Greece 2–The Domino Theory (Again)!
Posted: 18 May 2010 Filed under: Business, Economics, Fiscal Policy, Observations, Public Policy | Tags: Budget Deficit, Deficit, Economic Collapse, Recession 7 Comments »Inkwell Institute
International Studies Group
European Desk
I have listened to all those nay-sayers that see our rising deficit as a problem that will turn the US into another Greece….but is it possible that the US could face the same problems as Greece? In the 60′s there was a popular theory, the Domino Theory, that stated that if one country in Southeast Asia fell to Communism, they all would….this is just an update of that old belief….if Greece goes, then Spain, Ireland and Portugal will follow…and because of a global economy and the rising debt in the US…it will fall too…..
According to David Leohardt of the NY Times:
The numbers on our federal debt are becoming frighteningly familiar. The debt is projected to equal 140 percent of gross domestic product within two decades. Add in the budget troubles of state governments, and the true shortfall grows even larger. Greece’s debt, by comparison, equals about 115 percent of its G.D.P. today.
But how accurate is that analysis? Personally, I do not think it is that accurate….I feel it is just a conserv way of using the fear card yet again…..Greece is NOT having any form of recession recovery…the US is…while it might not be a great recovery, there are still signs of the economy trying to make a come back…..Greece is having NO such activity….
Yes the deficit is high and needs some control, but I do not see it banging the country down like that of Greece…as Paul Krugman wrote in the NY Times:
The U.S. economy has been growing since last summer, thanks to fiscal stimulus and expansionary policies by the Federal Reserve. I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues. Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts. Put those projections together with the Obama administration’s policies, and they imply a sharp fall in the budget deficit over the next few years.
The US is NOT Greece! For one thing Greece does not have its own currency that it could manipulate to help the problem, which would be one way to help, but instead they, Greece, will suffer through years of zero growth and massive cuts in services. One reason is the Euro. If you notice that the countries that are having the most problems, Portugal, Spain, etc have NO other currency other than the Euro….something to consider.
IMO you’re both right and wrong. No, there isn’t any immediately obvious danger of the US going the way of Greece and I think it’s silly to suggest there is.
However, YOU said it – these days it IS a global economy (as was evidenced when corporations for which the US was at least in part responsible brought down the rest of the world with them) and, in economic terms, it could easily go either way at a moment’s notice if the wrong thing happens and you don’t have the reserves to protect yourselves.
That is in fact is my biggest criticism of Gordon Brown in the UK – he took vast sums of money off of UK taxpayers when things were booming and spent the f*cking lot on things that most of the people who paid didn’t actually want. Then, when the brown stuff hit the fan, we didn’t have the money to ride out the storm and he had to borow even more (MUCH more) to bail out the financial institutions who are still ripping the country off even now, but that he didn’t dare allow to fail.
The fact is that “too big to fail” is a reality and that is because the WHOLE system relies on “confidence”. The minute the markets in the rest of the world lose confidence in your handling of the economy, you suddenly go from paying point something of a percent on your gross debt to “credit card” rates of 15% and more as Greece has done and THAT means that any surplus you could possibly make (and more) ALL goes on interest and you have to live on bread and water for the next several decades.
It CAN happen to any of us and it WILL if we don’t stop paying out for things we can’t afford – be they Democrat ideas, republican ideas, or whatever!
Put it this way: if you earn say $30,000 dollars a year and you borrow $5,000 at a nice low rate of interest, then as long as you keep on paying and don’t have any great problem, then it’s fine. But if you borrow $5,000 EVERY year and only pay back the interest plus a few dollars, after a few years, you will owe more than you could possibly repay – EVER! If someone realises that, then the lenders will start asking for much higher interest on ALL your loans and then you’re in deep trouble. The US and UK have long term deals at present that protect them somewhat and that’s good, but NO ONE can keep on spending more than they earn indefinitely without running into real bad trouble – and all the time what you pay out as a propotion of your income is increasing, so you’re soon borrowing just to pay the interest on the past. THAT’S a car crash waiting to happen!
I will agree with you that the US will not slip into a Greece like coma…..The Fed will give us inflation and currency devaluation before that happens.
I am sick of the conservs bitching about Obama…some of the pay outs are on their heads and they do not mention that….they say they made mistakes and that they are now back into the small government position…they have said this before and NOT kept their word…so why do we believe them now?
The people are voting with their wallets not their heads….
If the Fed did that, depending on the circumstances at the time, it could make the situation worse – like I said – it’s ALL about the confidence of OTHERS. If those others think the US economy is crap. they’ll run and close down as many lines of credit to America as they can – Greece.
It’s unlikely, but it COULD happen! Just like no MAN, these days, no COUNTRY is an island (metaphoricallY at least).
Yes, none of that is likely to happen….yet….I was just pointing out the tools that they have at their disposal….tools that Greece does not have or any country that has abandoned their currency in favor of the Euro….
Oh, I agree with that, but then a huge majority of the PEOPLE (as distinct from power hungry politicians) of Europe have been saying that about the whole EU concept in total, including its bastard currency, from the very beginning!
Let me guess…the ones that can make money off the Euro thing are the ones that came up with the concept?
NO! I wish that were true – it would be relatively understandable and harmless. NO, the creation of the Euro is, I believe, about power and megalomania!
Europeans are even more into “power for power’s sake” than Americans – they want to rule the f*cking world, whilst Americans think they already ARE the world!