U.S. risks the fate of Greece June 21, 2010Posted by Yilan in Human rights abuses.
Tags: Eleanor Roosevelt, Greece, U.S
Learn from the mistakes of others. You can’t live long enough to make them all yourself.
With trouble enough on our own home front, things like violent protests over austerity measures in Greece and the downgrading of the sovereign debt of Spain can be easy to ignore.
But the reality is the European crisis has made it clearer than ever that we are living in a global economy and what happens in Europe won’t stay in Europe.
The European countries known as the “PIIGS,” (Portugal, Ireland, Italy, Greece and Spain) have gotten themselves into trouble by loading up on debt equal to a challenging 62 to 115 percent of their gross domestic products (comparing what they owe to what they produce as a country).
When debt-to-GDP levels get that high, investors start to worry about their ability to pay the debt back, and become hesitant to lend. In addition, each of those countries is spending more than they’re bringing in, making for a troubling, if not unsustainable, financial situation.
Greece and Spain are at the top of the list of countries in trouble. Greece recently received a bailout from the European Union and the International Monetary Fund to stay afloat. In exchange for the bailout, Greece implemented drastic budget cuts, including reductions in bonus, salary and pensions of public workers, along with tax increases.
Just last week, Fitch downgraded Spain’s bond rating, due not only to its debt load but also to its low projected growth stemming from spending cuts.
It’s a familiar Catch-22; cut the budget and slow growth, or keep spending and risk insolvency.
The fear now is that Greece’s and Spain’s troubles will spread through the rest of the European Union and snowball into bigger problems.
By the way, the U.S. is part of the IMF, so you deserve some of the credit for bailing out Greece, too.
So why should we care what is happening half a world away?
The most visible reason is the effect on the stock market. After a period of relative calm, the economic events of the past few weeks have roiled the markets and disturbed our peace, reminding us that the markets are truly global. Investors are still nervous and easily spooked.
We also should be concerned that the dollar is gaining on the euro. While that spells good news for Americans traveling in Europe, because your dollar will buy more than it did just two summers ago (when my family was literally laughed at for having dollars at a currency exchange booth in Italy), it is not good news for our economy as a whole, because one way to get out of the mess we are in is to boost our exports. However, with a weaker euro, our goods are now more expensive to purchase overseas.
But the biggest reason to care, in my opinion, is that we are traveling down the same path.
We can debate about whether our debt should be defined by “public debt,” which is the amount of U.S. Treasury Bonds and other debt instruments outstanding, or the “gross debt,” which includes amounts borrowed from other government obligations such as the Social Security trust fund. Any way you look at it, we’re heading for trouble.
And neither of these calculations takes into account our trillions of dollars of future obligations and promises. With our gross debt load nearly 90 percent (public bebt is about 60 percent), Jason Zweig of The Wall Street Journal suggests the PIIGS acronym be changed to “PIG IS US,” and I have to agree.
Since the beginning of this global financial crisis, we’ve been playing a sort of reverse shell game, where we shift the debt from one balance sheet to another, hoping that little ball doesn’t show up in our cup when the game is over. How long can we keep doing that?
We can see in personal economies how easily the game of too much debt and not enough income can collapse when an unforeseen expense or job loss comes along. National economies are no different.
According to the Concord Coalition, a grassroots organization advocating for fiscal responsibility in government, unless we change our fiscal policy, the public debt will reach nearly an astounding 300 percent of our economy by 2040, and in 15 years, all federal revenues will be consumed by Social Security, Medicare, Medicaid and interest on our debt. At the current rate, we would need to at least double all of our tax rates to close the gap.
We see the austerity measures in Europe; there is no way around it, we have to do the same.
We can’t keep borrowing to pay our bills. We can’t do it personally, and we can’t do it nationally. Eventually, it will blow up on us.
We cannot spend money we don’t have, no matter how noble the cause. It’s financial reality. So far we have been able to handle it, but I think we all realize that there is a tipping point where we won’t be able to borrow anymore and we won’t be able to sustain our spending.
We will be better off if we work on getting our financial house in order voluntarily while we have the time to do it our way. We need to have a plan — not to spend our way out of trouble or depend on a rosy projection of growth or a plan based on fuzzy math — but a real plan to balance our budget without depending on debt.
Let’s not be so arrogant to think that we can’t be another Greece, and let’s make sure that doesn’t happen by putting pressure on our legislators to have the courage to do the right thing, regardless of how it plays politically.
It will take great sacrifice from all of us; we will have to expect less from the government, and expect to pay more. Are you up to the challenge?