For me, one of the core common threads tying together a variety of separate challenges facing us is the long-term nature of the problems. Very little ‘unexpected’ stuff has happened over the past couple decades. Sure, we can’t know exactly when hurricanes will hit, but you don’t have to be a meteorologist to know that a hurricane striking New Orleans represents one of the greatest potential disasters in our country. Sure, we can’t know exactly what terrorists are up to, but you don’t have to be in the CIA to know that a terrorist attack against the World Trade Center represents one of the greatest potential disasters in our country. I can say that very authoritatively because I read books as a teenager that analyzed risk assessment as it applied to precisely these dangers faced by the US – long before ‘9/11’ and Katrina. The other major ‘likely’ disaster that was often highlighted has fortunately not come to pass – a major earthquake in the San Francisco Bay area.
There are of course some much more catastrophic scenarios, too, but they are much more unlikely, so resources allocated toward them aren’t nearly as useful. That’s why the Bay Bridge is being refitted/rebuilt between San Francisco and Oakland, essentially in a race against the clock to beat the next earthquake, but neither San Francisco nor Oakland are spending much money on nuclear bunkers, alien defenses, stopping gamma ray bursts, preventing black holes, or preparing for the eruption of Yellowstone.
Wait, what does all this have to do with Greece?
Well, Greece is confronted by an issue that is fairly predictable, one that develops over long periods of time. Not the details and timing, that’s not foreseeable with precision, but rather the basic development is something one can see years in advance. I argue we need to be paying attention to it with our ‘political’ hats for two key reasons:
1. The US needs to help Greece, and other countries in their position. This is a matter of everything from foreign aid to US leadership to even national security.
2. Greece offers an excellent case study for both comparing and contrasting our own country’s position. In short, excessive government debt matters. But at the same time, we have much more flexibility because we print debt in the same currency that we print currency. In fact, the core philosophical observation about (fiat) money and debt is that they’re the same thing.
Okay then, what’s happening in Greece?
* We have updated our assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to place Greece’s public debt burden onto a sustained downward trajectory.
* We are lowering our ratings on Greece to ‘BB+/B’ from ‘BBB+/A-2’ and assigning a negative outlook.
* The negative outlook reflects the possibility of a further downgrade if the Greek government’s ability to implement its fiscal and structural reform program materially weakens in our view, undermined by domestic political opposition at home or by even weaker economic conditions than we currently assume.
There are lots of interesting nuances here, most of which I don’t know very well. If you’re interested in precisely how Goldman Sachs helped Greece hide debt off-balance sheet in Enron-like fashion, or if you’re wondering exactly what sorts of riots are happening, or if you have deposits in a Greek bank, or if you’re following the various bailout proposals from Germany or France or the IMF, then you’re already paying very close attention to the situation; there’s nothing new I’m adding here. Rather, I think it’s important that these developments get a wider audience than they have been the last few weeks.
The short story is that the government of Greece is nearing insolvency. Small spending cuts or tax increases are irrelevant now. What this means is that it is highly likely (though of course, we can’t say for sure what the future will bring) that Greece is going to have to restructure its debt, extending payment terms or paying less interest (or both). We call this default. It happens a lot, actually; even whole countries have defaulted on their debt.
But here’s the thing. Greece is a member of the European Monetary Union, ‘the Euro’. Greece is a NATO member, joining back in 1952. Greece has the expectation of being an industrialized nation, a member of Europe, a country that would ultimately be supported by ‘the West’. This puts the Greek situation in a particularly precarious place because it’s not quite the same as countries like Argentina or Ukraine having a problem. And most importantly, Greece isn’t alone. There are several European countries that have floated more Euro-denominated debt than they can easily pay back as their societies are presently arranged.
What this means for Greece presently, and potentially Euro countries like Italy, Ireland, Portugal, and Spain over the next several months, is social unrest. On a massive scale. This is relevant for us here across the pond because we are looking at situations where direct foreign aid and potentially even military intervention need to at least be considered. Hope for the best, but plan for the worst, kind of thinking. We are witnessing the first major test of ‘Europe’. If we want the concept of Europe to succeed, then our interests are not just to stay on the sidelines. We have a vested interest in ensuring that social unrest doesn’t bring down the Euro, or even the EU. And it’s an excellent opportunity for us to show that we still value US leadership, that the US is there for our ‘friends and allies’ when help is most needed.
The development of the EU and the EMU has been one of the great progressions of world history, if you’re like me and like the idea of historically warring nations working together in a spirit of cooperation and peace. What we might be witnessing is the unfolding of that progress, in rather sudden and explosive uncertainty. Whether that’s the outcome you desire or not, I think we need to be paying attention to the potential historical significance before us.
What about us?
It’s not just historical significance, though, that makes the precariousness of the Greek situation relevant. It’s also highly instructive for our own domestic policy-making. At the end of the day, there is such a thing as too much government debt. There are consequences, both economically and socially, for citizens who let their governments get out of control.
We. Are. Not. There.
The US has a very manageable government debt. Furthermore, unlike Greece, we have (technically) easy austerity measures to put in place. Simply ending unnecessary military spending, cutting corporate welfare, and restoring progressive income taxation would solve our budgetary problems for the next half century. Tack on health care reform to fill in the gaps created by PPACA, and there is no budget problem at all. When the deficit hawks and concern trolls and other GOP money bags talk about the US debt without mentioning defense spending and taxing the wealthy, you know they’re full of something other than constructive dialogue. Social Security is the best-funded major program in the entire federal budget. Have you ever heard anyone call the CIA an unfunded liability?
But even if that weren’t the case, the US is in a superior position for a separate reason. We own the printing presses for the currency in which our debt is denominated. Furthermore, that debt just so happens to be the reserve currency of the world. This is why the Greek situation is potentially so momentous. Greece doesn’t control the Euro printing press; no sovereign nation does (directly). Back in ancient history now, Ben Bernanke, Chairman of the Federal Reserve, remarked that the subprime crisis was contained. Not only was that inaccurate (to put it mildly), but the consequences of ‘contagion’ were quite severe. This is essentially the same question with Greece. If the debt problems in the Eurozone are not contained to Greece, then the whole Eurozone is headed for a major point of reckoning for what the future of Europe, exactly, should be. By contrast, we in the US are not confronted by such a situation. The US is much less integrated into the world economy than most of the nations of Europe and Asia, particularly Germany and China.
In fact, our position is almost the opposite. Our country is wealthy enough that our main problem is business as usual, or as I’ve heard a few places mention, things aren’t collapsing fast enough for Americans to wake up and take notice. In the US, it’s private debt, not sovereign debt, that has posed the problems. But watch what happens in Greece, and the rest of Europe (particularly countries not named France and Germany). If we don’t get our financial industry under control, if we don’t get corporate welfare under control, if we don’t get our tax code under control, if we don’t get healthcare costs under control, then that’s our future, too. We can only socialize losses for so long before something gives. We can only transfer wealth from local communities to global capital for so long until things fall apart.
Except there is one key difference, if we were to face a budget problem down the road. We’d be weathering the social unrest with much greater wealth inequality and much smaller social insurance programs. Is that a risk we want to take?
You can read these words all over again at Daily Kos.