A Portugal Bailout: Why Should You Care?

The Wall Street Journal (4/7/11) headlined, "Portugal Pleads for Rescue: Bailout Request - Europe's Third - Will Test the Euro Zone." If you are not European or even Portuguese, why should you care?

Because what happened in Portugal will apply to the rest of us. In Portugal, the government spent vast sums it didn't have. At first, everything seemed fine but with time the market for its debt dried up. When the market for a nation's debt dries up, first interest rates soar, then investors don't want it at all. That's where Portugal is today. Without a bailout its government can't pay its bills. If you are an American, British, French, Italian or Spanish, it should serve as a warning to you.

Because there will be more bailouts, the European Central Bank announced higher interest rates to attract more money, raising rates by 1/4%. This is likely to be the first of a series of interest rate hikes. This will be money that won't go into U.S. T-Bills which will impact the U.S. government which is constantly searching for new money. It will have to pay higher rates to compete. Increasingly, the U.S. will be affected and there will be a financial squeeze.

Americans will bear intense financial pain in the form of higher taxes, high unemployment and high inflation. As in the Great Depression, we must unite to help one another and when this financial tsunami finally ends, remain involved with our governments so this craziness is less likely to happen in the future. As citizens and as taxpayers it is our responsibility. Future generations depend on us to honor that responsibility.

Dick
The Wall Street Journal piece is: http://online.wsj.com/article/SB10001424052748704101604576246294138576346.html