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The differences between the countries, after all, give the United States some built-in advantages when it comes to managing its debt. The U.S. economy? Gargantuan. Greece's economy? Tiny. Plus, the United States' earning capacity is greater since it has a more diverse economy than Greece does, said Barry Anderson, who used to run a budgeting and public expenditures division at the Organization for Economic Cooperation and Development. There are also big differences in the countries' currencies. The dollar is the world's reserve currency and is managed by a single government.
The euro, by contrast, is used by 15 sovereign countries. Therefore, Greece's monetary policy is set not according to Greece's needs but by the needs of stronger economies -- especially Germany -- that prefer higher interest rates as a bulwark against inflation. The OECD, meanwhile, estimates that U.S. net debt will reach 75% of the country's economy this year. That number includes federal, state and local debt but excludes debt owed to government trust funds such as Social Security. Greece's debt, by contrast, will be around 125%. So what's the concern for the United States exactly?
"The real fundamental similarity is trend. Both [countries' fiscal situations] are bad and getting worse," Anderson said. That's because both the United States and Greece have aging populations and mature economies that aren't likely to grow as much as they have in the past. Simply assuming that the United States will remain forever immune from the perils of too much debt is not a winning strategy, deficit hawks warn. Of course, that's a hard case to make when investors embrace Treasuries every time they get spooked by turmoil in Europe. Events in Greece in recent days have driven the 10-year Treasury yield below 3%. In other words, the United States continues to get the benefit of being a "safe haven" compared to the rest of the world.
But experts believe that investors won't always give Americans the benefit of the doubt. "The markets do react late, but when they react they react pretty sharply," said Carlos Cottarelli, director of fiscal affairs at the International Monetary Fund, during a Committee for a Responsible Federal Budget conference this week. A little over a year ago, investors' fears that Greece would ever default were considerably lower than they are today. So it's not surprising that the yield on 10-year Greek bonds is now pushing 18%, up from 6% at the start of 2010, according to Bloomberg markets data.
But even if U.S. rates don't rise soon -- and some say they won't because investors fear slower economic growth -- that doesn't mean markets can't find other ways to hurt the United States, Anderson said. Investors might choose to punish the dollar if they start to believe Congress doesn't have the political will to do what's required to put the U.S. budget on a more sustainable track. And a substantially weaker dollar would have all sorts of negative repercussions, including a possible credit downgrade from ratings agencies, said Michael Pond, managing director of fixed income strategy at Barclays Capital, at the CRFB conference. The bottom line: The U.S. is not Greece in many ways. But it's also not immune from the punishing effects of debt.
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Yet the Messiah continues throw trillions around like so much monopoly money after all its you and I that are on the hook for the massive out of control debt.
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The reality gap looming in Athens between what ordinary Greeks want and what their politicians can realistically achieve has ramifications that could ripple far beyond the Aegean shores. The only thing that is certain for now is that the longer the impasse lasts, the more devastating its consequences will be not just for Greece- but for other cash strapped countries that share the euro as well as Europes trading partners further afield. As the IMF prepares to hand out yet another eye-watering chunk of bailout funds to Greece, it may appear to some like apparent handing cash to a spoiled child - even if they havent done their homework.
However the Greeks protesting from the Parthenon to the Parliament this week are not children. They are men and women coping with the most precipitous decline in living standards their generation has known. Like their fellow bailout recipients in Portugal, their parents remember life under dictatorships and military rule until the mid 1970s. They have fought hard to gain their rights. As such, its not hard to see why they are loath to surrender them. But what many Greeks have come to see as basic entitlements are now deemed a luxury, according to those footing the bill for the country's fiscal excesses. Whether Greeks, like it or not, their nation has been backed into a corner by profligate governments and jittery bond markets.
That corner is only shrinking by the day, thanks to the Greeks' resistance to painful but necessary belt-tightening. Greece is no longer just the sick man of Europe, its the sick man of the world, and a country whose sovereign debt now holds the dubious title of being the lowest-rated on the planet by Standard & Poor's. Just months ago default seemed almost a dirty word, nearly whispered by economists rather than openly discussed. But this week Deutsche Bank strategist Jim Reid went one step further, comparing Greeces economic limbo to the decline of Lehman Brothers days before the U.S. giant failed.
We believe the period is resembling the build-up to the Lehman collapse where, although the market was nervous, virtually everyone expected a last minute buyer, Reid wrote in a note to clients. Its difficult to continually kick the can down the road when the can is breaking up in front of your boot. Greeces financial mess matters far beyond its borders for various reasons. It threatens to undermine the stability of a major trading currency shared by 16 other EU members. It risks limiting larger European countries like Spain and Italys ability to borrow affordably in the bond markets.
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