Posted on 07/10/2015 5:37:34 AM PDT by Kaslin
Editor’s Note: This column was coauthored by Geno Lattus.
The perfect formula for financial crisis: Imagine a country that spends more than it makes and continues to borrow to make up the difference, leaving it forever catching up on debt payments because of mounting interest. Another analysis on the Greek crisis? No. The United States is running its government in the same fundamental way as Greece and a meltdown may be coming soon.
The Greek Formula. Greece recently defaulted on a $1.8 billion debt payment to the International Monetary Fund (IMF). After borrowing large sums, big bailouts and profligate government spending, Greece’s struggling economy still lags from the 2008 global financial crisis. Its gross domestic product (GDP) has declined steadily since the crisis, dropping 33% from 2008 to 2014. It’s debt-to-GDP ratio, essentially a measure of how much the Greek government has borrowed compared to how much revenue it collects, has reached the 175 percent mark. Greece is not generating enough tax revenues to service its debts.
The U.S. Formula. Like Greece, the U.S. experienced financial turmoil and a severe drop in economic productivity during the financial crisis of 2008. In response to the downturn, the federal government spurred the economy by increasing spending, inflating deficits to a total of $5.6 trillion by 2012. Federal debt, typically averaging just 38 percent of GDP over the last 50 years, has been used to fund these deficits, nearly doubling between 2008 and 2012 to 74 percent of the country’s GDP, or yearly economic output. World War II was the last time deficits and the debt were this high.
According to the Congressional Budget Office’s (CBO) 2015 Long-Term Budget Outlook, this country could soon end up in the same boat as Greece. Over the next 25 years, government revenues are projected to fall well short of spending, creating a large imbalance in the federal budget. Projected budget deficits are expected to rise slowly and will eventually double to 6 percent of GDP by 2040. An aging population and rising costs of Social Security and major health care programs such as Medicare, Medicaid, Children’s Health Insurance Program and subsidies for the Affordable Health Care Act are projected to cost 14.2 percent of GDP, double what they averaged over the last 50 years.
Debt is estimated to reduce the next few years, however, rising deficits will push debt levels quickly back to the present mark and by 2040 could be at a point where federal debt exceeds GDP, at which it becomes indefinitely unsustainable. As debt rises past GDP, creditors will eventually begin to doubt the government’s ability to cut spending or raise enough revenue to service its debt and demand higher interest rate premiums, exacerbating deficits.
A large and growing debt will create a downward financial spiral similar to the one Greece is currently embroiled in. As a large debt grows, it creates negative consequences for the economy, making it impossible to recover. Near zero interest rates have nowhere to go but up. The imminent increase in interest rates will raise the government’s interest payments. As interest payments rise, taxes are increased, creating a drag on economic output. A large amount of debt also detracts from productive private investment as investors spend a portion of their savings to buy government securities.
It’s Not Greek To Me. In the present and short term, current policies have led to the weakest recovery in the post-World War II era. In the 48 months since the recovery began, GDP had only increased by 9 percent, whereas the average 48-month GDP increase for recoveries in this era is 17 percent higher. The economy has experienced 10 recessions since WWII, and the average length of recovery is 58 months. The current recovery is now in month 73.
It is evident that changes need to be made. Our country’s reliance on debt to prop up the economy may lead us to financial disaster and cripple our way of life. As we continue to run deficits and borrow, more and more of government revenues will go toward debt, restricting lawmakers’ ability to use tax revenues and reducing their ability to respond to unexpected circumstances like financial crises and natural disasters. It may also create funding gaps in other important programs like defense, infrastructure and education. Lawmakers should heed the CBO’s warning by setting a realistic deficit reduction goal and implement a balanced budget plan that will ensure the government is living within its means.
As I see it, this guy is an optimist.
Only changes which increase the pain are allowed. nobama has been very successful in carrying out his threat to "fundamentally change" America.
Only problem is that all the change has been damaging.
Greece is what they call a practice run. Get all the kinks out so the big fish can be brought down quickly and successfully while inflicting maximum pain.
This Greece situation should be worrying everyone. I’ve seen predictions for the past year that we are headed for a meltdown, and Greece is a good snapshot of what this country is headed for. I’m expecting a domino effect. China looks like it’s next, and when that happens, better get ready...Europe won’t be far behind, if we’re lucky we’ll be last but I wouldn’t bet on it.
We’ve been barreling down the tracks headlong into a major crash for a long time. Out of control spending, bail outs, entitlements, taxes and regulations...
Businesses are folding like crazy because they can’t handle the taxes and regulations. That’s also why they can’t expand or create new jobs, all their money is tied up paying taxes and rebuilding to conform to insane regulations. Can’t expand, invest of hire more people of your money is already tied up that way. Then you have Obamacare insanity, that’s killing small businesses too and has been since before it even took effect.
And that’s just the beginning...
When you have more money going out than coming in, what happens? Greece. Exactly where we are headed and fast.
Oops, typo...
Can’t expand, invest of hire more people
OR...
Only WE don't have anyone to bail US out.
We have a deliberately Anti-American President who, with malice and comic incompetence, has handed us a proletarian dictatorship WHITHOUT workers.
When we challenge what is going on, he makes the most idiotic and sadistic excuses.... NOT reasoned and logical explanations but EXCUSES!
If the US keeps on going in the same socialistic inspired direction, it is nothing more than Greece in slow motion. But keep in mind that people will not change or wake up until the pain becomes severe enough and they are forced to change. This is the way it always has been and will continue.
Right now with a good portion of the public on some form or another on public aid, they just muddle through and get by and are not about to change. Once you get used to doing very little or nothing it gets in to your blood and it never ends well. People just happen to be creatures of habit, nothing has changed. And even so I am optimistic by nature I fail to foresee a good future.
It took generations to get where we are right now and it will take generations to get out of this mess. You can change a politician in every election, but changing the mind set what elects those wrong politicians over and over is an all together different story. On the other hand nothing is new about this story as countless other countries or nations have embarked on the same path and invariably ended up on the trash heap of history. It would be sad to see such a great human experiment to fail as I dearly love the US. I had been one of those LEGAL IMMIGRANTS over half a century ago and complied with the old adage, work hard and if in Rome do as the Romans do and it had served me well indeed and it pains me to see where the US is going.
>>It took generations to get where we are right now and it will take generations to get out of this mess. <<
My view is a bit different. It will take an election to get out of this mess, and if we don’t get it right pretty soon we never will get out of it. It’s unbelievable what the combination of a Leftist Supreme Court, a Leftist (and compliant) MSM, and a Leftist President have been able to achieve in such a short time.
Governor Walker is correct on one important point. The Senate filibuster rule has to be jettisoned if the next president is a Republican. That will be the only way to clean up the mess quickly enough to matter.
Re: “My view is a bit different. It will take an election to get out of this mess...”
The political math says you are wrong.
Legal immigration and second generation immigrants have added about 30,000,000 million voters since the Reagan Amnesty in 1986. 70%-80% of those folks vote for the Democrat Party. Because of his own immigration policies, Reagan could not be elected governor of California in 2015.
The fact that new citizens have very low voter turn out, especially in off year elections, is the only reason Republicans have any political power at all.
Every year America adds another 1 million new citizens and second generation voters. For some reason, a majority of Republicans and Conservatives celebrate that political insanity with almost as much enthusiasm as Democrats do!
But, when those new voters begin to turn out and vote at the same rate as Republicans vote, the game is over politically, and Democrats will take permanent control of the Federal Government.
Each US citizen already owes almost DOUBLE than a Greek citizen does to the National Debt!
And Puerto Rico?
They've got only about 1/2 of the Greek 'problem'.
We'll have no problem with our debt until the piper starts getting hungry...
Whatya mean HEADED???
We been there a LONG time now.
And KILLS 1,000,000 future American citizens.
We are getting EXACTLY what we deserve.
Not Greece, the Wiemar Republic.
It’s Weimar W E I M A R Republic
This guy?
Weimar autocorrect changes it.
Sometimes you just have to ignore auto correct
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