Around 2011, Greece was really hurting financially, and they’re still a long way from out of the woods. Understanding Greece’s economic situation gives us some insight into how the United States is subject to similar financial problems.
What’s the Deal with Greece?
The problem with Greece, as you probably know, is simple: they have a high debt to GDP ratio. They have a major problem with their deficit, have very few assets, and have massive liabilities. When you look at their debt and compare it to how much they make, they just don’t have the economic engine to pay their bills.
Another issue Greece is facing is their unfunded liabilities. Unfunded liabilities are money that you owe because you have promised it. Liabilities are money you owe because you have already borrowed it. Greece has huge issues with both liabilities and unfunded liabilities, due to both the large sums they have borrowed and other monies they have promised to pay.
Greece and the United States: How do their economies compare?
The lesson we need to learn from Greece is larger than the simple idea that Greece’s financial woes could cause contagion and hurt the Euro. The bigger lesson in all of this is that Greece’s problems are a type and a shadow of things to come for the United States.
If we look at a debt clock to project the economic future of the United States, we see that we are going to be in worse shape than Greece someday.
Let’s try plugging in some numbers. We’ll start with a gross domestic product of $17 trillion. Of that, the federal tax revenue is $3.1 trillion. That number doesn’t even account for taxes and fees. The debt clock shows that the expense column is climbing by leaps and bounds. When the income is $3.1 trillion, the expenses are $3.6 trillion. That gives us a deficit of about 500 billion dollars.
A Failed Attempt at Slowing Spending
A few years ago, an attempt was made to aggressively raise taxes in hopes of slowing spending. The policy was called the Fiscal Cliff Deal, and it was designed to shrink the federal deficit. The policy worked for a time: the deficit shrunk from $1.2 trillion to roughly $500 billion. It looked as though our financial situation was improving drastically, but time is showing that the progress cannot be maintained. The deficit is beginning to climb again.
The national debt is rising by $10,000 by every half second, according to the debt clock. These numbers are astronomical! Before we know it, the national deficit will climb back up to a trillion dollars.
We already know the Fiscal Cliff Deal is not going to provide a lasting positive impact on the deficit. Beyond spending problems, we have massive issues with unfunded liabilities. We have $96 trillion in unfunded liabilities, and the accrued federal deficit is at $5 trillion. Needless to say, the debt to GDP ratio has huge problems. Instead of reducing the deficit, we are now increasing the deficit. This systemic risk necessitates new rounds of legislation.
Am I Being a Downer?
The debt clock shows how the United States is not so different from Greece after all. The biggest lesson we can learn from the economic downturn in Greece is that their issues are a type and shadow for what we are experiencing in our own country.
People often accuse me of being a downer on the economy because I’m long-term bearish. My approach takes into the account the massive deficit numbers in this country. The fact of the matter is that our GDP cannot generate the income to handle our deficit. It is simply not going to happen. Politicians are not making decisions to handle it, and people aren’t getting the education to know how to invest wisely.
I choose to protect myself financially so that my investments won’t be exposed to massive systemic risk. I’ve found that the key to protecting my money is basing financial decision on education and understanding the realities of the United States’ economy.
People often look at Greece’s financial problems as a catastrophe that could impact the world’s economy – but the lesson is even bigger than that. The United States has the same economic problems as Greece. Greece is hitting their wall now, and it’s only a matter of time until we hit it, too.
It’s not the best news, I guess, but I’m not interested in telling you what’s pleasant. I’m interested in showing you what storm clouds I see out there. This deficit growth is going to get faster. It’ not hard to see the future. Are we going to be prepared for it?