Is the United States Greece? The short answer is: not yet, but it will be if the Democrats remain in control in Washington for two more election cycles.
In the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that came out today:
[T]he really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.
And that, my friends, cannot be sustained. I know our liberals can’t grasp this – this is because they’ve been told that government spending is the cure for the economy. We spent bags of money, the economy is getting better per bankster and bureaucrat statistics and soon spending will drop as people need less help and revenues will rise as the economy improves. While the GDP numbers continue to rise, there is no way to even possibly argue them out of this – but, the fact remains that government spending never cures a faltering economy.
And, so, here we are – spending money like mad and rapidly running up against the absolute limit of just how much we can owe before lenders start demanding extortionate interest rates. If we actually reach that point the resultant crash will be unimaginable – not just here, but all around the world. You really cannot put a limit to the baleful effects – up to an including a desperate Chinese government setting off WW III in order to distract the Chinese from their plight.
We still have a window of opportunity to fix this – preferably no later than 2013, but absolutely no later than 2015 we must balance our budget. And I’m not talking phony balanced as we had it in 2000 – really balanced where the absolute number of dollars leaving the federal government by any means is less than the absolute number of dollars coming in. We do this, we avoid the crash – or, to be more accurate, the really horrific crash. We’ll still have one – and a pretty bad one, at that. Think in terms of 20% unemployment, for a while.
But here’s the key – we’re in a race. The race involves this: which ever major, industrialized nation figures out that a balanced budget cures the problem, wins. And wins huge. Think about it – the problem people have is with concerns about the viability of sovereign debt…if there is a nation out there where people can be certain there won’t be a default, that is where the money will go…and not just in terms of bond purchases, but in terms of all types of investment (but why should we care about bond purchases if our budget is balanced – simple, as our bond rating becomes impervious while everyone else’s collapses, it will become almost a matter of people offering to pay us to sell them bonds…we can refinance our existing debt at a very low interest rate).
To be sure, a crash course in balancing the budget will cause a crash – the resultant withdrawal of government funding will cause lots of business activity to dry up for lack of funds. But such a crash would be temporary in nature and beneficial in long term effect – with the government not spending the money, it will become available for people to start up or expand existing, private enterprises which is a much more efficient and profitable use of capital. This will swiftly feed upon itself and restore the economy within a couple years time.
Its either do this, or face the very worst situation imaginable – absolute bankruptcy coupled with threats of war and revolution. It is our choice.