Why the U.S. Isn’t the Next Greece — Yet
By PETER COHAN
Are there similarities between Greece’s financial situation and that of the U.S.? Both countries have high debt levels and big budget deficits, and both are facing pressure to reduce their red ink. And in both Greece and the U.S., political factions are seeking to grab the spotlight by playing up anger at these economic problems.
Let’s look at why some people are worried America could be the next Greece. Greece’s budget deficit is 13.6% of its GDP, while the comparable figure for the U.S. is 9.3% (a $1.4 trillion deficit divided by the $15.1 trillion 2010 U.S. GDP forecast). According to The New York Times, Greece’s national debt now equals 115% of its GDP. The U.S. debt figure is forecast to hit 140% (although it’s currently at a mere 85% — dividing the $12.9 trillion national debt by the 2010 GDP).
Both countries are in need of serious budget cutting. In Greece, the recent rioting in the streets was driven in part by popular displeasure over a measure the Greek parliament passed to bring its deficit down from 13.6% to 3% of GDP. As I wrote on May 2, the U.S. needs to start a similar budget-cutting exercise, though less drastic and hopefully without the same consequences. To accomplish that, the U.S. would either have to induce much faster growth in its GDP, raise taxes or cut spending by hundreds of billions of dollars.
The Big Difference: A Justified Perception of Safety