Why Not Here?

Will the US become a Greek Tragedy?

After all, both countries have significant fiscal deficits, are just recovering from severe recessions, and have large foreign bondholders. Moreover, until recently, both have been in denial about the severity of their deficits.

The fear is that exploding debt funded by foreign investors will make us dependent upon them for our economic growth. If the Chinese threaten to sell our bonds, they might force us into a fiscal austerity program—perhaps funded by lower defense spending—akin to the one that the IMF might impose on Greece.

Such speculation ignores important differences. The US debt level isn’t as high as many people fear. Much of our “debt” is held internally by Social Security. Also, until recently deficits have actually been falling. For the past 30 years, real economic growth has averaged 3%. Deficits have averaged 2.5%. So the debt, as a percentage of the economy, has been getting smaller.

Also, the government is a much smaller part of the economy here than most people realize. Government spending makes up about 28% of GDP. By contrast, the Greek public sector is 40% of their economy. So it’s harder to cut spending there without pushing Greece into another recession. Finally, tax-avoidance and black-market activity aren’t national sports over here like they are in Greece. Corruption takes a massive toll on the economy.

Speculation that the Greek crisis will jump the Atlantic to the US is silly. The US isn’t Greece. Anyone claiming otherwise is either ignorant or unreliable.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-05T17:51:25+00:00February 23rd, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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