What? You Mean We Can Only Spend What We Take In and No More?

The Washington gang of politicians would hate to hear those words, but one day, and probably soon, they will. Until that day of reckoning however; these politicians continue to add to our nation’s financial difficulties by spending at warp speed. No matter your position on healthcare, the fact is that according to government estimates it will cost almost $1 trillion over the next 10 years (Source: Fox News 03/11/2010). That’s money that we don’t have.

I wish the politicians would wake up BEFORE many of them get tossed out of office later this year during the mid-term elections; it would make that eventual day of reckoning a lot easier on all of us.

Some countries around the world are already dealing with their day of reckoning. An article in yesterday’s “Wall Street Journal” described what Ireland is doing to get its financial house in order. Here’s an excerpt:

Debt-laden Ireland is winning applause from financial markets for quickly taking the kind of harsh economic medicine that countries around the world are putting off. But in this newly austere country, people like 35-year-old Robert Peelo are finding little cause for cheer.

Mr. Peelo, a police officer, expected the government to give him a 6% raise a year ago and build a new station at his post in Dundalk, not far from a town across the border in Northern Ireland where a car bomb exploded in February. Instead, Ireland has cut his take-home pay by 18% and mothballed the new facilities, leaving him and other Irish police, or Gardai, in temporary offices he calls “porta-cabins.”

Mr. Peelo says he’s paying his 30-year mortgage by cutting out vacations, skimping on paid child care for his two young children and working police shifts on Sundays. Adding to the challenge, an old Irish code prohibits him and other police from taking outside jobs.

“We know that there’s an international crisis and that our pay will be affected,” says Mr. Peelo, whose work vehicle has more than 180,000 miles on it. “But there has to be some sense in it.”

The hard choices forced upon Ireland are confronting governments around the world. The U.S. and Britain have huge budget deficits that are potent political issues. Cash-strapped cities and states in the U.S. are slashing services. The pressures are acute in the smaller members of the 16-nation euro zone, where fears of a debt default by Greece have shaken the Continent.

Late last year, Ireland looked a lot like Greece. The financial crisis coincided with a housing bust that left Ireland’s banks in terrible shape, requiring a government rescue. Ireland’s fiscal deficit rose to almost 12% of gross domestic product—a shade under Greece’s 12.7%.

But unlike Greece—where protests and strikes are expected to escalate this week after the government unveiled new spending cuts and tax increases after months of foot-dragging—Ireland took swift measures to snuff out fears of a default.

Irish teachers and police have had their gross salaries slashed by as much as 15%, with new across-the-board taxes taking an additional cut. Dublin also reduced welfare benefits, helping to turn the once-booming Celtic Tiger into the austerity leader in Europe. The European Union is now pressing Greece to do the same—and Portugal, Spain and Italy may not be far behind.

Ireland’s efforts are paying off in one respect: The country’s financial picture has improved in comparison with other troubled countries in the euro zone. In November, the cost to insure against a debt default in Greece and Ireland was the same. Since then, the cost to insure against an Irish default has fallen 20% while Greek insurance has roughly doubled. The difference is also apparent in debt-financing costs: Last week, Athens was forced to offer investors in its new 10-year bond a 6.3% yield, more than 1.5 percentage points above Ireland’s cost last month for similar bonds.

Ireland took these actions with a deficit that was 12% of that nation’s Gross Domestic Product.

According to an article published on Fox News on February 1, 2010, the United States’ current year deficit will be $1.6 trillion. The GDP of the United States is estimated to be $14.2 trillion (Source: Global Economics Research, March 11, 2010). That means that the current US budget deficit is approximately 11.3% of GDP, not far behind Ireland’s deficit when its government made necessary spending cuts to get its finances in order.

I hope someone in Washington is watching.

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