EDITOR’S NOTE: Contributing columnist, Steve Nicklas, expresses his views and insight on various topics in Marketplace column.
__STEVE’S MARKETPLACE__
When the United States looks into the mirror, it can see a reflection of Greece.
The tiny European nation has agitated the global markets for several months, and even years for that matter. Its faulty financial condition, complicated by outlandish spending within an overpowering public sector, should be a lesson for any nation in the world. Big, or small.
The U.S. is currently on a similar trajectory. Now, this is not to say that the U.S. is near Greece in realistic terms of indebtedness and economic might. The two countries are far apart.
However, the pace of indebtedness engulfing the U.S. is alarming. Maybe we should hear it as a warning shot.
The current U.S. debt exceeds $18 trillion. This amount is about twice what it was 10 years ago.
The U.S. borrows funds by selling treasuries. Of the $18 trillion debt, nearly $3 trillion in treasuries is held by the Federal Reserve within its bond-buying program (intended to suppress interest rates and spur on the economy). Another sizable portion is owned by government agencies.
Therefore, about half of the debt is from the U.S. government essentially borrowing from itself. However, this $18 trillion figure does not include money borrowed from the Social Security trust fund or owed to Medicare, for instance. This compounds the issue.
In the U.S., our mounting debt now equals our Gross Domestic Product, the sum of all the goods and services produced each year (which is about $18 trillion). This means our debt-to-GDP ratio is 100 percent.
In comparison, Japan’s ratio is more than 220 percent – making our debt appear trivial. That is hardly the case.
The U.S. economy is four times larger than Japan’s and represents about one-third of the global economy. This explains how the U.S. has the largest debt burden in the world.
By the way, Greece’s debt-to-GDP ratio is 170 percent. But Greece has suffocating pension commitments tied to workers retiring at age 45 from a bloated government that controls too much of the country.
And one-fourth of all Greek commerce happens underground, out of the view of the tax collector. This may be a result of the Greek government notoriously hampering private businesses.
To complicate matters, Greek taxpayers are not a forthcoming lot. They customarily balk at paying taxes like a confused pitcher in a baseball game. Meanwhile, government officials cook the financial books with the skill of a French chef.
Steve NicklasSome of the tax-paying resentment comes from the populace that does not trust its own government. In essence, they feel their taxes will go toward waste or fraudulent activities.
And if Greeks do not trust their own government, why should taxpayers or leaders from the other European nations who must again bail them out? This is a question that top officials from Germany and France are pondering right now.
It is another reason that Greece is in the dim limelight at this very moment. A spotlight that the U.S. must act now to avoid later.
