Avoiding a Greek Tragedy at Home
Greece is a mess.
Athens is coming closer to running out of cash by the day, and a default is looming on the horizon.
Other EU countries appear to be trying to help Greece, but no one really wants to get their hands dirty.
Greece’s spiraling downfall should be a wake-up call for other countries facing a debt crisis, starting with the United States.
Like most institutional failures, it took time and many mistakes for Greece to get to where it is today. I wrote an article for TheStreet.com back in 2012 exposing the Greek plan to refuse to pay off debt and how it would work, and now we’re seeing that tragedy play before our eyes. Their plan was to continue spending. They were betting that their European partners would not hold them to their commitments, as that would force them to leave the EU.
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Fast-forward three years, and Greece’s exit from the EU is looking more and more likely.
Although crunch talks are under way between Greece and its creditors, investors are skeptical that any type of agreement can be reached and believe that the country may have to default. Their debt is at about 180 percent of the gross domestic product, and is completely unsustainable in the long term.
While Greece’s creditors want the country to apply for an extension, Greece wants a “bridge agreement” instead. The “troika” that they owe money to (consisting on the ECB, European Commission, and International Monetary Fund) keep bailing them out, allowing them to borrow far past the original February 28 deadline.
Bailing out Greece seems absurd for the troika to be doing, and we in the United States know all about the failed logic behind bailouts.
We watched our government bail out big banks and major corporations such as General Motors during and after the 2008 crisis.
Other countries such as China and Japan have continuously bailed us out as well, allowing us to continue borrowing and raising our debt ceiling with no idea how and when to stop.
I addressed this on my radio show after Greek Prime Minister Alexis Tsipras took office in January. I also pointed out that America is quickly running down a similar road towards unsustainable debt, expecting to reach a debt level of $22.3 trillion in the next 5 years.
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Comparable to how other countries are reluctant to help Greece, China and Japan are increasingly disinclined to help the United States.
As we continue to raise our infamous debt ceiling, piling debt upon debt, it not only affects us, but it affects them as well. China and Japan will soon be getting away from U.S. debt by diversifying portfolios and seeking safer bonds in other countries.
Without our Asian creditors, we essentially have no one left to borrow from. That nightmare scenario would have a catastrophic impact on both the U.S. and global economy.
The United States needs to get back to basic finance principles. When you spend more than you take in, at some point you will have to pay that back. As a country, we currently owe more than $18 trillion, and that number is going up every day.
It wouldn’t take long for the average American putting credit card debt on other cards to be cut off and no longer issued credit. Somehow, Greece and the US have managed to do just that for years, and have avoided paying any significant amount off so far.
If the United States does not stop its constant borrowing and spending, it won’t be long before we find ourselves in the middle of our own Greek tragedy.
Chris Markowski has carried the titles of author, investment banker, equity analyst, and consumer advocate. He is the personality behind Watchdog on Wall Street and founder of Markowski Investments.
