Just about everyone has at least seen the headlines about the problems in Greece. The government ran massive deficits for years, and like someone who maxes out on all his credit cards and can’t use them anymore, Greece has come to the point where they’re struggling to borrow more money to go even further into debt.
International lenders such as the World Bank have told them “No more credit till you cut spending”, and people who’d be affected by spending cuts, or who think they will, are seen regularly rioting in the streets.
I was in Greece very recently, and I saw something very interesting about the riots. Things would be pretty calm until the news cameras and TV stations would show up, and suddenly, rioters appeared out of nowhere and started, well, rioting. When the newsmen had enough footage and packed up and left, so would the rioters.
I’m not certain what to make of this, but it left me a bit cynical.
Still, the question remains, could this happen here in the United States?
There’s no question that our spending is out of control. The deficit is the equivalent of a family which earns $50,000 and spends $88,000. That is sustainable only as long as someone lends us the money, and I think you know who lends us the most.
It’s the Chinese! They now own well over $1 trillion in U.S. Treasuries, and if they one day come to believe that our debt load is too high, that will be ugly.
Interest rates on Treasuries would climb to a level reflective of our high debt and lowered credit rating.
Could mortgages move from 4.5% to 5.5%? The reality is that they’d probably go a heck of a lot higher, maybe even to 8-9%. And I don’t need to tell you what that would do to an already fragile housing market.
A crisis is a terrible thing to waste, and our President has a wonderful opportunity to use this crisis as a rationale for a dramatic re-ordering of our spending. Whether he’s playing chicken with the Republicans in Congress or not, it may be 20 years from now when people try to find the one, true point in time when we started a slide into economic decline. And when they do they will point to the government’s collective unwillingness to do what needed to be done.
Saving entitlements, fighting for increased revenues, standing up for the middle class will all be irrelevant if we become another Greece. History is filled with empires that decline because of over-reaching and trying to do things they could no longer afford.