Must-Read: Paul Krugman: Eternal Greece: “Matt O’Brien directs us to a Heritage Foundation economist [Romina Boccia] presenting what is portrayed as a startling idea…
…America could become Greece!… There probably haven’t been more than a few thousand articles issuing the same warning in the five (5) years since Alan Greenspan published ‘US Debt and the Greek Analogy‘, with this immortal complaint:
“Despite the surge in federal debt to the public during the past 18 months — to $8.6 trillion from $5.5 trillion — inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.”
But Matt misses the truly wonderful part about the latest from Heritage…. You might think that debt worriers would try to put the whole 90-percent debacle behind them…. [As] I’ve noted in other contexts that the right never gives up an argument…. They add new arguments, but the old ones never go away no matter how ludicrously wrong they’ve proved.
The situation is actually worse than Paul says…
The deficit hawks never give the natural answer — that the bond market will tell us when it is time to worry about the debt. In my inbox, from CQ:
Where Is the Tipping Point for U.S. Debt?: “Depending on who is speaking, the United States will either become the next Greece…
…or for years to come remain the unchallenged, undisputed financial champion. But even nonpartisan experts can’t say for sure. That raises the questions: Where is the panic point for the U.S. government on debt and deficits? And would there be enough warning to alter course before reaching the fiscal abyss?
Bob Sunshine, deputy director of the nonpartisan Congressional Budget Office, says the United States “is not Greece.” That’s promising, right? Not so fast. He followed that up with this qualifier Monday during a Center for a Responsible Federal Budget-sponsored event: “Yet.” Given his organization’s projected levels of federal government spending and revenue, and the resulting debt and deficits, Sunshine says “over time, there is an increased risk of a fiscal crisis.” CBO projects federal deficits to remain around 3 percent of the gross domestic product for the next few years, then rise starting at the end of this decade. Deficits refer to the difference between the amount the government spends and the amount it takes in; debt refers to the money borrowed by the government to pay its bills when running a deficit.
What’s more, the organization estimates government spending growth will outpace revenue growth between today and 2030, which “pushes debt up a lot.” How much is a lot? CBO projects the U.S. by 2030 could have debt levels comparable to those right after World War II. After the war, U.S. debt levels peaked at just over 100 percent of GDP. Before that, there was only other one time in U.S. history when levels were as high as the office’s estimates: the late 1700s. Come 2040, under current laws and policies, the office estimates America’s debt will hit 107 percent of GDP. (The current debt level is around 70 percent of gross domestic product.) Major health care programs and Social Security are major factors in spending growth, CBO says.
Experts say a big driver of the Greek meltdown was global financial markets losing confidence in the government’s ability to service its debts. “We still aren’t being pressed by markets,” Maya MacGuineas, CRFB president, said of the U.S. “But Greece does show what happens when you don’t get out in front of markets.” But at what level of debt would markets get jittery enough to trigger an American crisis? “No one knows,” Sunshine said. “There’s no clear tipping point for any country.
“Members of Congress ask us, ‘At what point should we be concerned?’” Sunshine said. “And our answer is, ‘We don’t know.’” Asked if the United States might be safe from a Greece-like crisis — no matter how high its debt level climbs — Sunshine replied: “We haven’t found any basis for saying yes or no to that.” The CBO deputy director noted it might be acceptable for the country’s debt to remain steady around 70 percent of GDP. But what happens if an emergency like the 2008 financial slowdown drives it above 100 percent for years? MacGuineas offered a colorful, if jolting, answer, comparing that scenario to this question: How does it feel when a dog’s invisible fence collar shocks a human? “Nobody knows,” she quipped, “but we don’t want to find out.”