We now know that the banking and debt crisis in the European Union is here to stay and it has placed a black cloud over the world-wide market! The cause is simple and one that the American Left refuses to acknowledge: decades of socialism that has created massive entitlement programs for their peoples, especially amongst their immigration classes that have virtually no credible job skills other than manual labor. Yes, they too have a significant legal/illegal immigration problem and these people demand even more.
After decades of entrenched socialism that permeates their entire economy coupled with the highest tax rates in the world, the EU is created a massive underground economy. Proponents of the Fair Tax in USA believe the underground economy can be taxed with their approach of taxing all consumption. The EU’s massive underground economy proves that theorem wrong, again. The underground economy throughout the over taxed EU rivals the legitimate economy and pays virtually no income tax. The heavy burden of the central authority has created significant incentives to break the law and simply violates the Laffer Curve.
The underlying financial problem is simple: European banks are heavily exposed to bad debt of Greece and Portugal, and Italy to a lesser extent. These major banks such as Societe General, Credit Agricole SA and BNP Paribas have more than $55 billion (USD) exposure to Greece alone. These banks are going to need significant cash infusion from the ECB. Will Germany, France and the UK be willing to go along with more bailouts?
The last round of bailouts to Greece with the massive IMF intervention cost more than $145 Billion USD. The USA owns about 17.09% of the IMF; therefore, the American tax payer was forced to pay out more than $24.7805 billion to bailout Greece due to its failed socialist policies. Remember, much of the EU lambastes America for our economic problems and ALWAYS blames our greedy system of capitalism as the root cause of THEIR problems. The real objective of Greece bailouts is not the saving of the nation itself but the private banks that lent so much money to Greece that is the target of the bailouts. If Greece defaults these banks will be decimated and this failure will effect America and our banks directly as we have lent billions and guaranteed countless billions more from the Federal Reserve.
What are the EU citizens’ reactions to the current wave of austerity programs launched by the UK, Germany, France and elsewhere? Riots: yes, the entitled class of citizens and non-citizens burn cars and kills policemen, and burn down whole city blocks doing billions in property damages. Who pays that tab? the EU taxpayer.
Where did this all begin, with European and American banks being forced, by government regulations and policy, to make loans to entities and individuals that did not qualify under normal lending practices? Iceland whose major driving force of their GDP is fishing was invaded by bankers from the UK and Netherlands who were flush with cash due to the Federal Reserves super low interest rates. Soon Iceland’s banking sector’s input as percentage of GDP more than doubled in short order. These banks began lending money to anyone in Iceland that had a pulse creating a huge boom in real estate, both commercial and residential. Alas, 2006 came and the ponzi scheme was revealed, devastating Iceland’s economy.
Iceland’s three largest banks, Kaupting bank, Glitnin Bank and Landsbanki had total debt exceeding $160 billion more than 10 times their national GDP. Iceland’s solution was to NOT guarantee the bonds of those and other banks. However, the UK and made a deal with Iceland’s government to provide them aid providing that the loans were guaranteed by each citizen of Iceland. UK and the Dutch banks brought hard currency aid to Iceland but they received guarantees directly from each citizen, essentially. There are 320,000 citizens and they will be paying $135 per month per person for 8 years. So Iceland allowed its major banks to fail and then received direct aid from the UK and Dutch banks/taxpayers. Can this be Greece’s answer? If, so how will it affect the global financial markets and will that outline the end of the EU and the Euro? Most likely the effects on the markets will be sharp and painful, but not long lasting.
Since Estonia adopted the flat tax in 1994 (22%) 13 nations have followed suit, including many former Soviet Bloc nations, including Russia herself. Since then these nations have experience solid economic growth and reduced overall public debt. For example, Russia’s debt to GDP is a mere 9.5% while USA is 95% debt to GDP. Is the Flat tax the cure all? Perhaps not but it must be seriously studied as a method to replace the Internal Revenue Code. The IRC has more than 9,833 sections and is more than 90,000 pages. What America needs and the EU members need is a well defined central government that is both limited in size and scope of power so the private sector can perform its function of wealth creation, production, and jobs which will generate sufficient and stable revenue for the government to perform its duties.
 International Monetary Fund.
 IRC is Title 26 United States Code