“If we continue to ignore deficit spending and effects of accumulated debt on our economy, then we will find ourselves in the same position as Greece today, but with nowhere to go for charitable relief.”
Greece is a member of the European Union (EU). The decision now facing the eurozone leaders is how to structure additional debt for Greece so that they can meet their critical needs and make payments on existing debt owed to the International Monetary Fund (IMF) and European banks, starting with a €300M loan payment due this Friday. Like any creditor, EU officials are demanding concessions from the Greek government. Yanis Varoufakis, the Greek finance minister and lead negotiator for his country’s bailout, claims that the concessions are too strict and austere. Government pension funds in Greece have in fact been cut, and in some circumstances, cut by 75%.
There is no easy answer. If Greece defaults on its debt, the repercussions to European banks at a time of area wide economic weakness could be devastating. At the same time, how long can other European countries fund ongoing Greek deficits? If Greece were to leave the EU, the resulting tribulation manifested by the recalculation of currency values could jeopardize long term sovereign debt of other countries. As of today, a consortium of lenders has offered Athens a rescue plan. It is unclear what Greece’s response will be.
Are we looking through a window into the future of Europe, the world, and the United States? There comes a point in any country’s economic structure when accumulated debt becomes so great that you cannot borrow money at a rate that you can afford. Greece has run out of borrowing power. Saving Greece today is not an economic decision. It is a political decision. When a situation becomes political, it is out of your control.
Today, the United States’ sovereign debt to GDP is approximately 110%. The United Kingdom’s is a little less at 105%. A majority of economists agree that any debt in excess of 70% to GDP is detrimental to economic growth. Most agree, however, that 90% is the absolute limit. The current U.S. running deficit is 2.5% of GDP. That is more than the expected annual growth rate of 2%. We are losing ground. This historic situation violates the principle of economic sensibility. At times of crisis or exceptional circumstances, a nation can spend more than it takes in, (i.e. a depression and/or a war.) At some point a country must manage its accumulated debt not to exceed 70% of GDP. If debt didn’t matter, you could print and borrow money forever, and prosperity would simply be subject to the dictates of government. This is just not true. Ask the kings of the Middle Ages who controlled rents, land, people, money, and whose word was the law. They all found that, at some point, a sovereign cannot create wealth out of thin air.
The political debate today centers around policy disputes that have no tether to overall guiding principles. Presidential candidates and Members of Congress debate issues today without any consideration or determination for the simple principle of national accumulated debt and ongoing running deficits. We hear about free trade agreements, raising minimum wage, and extending government assistance for every particular need, without any discussion on how any of these measures will generate revenue in excess of expenses. What we should be discussing is the creation of good jobs, the support and advancement of the middle class, efficient education at all levels, and health care. All debate and discussion should be centered on priorities to support and maintain principles that advance society in general, such as economic sensibility. Government programs designed to help crime-ridden areas of the country are critical. But they should be designed to meet the needs of a growing middle class. Getting the deficits down to allow the economy to grow faster than the accumulated debt is imperative. We cannot fix our nation’s problems by approaching the problems as if each special interest operated independently of any other special interest. We are all part of the United States of America and subject to eternal principles. Eternal principles can be bent, but never broken. The principle will always stand supreme against any force or effort to violate its axiom.
At least Greece can submit its petitions to nation states with larger economies than its own. In other words, there is a forum for Greece’s appeal for a bailout. If greater Europe, or the USA, ever finds itself at a point where it cannot acquire additional debt to meet critical government needs, there is no forum for appeal. In fact, the USA is the world’s financial backstop. If we continue to ignore deficit spending and effects of accumulated debt on our economy, then we will find ourselves in the same position as Greece today, but with nowhere to go for charitable relief. One only has to look at Greece’s situation today and ask the question — are we looking at Greece through a window into our own future?
My name is Marc Nuttle and this is what I believe.
What do you believe?