek birthrate stands at a paltry 1.3. With the population aging, Greece has fewer people working to support the rapidly expanding number of retirees.

Simply put, governments can’t tax people who don’t work. If nobody bakes cakes, you have to depend on other people to supply them. At some point, those other people throw in the towel.

That’s what we see happening in Greece today, and all of the protests in the world won’t change the simple fact that there is no more cake.

In America, the dynamics are slightly different, but it’s not hard to see a similar scenario on the horizon. The Federal Reserve can create cake out of thin air for a time. But ultimately, it will run out of flour and eggs. We’re already seeing fissures in the American economic system.

Last month, Puerto Rico Governor Alejandro García Padilla announced the government cannot pay its $73 billion debt. The Boston Globe described the mixture of anger and resignation felt in on the island.

Along San Juan’s colonial-era streets, in homes and shops, Puerto Ricans blame the government for the economic debacle. Election after election, they say, political leaders took the easy way out, spending more than they had, borrowing to prop up the budget, pointing fingers at one another and failing to own up to reality.”

Even closer to home, a debt crisis looms in Illinois. Much like Greece, underfunded public pensions with great benefits are a big part of the problem. According to Reuters, the state has “run out of options.”

With no easy way to financially engineer or negotiate its way out of a budget and pensions crisis, Illinois is likely to dish out some unpleasant medicine to its residents in the next few years. And investors say that is most likely to come in the form of higher taxes.”

Greece, Puerto Rico and Illinois all share a common theme – unrestrained government spending with no way to pay for it.

We’re running out of cake.

Are you ready?

As Peter Schiff explained in a recent interview, the only hope for Greece, and ultimately the US, is to dismantle the bloated government and fully embrace free market capitalism.

That seems unlikely, but one way to protect yourself when things start to unravel is by owning physical gold and silver. Precious metals reliably store value even as currencies collapse in the midst of financial crises.

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
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