The Greek debt crisis is heating up, and now the International Monetary Fund will be stepping in to bail out Greece's creditors; nonetheless, there is pessimism among many observers who believe the country could default on its debt.This situation will adversely affect the United States economy -- particularly in terms of lost exports and costs of the bailout, since we fund the IMF -- but we could also benefit if people continue to see the dollar and Treasury bonds as a safe haven in times of international financial stress. However, this from Kenneth Rogoff seems a bit much:
"If the United States thinks this can't happen here, think again," he said. "When the investment community loses faith in you, it can happen so fast."
Now, Rogoff -- bangin' book alert -- knows more than I do about this issue. But I'll quibble anyway. I don't know that I'd argue a debt crisis can't happen in the United States -- I could conceive of a number of scenarios with that conclusion. But I would argue that one won't happen.
Simply, Greece's public debt is 125 percent of its gross domestic product. Today, U.S. public debt is 53 percent of GDP -- high, but not out of our control. It could be as large as 90 percent of GDP by 2020 if we do nothing. No one suggests we'll do nothing; even if this week's deficit commission was met with a combination of jeers and heckling from all sides, there's a consensus that tax reform and budget reform are on the docket in the next few years. All that is without getting into the intangibles -- U.S. reserves are in our own currency, the country's broader international influence, etc. -- that make the United States' economic situation much different from Greece's unfortunate predicament.
The right stance is to acknowledge the challenge of long-term debt and come up with smart plans to solve it while meeting our national priorities. Scare tactics, however, are out of place in this debate.
-- Tim Fernholz
