Debt Crises — Greece Versus The United States

There are 3 main differences between Greece and the United States regarding debt crises—

1. The United States is a very large, autonomous economy. Greece is a bit player in the Eurozone.
2. The U.S. dollar is the world's reserve currency whereas the Euro, which the Greeks must use, is not.
3. The United States has a dollar printing machine. The Greeks do not have a Euro printing machine.

Hence the United States has control of its currency, whereas Greece does not. And yet, both countries are dependent on the kindness of others to fund their out-of-control debt. I first covered this subject in Washington, You Have Been Warned. Reading that post will help you understand what's being discussed here.

I'd like you to watch two videos. Last week CNBC hosted a debate between U.T. Austin economist James Galbraith and Peter Schiff of Euro Pacific Capital. The question on the table was are fears about the debt crisis (in the U.S.) overblown? Galbraith thinks our growing debt is not a concern. Schiff believes we're facing a Greek-style crisis at some point in the not-too-distant future.  In the second video, Tech Ticker's Henry Blodget and Aaron Task interview Galbraith about his debate with Schiff.

Here are the videos. Listen carefully—

I think Peter Schiff is overrated and shrill, he's an ideologue. I'm no fan of his. But its James Galbraith's view of the debt which makes me nervous. Here's Galbraith's argument in a nutshell—

• We're the Empire. We can do anything we want and no one can do a damn thing about it.

The arrogance! The naivete! For example, bend your mind around this Galbraith quote in the 2nd video—

... the short term interest rate is set by the Federal Reserves, for better or for worse, it will not explode for some arbitrary reason... so when the government of the United States wishes to spend, it simply writes checks. It may do so in a misguided manner, but it doesn't have a problem getting people to accept its "coin." ... [our creditors] have no other place to invest. They may evince unhappiness from time to time, but let's face it, they're stuck...

Pride goest before the Fall. All empires abuse their power, but the current scale of that abuse is unprecedented and dangerous. I described our growing, out-of-control debt recently in Ten Trillion And Counting.

So what about the United States versus Greece? No, America will not have a Greek-style fiscal crisis because of the reasons I listed at the outset. We will have a different kind of fiscal crisis. How it will manifest itself can not be known precisely at this time.

The other countries on Earth are not eternally in thrall to the current World Order. To say, as Galbraith does, that we can write checks for 20 years at current interest rates, and all the others—the Asians, the Arabs, the Russians, the Europeans—have to go along with whatever we do, demonstrates just how of touch with reality mainstream economic thinking has become.

Let's make this last point absolutely clear. Who has almost all of the remaining oil?

Comments

[The Finance Firm]

Maybe we should take comfort from the fact that the oil exploration and air traffic control industries don't seem to be too good at asking the big "and what if?" questions either.

I fear that the professionalisation of risk management in all industries has delegated responsibility for and knowledge of it away from experienced senior managers who should be able to take a global view of the possibility and impact of events and given it to specialists who focus narrowly on the statistical likelihood and weighting of events that they can easily measure.
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MARCIE

[smartbrains]

I think a great but Brian Riedl, lead budget analyst at The Heritage Foundation, agrees that unless the federal government radically curtails spending, a debt crisis as severe as or worse than that now happening in Greece will erupt in the United States in as soon as seven to 10 years.“We can say that we will be at about the Greek level of debt probably in the next seven to 10 years,” Riedl told CNSNews.com. “There is no reason that with the same economic policies at the same level of debt, that the United States won’t face the same economic and financial crisis as Greece.
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[richard]

Maybe we should take comfort from the fact that the oil exploration and air traffic control industries don't seem to be too good.I fear that the professionalisation of risk management in all industries has delegated responsibility for and knowledge of it away from experienced senior managers,agrees that unless the federal government radically curtails spending, a debt crisis as severe as or worse than that now happening in Greece will erupt in the United States in as soon as seven to 10 years.“We can say that we will be at about the Greek level of debt probably in the next seven to 10 years.
............
RICHARD

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