Pat Buchanan

Yet many dismiss the threat of a series of defaults by European nations and U.S. states and cities leading to a financial crisis that could eclipse the one we have just passed through.

What is the basis of this confidence?

Germany dominates the European Central Bank and will not allow defaults by Ireland, Portugal, Greece or Spain. For that would imperil the One Europe project to which Germany has been dedicated since World War II. Berlin will do what is necessary to save the euro and prevent Europe's monetary union from collapse.

What is wrong with this thesis is that it is not Germany alone that decides on defaults. The weaker countries in the euro zone, like Greece, may decide they will not endure the agonies of austerity any longer. Street politics may force regimes to abandon the regimens imposed upon them as a condition of their bailouts.

In America, it is the Fed that is the last line of defense and has shown a disposition to act in a financial crisis.

Since 2008, it has doubled the money supply and taken a trillion dollars in bad debt off the books of U.S. banks. Secretly, it has lent trillions to banks and businesses all over the world and is now buying U.S. bonds to inject more dollars into the economy.

But how does the Fed prevent a state like Illinois from failing to meet its debt obligations and defaulting? How does the Fed prevent a series of municipal bond defaults by cities and counties that lack the tax revenue to pay their bills and whose credit rating has reached a junk-bond status where they can no longer borrow?

Congress would have to vote the bailout money. But will a House that owns its majority to the Tea Party approve half a trillion dollars to bail out Democratic-run cities or Obama's home state or Jerry Brown's California?

This June, the stimulus money runs out, and as housing prices continue to fall across America, property tax revenue will fall.

The Feds are about to stop bailing out the states, and the states, on shortening rations, will stop bailing out counties, cities and towns.

We may be closer to the falls than we imagine.

Pat Buchanan

Pat Buchanan is a founding editor of The American Conservative magazine, and the author of many books including State of Emergency: The Third World Invasion and Conquest of America .
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