The media treat the financial problems of Greece and the U.S. as unrelated. I submit that they really are similar, although they may differ in severity.
Both countries are bankrupt.
This is eminently clear regarding Greece, which has an annual deficit of 160 percent of its annual gross domestic product. It is less clear, but no less real in the case of the U.S. A recent nonpartisan research project entitled USA Inc. analyzed the federal government as though it were a business. The reported results are sobering.
The 2010 U.S. annual report would have shown a negative net worth of $44 trillion ($44,000,000,000,000 or $146,667 for each American) an operating loss of $817 billion and a negative cash flow of $1.3 trillion (your personal negative cash flow was $4,333). In bankruptcy terms, Greece is probably at the Chapter 7 liquidation stage, and the U.S. is at least in the Chapter 11 reorganization stage.
In both countries the political dynamic has been to buy votes by providing benefits beyond the ability of the economic system to sustain those benefits. There was no internal discipline or restraint for politicians to be prudent or even to be honest about the status of their economies.
In fact, prudence or honesty might well have been rewarded by electoral defeat. Therefore, under Letson's First Law of Political Economics they would not be expected to be prudent or honest. Faced with election loss, politicians' survival instincts will lead them to make decisions based on political considerations rather than long term economic consideration.
As there was no internal discipline, the matter of external discipline or the lack thereof is critical. Both countries lacked external discipline on their borrowing because the lenders were led to believe they could not lose. Therefore the candy store was open and the proprietor lenders were only too happy to supply candy on credit to the politicians who could then provide goodies to the happy voters.
Greece was able to borrow because the European Central Bank (ECB) accepted Greek bonds as collateral and because lenders believed France, Germany and the ECB would not let Greece default (we shall see about that). In addition the International Monetary Fund (IMF) was seen as a backstop for Greece.
Similarly, the U.S. was able to run up a $14.6 trillion (and rapidly exploding) debt because the Federal Reserve would buy U.S. bonds with printed money, because the Social Security Trust Fund would lend your Social Security taxes to the government for its other programs and because banks and countries believed the U. S. would always borrow more and raise its taxes enough to pay the loans.
Considering how different the two countries are, the end game that is developing is structurally the same. Both are facing an external discipline that is at least attempting to force an internal discipline.
To obtain two bailouts from the ECB and IMF and avoid a total collapse of its economy Greece has, over riots of protest, enacted austerity measures. However, most observers believe this is just an interim delay and Greece will default on its obligations. In fact, it has already defaulted in paying its bonds according to their terms. Its lenders have agreed to take losses of perhaps $70 billion. It seems clear that Germany, and France will not permanently subsidize Greece (nor any of the other failing European Union members).
At the least Greece will face decades of austerity. More likely it will fail dramatically because it cannot generate the money to pay its debts and the ECB and IMF will no longer support its loans. No one knows what will be the end result for either Greece or the European Union.
The U.S. financial position seems less dire, but this may be an illusion. Certainly its debt load is proportionately less critical than Greece's. However, as the debt ceiling debate illustrated it can and will continue to borrow, thereby bailing itself out and relieving the external discipline which comes from fear of losing its willing lenders.
This may turn out to be a wolf in a sheep's clothing. If the external discipline is removed the U. S. can stop its downward financial spiral only by exerting internal discipline. This means that politicians must vote to lower benefits for those receiving or expecting federal largesse.
It also means that the electorate will accept those reductions rather than oust those who voted to cut. But we have a president who in February submitted a budget that contained increased entitlement spending and national debt. It was so irresponsible that the Senate controlled by his own party rejected it 97-0. This same president still will not utter the words Medicaid, Medicare or Social Security in the same sentence with ''changes'' or ''reform.''
The two countries thus seem on the same path. Greece seems destined to default and start from scratch. Will the U.S. be willing to take the steps necessary to reverse course? Will we continue to raid the candy store in self-indulgent bliss until one day the lenders say the shelves are empty?
If so, who will bail us out? Perhaps no one.
Letson is an attorney with an office in Warren. He was previously general counsel of the U.S. Department of Commerce. He was also vice president and general counsel of Westinghouse Electric Corp.