Analysis: Greece's crisis could presage America's
AP Associate Press
By TOM RAUM, Associated Press Writer Tom Raum, Associated Press Writer – Wed Mar 10, 1:46 pm ET
http://news.yahoo.com/s/ap/20100310/ap_on_an/us_power_and_debt_analysis
WASHINGTON – Greece is a financial basket case, begging for international help. Is America heading down that same road?
Many of the same risky financial practices that now imperil the Greeks were at the center of the all-too-recent U.S. meltdown...America's national debt has been growing...to the point...it threatens to swamp overall economic output. And...a large portion of that debt is owed to foreign investors...A foreign flight from U.S. Treasury securities could sow financial chaos in the United States, as happened when many investors lost faith in Greek bonds...The U.S. has never defaulted on a debt, and even the hint of such a possibility could send interest rates soaring and choke off a fragile recovery.
How long can the United States remain the world's largest economy as well as the world's largest debtor?
Former Federal Reserve Chairman Alan Greenspan. "History tells us that great powers when they've gotten into very significant fiscal problems have ceased to be great powers."
Spain dominated the 16th century world, France the 17th century and Great Britain much of the 18th and 19th before the United States rose to supremacy in the 20th century.
"Unless we do things dramatically different, including strengthening our investments in research and education, the 21st century will belong to China and India," suggests Norman Augustine, the former CEO of Lockheed Martin who chaired a 2009 bipartisan commission studying the nation's top challenges.
Some of the same risky strategies used by U.S. hedge funds and other professional investors...which led to the 2008 financial near-collapse — are now being employed by those betting that Greece will default on its debt...Greek Prime Minister George Papandreou...is calling for "decisive and collective action" here and in Europe to crack down on such rampant speculation and unregulated bets.
Many economists say it's a stretch to compare the U.S. economy, by far the world's largest, to Greece and other distressed small economies of southern Europe...But others argue it may only be a matter of time before the U.S. faces a similar, and potentially graver, crisis.
"Someday it will happen if we don't get our act together on spending, our debt under control and our economy to grow faster," said Allen Sinai, chief global economist for New York-based Decision Economics Inc., which provides financial advice to corporations and governments.
With signs pointing to a weaker recovery than after other post-World War II recessions, U.S. consumer spending is likely to remain unimpressive and the jobless rate high for some time. Sinai said that suggests there won't be enough growth to push down federal deficits by much.
Greece's national debt now equals more than 100 percent of its gross domestic product...Nearly all of Greek's debt is held by foreign governments and investors. In the United States, roughly half is owned by global investors, with China holding the largest stake.
By contrast, Japan's debt is proportionately even bigger — about twice its GDP — but the impact is cushioned by the fact that most is held by Japanese households.
"The more open you are to the rest of the world, the more likely you're going to have a problem if you start running large deficits and large debt loads," said Mark Zandi, founder of Moody's Economy.com, "global investors at some point are going to start demanding a higher interest rate. And that's our moment of truth. If we don't address it by cutting spending and raising taxes, some combination of the two, then we're going to have a problem."
Polls show growing public anger over deficits and government spending. The issue is a potent one for the upcoming midterm elections, and a particular liability for majority-party Democrats.
