Even so, on Tuesday night, Keating said he felt a bolt of thunder coming out of Wisconsin, when the governor of that state, Republican Scott Walker, easily survived a recall vote aimed at ousting him from office.
“I think it’s a huge message — because what was the issue in Wisconsin?” he asked. “The issue was the governor took away collective bargaining rights for public employees unions.”
Keating, the executive vice president of CenterState Bank and the chief investment officer of Wealth Management, said this vote has ramifications not just for the United States — where the nation’s debt has soared above $5 trillion — but for Europe as well. Collective bargaining, Keating said, is a way for unions representing workers in government agencies to collect dues from its members, then spend that money any way they want, including on political campaigns and candidates, even if the members disagree with their choices.
“Collective bargaining for a public union doesn’t work, because they can buy the other side,” he said. “It’s not their money.”
On Thursday, Keating gave an Economic Update presentation on current market conditions and the outlook for the world economy during a breakfast meeting of the Haines City/Northeast Polk County Chamber of Commerce.
Two days earlier, Walker survived a recall vote with 53 percent, slightly better than the 52 percent he got in November 2010.
Walker had served as the executive of Milwaukee County before successfully running for governor of Wisconsin in 2010. He defeated Milwaukee Mayor Tom Barrett, then made national headlines in his first year in office by proposing to curb collective bargaining rights for many of the state’s unionized workers. Unions responded by launching a recall effort, which managed to collect enough signatures to get Walker back on the ballot, but not enough to actually send the governor packing.
Keating said at a time when both the United States and Washington are drowning in debt, Walker’s victory had significance well beyond the state line.
“The unions said ‘We’ve got to draw a line in the sand,’ “ Keating said. But the move to eliminate collective bargaining won right along with the governor, he added.
“I think it’s huge,” he said. “The non-union people are finally saying ‘We can’t afford that.’ Think of Greece.”
Along with Italy and Spain, Greece has played a key role in Europe’s ongoing debt crisis. By late in 2009, the Greek economy was facing a crisis when it was revealed that the Greek governments had misreported the county’s economic statistics to stay within monetary union guidelines for the Eurozone. That allowed the government of Greece to spend beyond its means and hide deficits from the rest of the EU.
That rising deficit was projected to be 13.6 percent of the country’s gross domestic product, one of the highest in the world, and it led to a crisis of confidence that Greece could repay its sovereign debt. To avert a default that would have sent European banks tumbling, the other Eurozone nations agreed to a rescue package.
But even that won’t likely save the Greek economy from future turmoil, Keating predicted, as the Greek government is forced to enact painful austerity measures.
“Greece has been in a recession for four years,” Keating noted. “Now they’re going to go into a severe depression.”
The problem for Europe, Keating said, is twofold. First, the creation of a Eurozone included a common dollar, the Euro, and a common central bank. What it didn’t include was a common economic policy for all 17 member nations.
“Each country had its own fiscal policy,” he said. That’s how some countries, like Germany, could remain economically stable while others, such as Greece, Italy and Spain, could be heavily in debt, he added.
Now, he added, “The only way they can deal with it is they have to act collectively on it, together. Will these people ever get their act together? They have to get their act together. The enormity of the negative outcome is so great that it has to be dealt with.”
The second dilemma is that the rescue package has to go to the Greek government, Keating said.
“Right now there is not a mechanism to put money directly into the banks,” he said. “It has to go through countries.”
That European debt and the weakened global economy has an impact on U.S. exports and businesses that rely on foreign trade, he said. If the overseas market is suffering, American businesses will likely refrain from increased hiring until they see how badly the European crisis hurts their bottom line, he said.
But the European debt problem, he added, also puts a spotlight on the hefty debt in the United States, and how this nation is, like Greece, quickly approaching a point where it will be a struggle to continue financing programs like Social Security.
“It’s just astronomical when Social Security was put into place, there were 14 payers for every one recipient,” Keating said.
But that was in the 1930s, he added. Today, people are living longer – and collecting Social Security checks for decades.
“Today there are two payers for every recipient,” he said. “When the baby boomers start retiring, it will be one payer for every one recipient.”
Baby boomers were born during the demographic Post-World War II “baby boom” between the years 1946 and 1964, according to the U.S. Census Bureau. Many are already entering retirement age.
“Does that have to be fixed? It does,” Keating said. “That’s simple economics.”
That’s why the Walker victory was so critical, he said: because it put a spotlight on the issue of governments – and the taxpayers who finance them – living within their means, or continuing to spend beyond what they can afford.
“President Obama carried Wisconsin by 14 percent in 2008,” Keating said, of the 56 percent of the vote Obama got there, compared to 42 percent for the Republican nominee, John McCain.
“He’s still leading in the polls there,” Keating added.
Even so, Walker’s victory following a campaign that focused on collective bargaining rights, he said, will send a loud and clear message that “Those of us not living at the public trough have to say we can no longer afford to keep spending like this.”
Ironically, on June 17, Greece will hold its parliamentary elections, to decide whether the country sticks with the austerity measures it agreed to as part of the international bailout package, or heads in the other direction, possibly by exiting the 17-member Euro zone. Polls have shown a very tight race between the pro-and anti-austerity parties.
There are a lot of political implications either way, Keating said, adding that nobody knows how the beleaguered residents of Greece will respond in the voting booth.
“What’s going to happen? I have no clue,” he said.
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