Most news stories about Europe's sovereign debt crisis include the phrase "austerity measures," namely in Greece, Ireland, Portugal and now Spain. The measures specifically include the sale of state assets, tax increases, and widespread cuts in government spending.
As the sovereign debt crisis was developing, the February 2010 Elliott Wave Financial Forecast said:
"High levels of global debt are both financially debilitating and deflationary because they commit scarce cash to servicing interest payments.
"The world is running out of money to service its mounting debts...the front edge of the next great wave of credit contraction...will sweep into more established countries throughout Europe and eventually to the United States."
Indeed, the United States reached its debt ceiling of $14.3 trillion on May 16 (Reuters). Technically this means the federal government can no longer borrow the money it needs to meet its obligations.
But Treasury Secretary Timothy Geithner says the government has taken "extraordinary measures" to postpone the final day of reckoning to August 2. That's when the U.S. could start defaulting on its obligations, unless Congress votes to raise the debt ceiling.
Even so, the House of Representatives just rejected a bill to raise the debt ceiling by $2.4 trillion. Fiscal conservatives want deep spending cuts to offset new borrowing.
America obviously has a debt crisis of its own. This is not to say the U.S. is currently in the same dire financial straits as Greece, etc. -- or that America's economic future will unfold in the same manner.
Yet the U.S. debt crisis does come on the heels of a major financial meltdown, and the economy remains weak at best. And keep in mind that Standard and Poor's recently downgraded the credit rating outlook for the United States.
So it's not a stretch to ask: Will the time come when the United States must impose drastic austerity measures on itself?
Here's what EWI's Robert Prechter wrote in the second edition of Conquer the Crash (p. 257):
"Don’t expect government services to remain at their current levels. The ocean of money required to run the union-bloated, administration-stultified public school systems will be unavailable in a depression. School districts will have to adopt cost-cutting measures, and most of them will result in even worse service...The tax receipts that pay for roads, police and jails, fire departments, trash pickup, emergency (911) monitoring, water systems and so on will fall to such low levels that services will be restricted."
In truth, that does sound similar to what is happening in Europe right now.