Debt Crisis

I recently finished Michael Lewis' Boomerang: Travels in the New Third World. The book describes the reversals of the economies of countries, Greece, Ireland, and Germany, states, especially California, and municipalities, San Jose and Vallejo. Citizens of these areas traded prosperity for disaster by taking on too much debt, especially the debt created by foolish decisions by bankers, and overpaying government employees.

Now these problems threaten to bring down or at least change the fabric of the European Union. In the United States many will suffer a lower standard of living as government services are cut back and fees and taxes rise. Lewis blames the problem on groups looking out only for their self-interest; ie., the controversy over public sector salaries and pensions bringing down the entire system as in California; and groups that don't look out enough for their self-interest; ie., national governments such as Ireland's that nationalize the debt of banks instead of allowing the banks to fail.

Lewis hints that Greece and Ireland will be paying off debt for a long time to come and Germany may be brought low by the foolishness of her own bankers. The EU may split into a two-tiered structure with Germany, Austria, France, and the Nordics in the top tier, and Southern Europe in the bottom tier. California's fiscal crisis will be felt primarily by municipal governments.The city of San Jose recently voted to cut pensions to its municipal employees, a way out of their fiscal mess. Stockton, California teeters on the edge of bankruptcy and will cut health benefits to retirees as well as renege on debt.

Link to the book here:

The New York Times review of the book can be found here.