Charlie Leonard: Greece is falling – are we next?
November 2, 2011
Most of the time, it’s very easy to get distracted by events in our own lives and events in our own country without having to worry about what is going on in the rest of the world. Now is not one of those times. Everyone really needs to pay closer attention to events unfolding in Europe.
Every day it becomes increasingly clear that there is no good solution to the Greek debt crisis that threatens to wreak havoc on the economies of Europe.
In simplest terms, this tiny country, with an economy of about one one-hundredth of the United States, went down a road of government spending that far exceeded its tax revenues until it racked up a debt approaching twice the size of the entire annual economic output of the country. Economists call this the debt-to-GDP ratio, and today in Greece it stands at about 185 percent. In practical terms, the Greeks have reached a point where no amount of cuts in spending or increases in taxes can bail them out of the mess they have created. They now need massive assistance from other countries, and their debt-holders to forgive something on the order of 50 percent of the money they are due.
The shocking news of the last 48 hours is that rather than accept this help, Greece instead may pursue a course that results in default, because so many Greeks still falsely believe they can shift their problems to somebody else and their politicians don’t have the courage to tell them they are wrong.
In the United States, our national debt is about to hit $15 trillion, or 100 percent of our GDP. If our debt didn’t go any higher it would remain a drag on our economy, but most experts think we could continue to pay our obligations and still maintain most government services. The problem is that our debt is going up every year at an astounding rate – about $1.5 trillion annually at the current pace. In fact, if all we did was continue with current policies, we would find ourselves with a Greek-sized debt, relatively speaking, within the next 20 to 25 years.
In response to our own ballooning federal obligations and fallout from last summer’s stalemate over raising the nation’s debt limit, the Congress created the Joint Select Committee on Deficit Reduction, which many are also calling the “Supercommittee.” The committee consists of 12 members of Congress, with equal numbers of Republicans and Democrats. On Nov. 23 – just three weeks from now – this committee is supposed to recommend ways to reduce our national debt by $1.2 trillion over the next 10 years.
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Let’s put the work of the Supercommittee in perspective. If you total up all the federal budgets of the next 10 years, we are on course to spend more than $40 trillion and borrow another $15 trillion to pay for it all. Yet we have a Supercommittee that is struggling to find ways to cut $1.2 trillion, or about 2 percent, of federal spending over the next 10 years. Even if the committee succeeds, we are still on a Greek-like path to financial ruin – we just buy ourselves a couple of more years.
In recent days, there have been public calls by both Republican and Democratic budget experts for the Supercommittee to find $4 trillion of deficit savings – a much more meaningful number in terms of actually starting to solve the problem. Of late, it’s rumored that the committee is listening.
To get there, it means that Republicans have to agree to some tax increases, most likely in the form of major tax reform and simplification that also generates more revenue. And Democrats would have to agree to real entitlement reform, and reduce our projected expenditures on Medicare and Medicaid, including stricter eligibility.
If by some miracle the Supercommittee succeeds on some level, our path forward ultimately rests with each of us as citizens.
Will each of us be willing to make some small sacrifices and accept a less-than-perfect plan that starts to fix our country, or will we act more like the Greeks and stubbornly refuse to confront our problems?
Think about it. You have a whole three weeks to decide.
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