Watching the return of the Greek crisis, many people in America are wondering, are we next?
Will America face the same financial disaster that the Greek government faces, with a soaring deficit and debt, markets that have lost faith in it and a downward spiral of budget cuts that then further depress the economy?
It might, but let us understand something really important: America stands in a fundamentally different place than does Greece.
Greece has two problems. First, it has a big budget deficit and markets have lost faith that it can ever repay its loans.
Second, it is an unproductive economy and cannot generate enough economic growth over the next few decades. In economics-speak, Greece has a liquidity problem but also a solvency problem.
The United States, by contrast, does not have a solvency problem. The American economy remains one of the world's most competitive, with many of the fastest-growing companies in most of the advanced industries. It houses the best capital markets in the world, the greatest universities and the most dynamic society.
America is demographically vibrant, thanks to immigration. It will be the only rich country that will see its population grow over the next 25 years.
America could face a liquidity problem - that is, it could have difficulty financing its debts and deficits if markets lose faith in it. But, again, let's be clear: This has not happened yet. In fact, right now the world is lending to America more cheaply than ever before.
The most important difference between Greece and America is this: America has many paths to solve its deficit problem. Were it to implement the Simpson-Bowles Deficit Reduction Plan, for example, it would instantly give America among the strongest public finances of any rich country.
http://globalpublicsquare.blogs.cnn.com/2011/07/03/could-america-go-the-way-of-greece/?hpt=hp_t2
