Beware of Greeks pointing the way toward our own future

Michael Tanner of the Cato Institute explains for National Review Online readers why Americans need to pay attention to the Greeks’ current fiscal predicament.

Last week, Keith Hall, director of the Congressional Budget Office, told Congress that the United States could be facing a Greek-style debt crisis down the road.

“Unfortunately,” Hall testified, “there is no way to predict confidently whether or when such a fiscal crisis might occur in the United States. . . . But all else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.”

That’s not exactly a ringing vote of confidence.

Obviously there are big differences between the U.S. and Greece. Our economy is far bigger and more diverse. Most of our debt is held by Americans and American institutions, while Greek debt is mostly held by foreigners (although an alarming 34 percent of U.S. debt is foreign-held, including 7 percent each by China and Japan). And, most important, we control our own currency and monetary policy, unlike the Greeks, who are in thrall to the European Central Bank. If nothing else, we always have the option of devaluing our currency, an option the Greeks lack as long as they remain in the eurozone.

That said, we have far too much in common with the Greeks for comfort.

Our national debt currently approaches $18.2 trillion, roughly 101 percent of our GDP — that is, more than the value of all goods and services produced in this country over the course of a year. It’s as if your credit-card bills exceeded your entire paycheck. And Hall predicts that our debt will rise significantly in coming decades. Our situation is not quite as bad as that of Greece, of course, whose debt exceeds 177 percent of its GDP. But it is worse than those of France and Spain. What’s more, if one includes future unfunded liabilities for Social Security and Medicare, our real debt exceeds $90 trillion. That’s more than five times our GDP. Greece is in still worse shape — its unfunded liabilities top 875 percent of GDP — but at some point degrees of disaster become pretty much irrelevant.