Comments Off on It’s Greek to Me: Anatomy of a Debt Crisis.

It’s Greek to Me: Anatomy of a Debt Crisis.

To most of us here in South Carolina, the debt crisis in Greece seems like a foreign concept. The thought of an entire country being thrown into financial upheaval based on bond debt and derivative assets seems a stretch. Nevertheless, for those who haven’t paid attention, the financial crisis in Greece comes eerily close to home. The Greek tragedy that’s unfolding before the world is one that can happen, will happen, in our state and nation if spending isn’t curtailed.

The fiscal calamity of one of the world’s oldest civilizations was brought about by decades of monetary mismanagement by the Greek government. For years, Greek leadership refused to make tough decisions necessary to drive-down debt and restore fiscal responsibility. As a result, their national debt to annual national income (GDP) grew to 118%, which is one of the highest national debt levels ever recorded. This, in turn, led weary investors holding the nation’s debt in the form of bonds, to demand higher returns on their investment. In finance the relationship between risk and reward is such that folks will take less for a sure thing, but demand more for something shaky. In the case of Greek bond debt, it wasn’t shaking, but crumbing; therefore, to continue bankrolling Greece’s debt, the bond yield (interest rate) climbed to 7.1%. These sort of high borrowing costs on an enormous debt have the capacity to cripple countries, destroy democracy, and lead free states down the road to serfdom.

When we read these statistics we feel inclined to hold high our chins, and congratulate ourselves on not being Greek. It may be a good time to re-cork the champagne and clasp the hands heading toward our backs. In early 2010, the U.S. national debt to GDP soared to just over 63%, not including long-term obligations. An accounting trick keeps us from looking like Greece on paper, while the markets are telling the truth. Our country’s ability to bankroll public spending via foreign and domestic investors is dwindling. That’s because our national debt to GDP is actually much higher than 63%, once long-term obligations, or promises to pay, on Social Security and other entitlement benefits are considered. In fact, the US national (public) debt as it stands in March, 2010 is over $60 Trillion. This translates, in the form of a debt ratio, to about 428% of GDP. If long term debt liabilities aren’t leveled, we’ll make Greece look like an accounting firm.

Taxes and spending are no longer amoral issues, but of the highest moral consequence. The scripture tells us that “Christ set us free that we might be free indeed.” That assurance means nothing if we ignore the warning of Proverbs “the borrower is slave to the lender.” We can’t pretend that debt can’t destroy…when it comes to ruinous financial policy, it isn’t Greek to me.

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