Thursday, May 13, 2010

Greeks Got Cheap Money and Went Hog Wild

Planet Money has a great, easy to understand story on what happened in Greece.
Essentially, Greece borrowed money by selling bonds, which led to an influx of money to Greece, which caused cheap credit, which then caused the government and its people to go hog wild in spending. Sound familiar?
The average Greek citizen has been borrowing from the rest of the world for decades.
Greece has 120% debt to GDP (the value of all of a country's goods and services). The U.S. could have a 100% debt to GDP by 2014.
Listen to the Planet Money story here.
I'm hoping Americans are saving their money, making wise investments and feeling less entitled to a house and other material goodies, because in the coming years, once jobs have returned, as Obama keeps warning (he did in Buffalo today), serious reforms are going to have to be made in the U.S. and it's going to hurt.
The main issue for the U.S. is long-term deficit, which can't be fixed by spending cuts alone:
Here in the United States, we’re likely to have the chance to solve our problems before our lenders demand it. Those lenders continue see the American economy as a safe haven, thanks to our history of strong economic growth and political flexibility.

It is even possible that future growth will make the current deficit projections look too pessimistic. That sometimes happens when the economy is weak. In the wake of the early 1990s recession, for example, almost no one imagined that the budget would show a surplus by the end of the decade.

But the main issue isn’t the near-term deficit — the one created by the recession, the wars in Iraq and Afghanistan, the Bush tax cuts and the Obama stimulus. The main issue is the long-term deficit. NYT
Some of the possible fixes:
A plan that included a little bit of everything, and then some: say, raising the retirement age; reducing the huge deductions for mortgage interest and health insurance; closing corporate tax loopholes; cutting pensions of some public workers, as Republican governors favor; scrapping wasteful military and space projects; doing more to hold down Medicare spending growth.

Much of this may be unpleasant. Read more at NYT