by Jonathan Berr | November 10, 2011 2:28 pm
When pressed at last night’s GOP presidential debate, Mitt Romney argued that the U.S. has enough problems and should let Europe sink or swim on its own. Unfortunately, Uncle Sam can’t afford to do any such thing.
Like it or not, the U.S. is not an island unto itself. The economic troubles of seemingly faraway lands such as Italy and Greece eventually wash up on our shores. That’s especially true of Italy, which is the world’s eighth-largest economy. According to The State Department, Italy was America’s 16th-largest trading partner in 2010, with total bilateral trade of $42.7 billion. Republicans ignore this economic reality at their own peril.
During Wednesday night’s debate, Romney said: “We don’t want to step in and try to bail out their banks and bail out their governments. My view is no, no, no. We do not need to step in to bail out banks in Europe or even banks here that have Italian debt.”
The U.S., though, may have little choice. Italy, which is trying to pass austerity measures as the unpopular Prime Minister Silvio Berlusconi readies to leave office, is too big to fail and may be too big for the European Union to rescue by itself. The American taxpayer assists Italy already through U.S. support of the International Monetary Fund. Many Americans also probably own Italian stocks through their 401(k) accounts.
U.S. workers also aren’t immune from Italy’s woes. An Italian company, Fiat, controls Chrysler, the smallest and weakest financially of Detroit’s Big Three. And let’s not forget the billions in Italian sovereign debt that U.S. banks hold.
Sure, we can stand aside and let the markets work — and let Italy sink. But Americans won’t stand for the aftershocks of lost jobs and a collapse in the U.S. stock market. Italy already is making world markets nervous, and an Italian bond default would send markets into catatonic stupor.
Banks — or any investor — shouldn’t get bailed out for making stupid investment decisions is a view that’s shared by the GOP candidates, who are all on record as opposing the Wall Street bailouts. One problem with this belief is that it ignores the argument of many economists who say without those lifelines, the U.S. would have experienced the second Great Depression. Many bailout programs also turned out to be very profitable for taxpayers.
For instance, Bloomberg News noted in 2010 that the government earned $25.2 billion on its investment of $309 billion in banks and insurance companies, giving it an 8.2% return, which at the time beat the yields on 30-year Treasury bonds. Many companies, including Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) paid back their government loans early. General Motors (NYSE:GM) also repaid its $6.7 billion loan ahead of schedule.
The world is so interconnected that the U.S. can’t afford to let any large trading partner (or itself) collapse under the weight of its own mismanagement. That’s why Romney’s go-it-alone strategy is wrong.
Jonathan Berr does not own shares of the aforementioned stocks.
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