Europe: Ice Skating Uphill.

Europe, as we know, is in deep trouble.  Debt is the obvious reason, but the more perplexing problem is how it got out of control.  The main problem is excessive borrowing and now it is at a point where the largest economies in Europe cannot produce enough income to pay down their debts.  In short, everyone is broke. 

So, what is the solution?  Obviously, cuts need to be made as well as taxes need to be increased to help bring the debts under control.  The problem with the solution is that the public is saddled with bailing out their home governments, while the governments are at fault.  Deficit spending must become a thing of the past and surpluses must be run as often as possible.  Otherwise, debts will continue to rise and countries will begin to default on interest payments and cause a trickle down effect that will throw the world markets into a tailspin. 

The US looks at Europe as a tragedy, but we should be weary of the fact that we as a country will be in the same boat if our financial management continues down the path we are on.  Currently, spending cuts are the only real answer to righting the ship.  Increasing taxes is not a viable option, with the present state of the economy, as the American public needs as much disposable income as possible to help pay down their debts and pump some money into the economy. 

Another major issue that could benefit the country in the long term is rewriting the corporate tax code.  The corporate tax code offers too many loop holes for major corporations to skirt paying taxes.  The corporations either sit on this money or reinvest it into the company in the form of research and development or issue it as dividends to attract more buyers of its stock, therefore raising the stock price. 

Originally, the primary reason for these loop holes in the tax code for corporations, was to give them more of their profits to invest in job creation.  Unfortunately, that plan has backfired as the large corporations are not using the tax code advantages they have to create jobs.  Small, privately held businesses create 75% of new jobs currently.  Until the tax code is rewritten and spending is reduced in the short term, the American public will ultimately have to deal with heavy tax increases to help control the increasing national debt. 

The American public needs to take care of what they can control.  Pay down your debts, increase your savings and prepare for hard days ahead.  Things will almost surely get worse, before they get better.  Italy is a primary example of where we are heading as a nation financially.