Interestingly enough, the bleak situation in Greece has diverted attention somewhat from the recession and focused it instead on the overall role of debt at the governmental level.
The European Union (EU), sharing a common currency (Euro), in conjunction with other international funding sources like the International Monetary Fund (IMF), will be required to pony up a trillion dollars of what is fundamentally European TARP dollars to save, at least initially, the government of Greece but, in the long run, save the banking backbone of Greece as well as of other European nations.
That is the sound bite.
What is sobering is to reflect on the comparisons between that and what is happening throughout the United States.
The United States is not, at this juncture, as top heavy as the EU in terms of social spending, but it is certainly getting there. In addition, as the percentage of debt to GDP continues to rise in this country, the dialogue appears to be shifting away from the recession and towards the long-term impact that much debt implies.
Over the past two years, massive government dollars were needed to be pumped into the economy in a quasi–New Deal scenario to stabilize the economy and to stabilize domestic banking operations. However, along with that, of course, has come continuous expansion of the deficit as well as of the overall federal debt.
Along the same lines, most (if not all) states (which also share a common currency), face operational deficits and debt of their own. And those numbers at both the federal and state levels, are compounded by the amount of off-balance sheet liabilities associated with entitlements, including unfunded pensions and health care commitments.
The U.S. markets made clear today that the twenty-four hour euphoria investors and traders felt on Monday in applauding the EU bailout is over. It’s not that the bailout wasn’t appreciated, or frankly as necessary as the federal intervention in this country. But the real question and the more serious dialogue shift to the not so easily answered dilemma: “yes, but what happens tomorrow?”
“But will you still love me tomorrow?”
How do we satisfy those debts in the future without severely impacting entitlement programs by EU members that continue to be socially generous?
And concommitantly, how do we address the burden of our federal deficit, debt and unfunded future entitlement liabilities, as well as the state deficits, debts and unfunded future entitlement liabilities, when the math simply doesn’t work?
There is no doubt that very rational totally algorithmic trading last Thursday created a cascading effect on rapidly declining prices on the major national exchanges. However, is it not also possible that the very personalized fears and hubris in this country about our own eroding stability and escalating debt were triggered by the street scenes of rioting Greeks angry about being stripped of their entitlements? Could that be us in 10 years?
The markets appeared to feel like that.
I am not suggesting for a second that our situation is similar to that of Greece or any country in the European Union. But I am suggesting that the conversation has shifted. We are no longer discussing whether there is a pulse in our economy–there appears to be one. We are no longer discussing whether we are now, finally, beginning the process of GDP growth–we are.
But I am suggesting that we are slowly waking up, on this morning after, to the realization that the debt overdose we took last night may have had side effects worse than the malady it was intended to cure.