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US Debt Ceiling, Greek Debt Crisis

US Debt Ceiling, Greek Debt Crisis

$14.3 trillion: That’s the amount of the US debt ceiling. Negotiations about the debt ceiling are, hopefully, in their final stages even though Republican leaders seem unsure about what they “actually want to gain out of the talks themselves, and what they will count as a “victory” in order to get a vote passed,” as Care2 blogger Robin Marty wrote on Friday. There is, she notes, “one very simple way to put the country back on the path to paying off the debt” according to the Congressional Budget Office, ending the Bush era tax cuts — and Republicans are balking because

They still argue that allowing the rich to have more money in their pockets will spur economic growth, despite that fact that we have been in the worst recession in decades every since these cuts were implemented, and every dollar that is provided to lower income people, either by welfare, subsidies or unemployment payments, goes almost immediately back into the economy in the form of groceries, housing and consumer spending.

If Congress doesn’t raise the debt ceiling by August 2, the Fitch rating agency has said it would place the US credit rating on restricted default. This would mean that US treasury securities could be downgraded, albeit temporarily. Regardless, it would be a huge strike against the US’s current “top-notch credit rating” and makes the US a bedfellow with a country whose credit rating has been slipping into junk territory, Greece. On June 13, the Standard & Poor’s agency cut Greece’s rating to “CCC” from “B” while warning that “any attempt to restructure the country’s debt would be considered a default.” Another rating agency, Moody’s, has given Greece’s sovereign debt a Caa1 rating which “implies a 50 percent chance of a default within three to five years.”

Greek Prime Minister George Papandreou must get his Pasok Socialist Party to pass a pass a bill to save or raise about $40 billion by 2015, an amount equivalent to 12 percent of his country’s gross domestic product. This is to be done via cuts in wages and jobs and tax increases, and at a time when Greece has been in a recession for the third year in a row. As the New York Times points out, “spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion” an amount that is “considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit.”

Greece says it will raise a further $72 billion by selling off state assets including the ports of Piraeus and Thessaloniki, the state telecommunications company and the railway system. For what it would feel like to put up similar US state assets, consider proposals in the 1990s of the federal government selling off the Presidio in San Francisco, after it was not longer active military installation. (The Presidio ended up being transferred to the National Park Service in 1994.)

This past week, European Union leaders have been meeting in Brussels to negotiate a second bailout of about $171 billion for Greece, says the BBC. Greece receiving the bailout is contingent on the Greek Parliament or Vouli passing the austerity package. European leaders are calling on “all political parties in Greece to support the programme’s main objectives” and emphasizing “national unity is a prerequisite for success,” comments that are directed at the Greek opposition. Greek opposition leader Antonis Samaras of the New Democracy party has continued to refused to accede to pressure and support the new proposal, says the New York Times. Indeed, “many EU leaders also think Mr Samaras is irresponsible in his criticism of the EU-backed reforms,” as the Economist notes.

Samaras counters that it’s the previously passed austerity measures that are the cause of Greece’s recession and that more such measures will only push the country even more into debt. His own plan to address the Greek debt includes tax cuts to boost economic growth; he has argued that the Greek economy has been “squeezed to the point of collapsing” — that more cuts will mean not only more belt-tightening, but (perhaps with a nod to the “Indignants,” oi Aganaktismeni, the protesters camped out in Syntagma Square for the past four weeks) something far worse. Samaras also notes that “in contrast with the cases of Ireland and Portugal, Greece’s opposition leader noted he had never been consulted about the terms of the package.” Regardless, German chancellor Angela Merkel is said to be directly addressing Samaras when she stated that “it would be better to have the widest support”; as the German newspaper Frankfurter Allgemeine says, Samaras is so far refusing to budge and is “unbeweglich,” “unmovable.”

As another article in the Economist observes,

The political mood in Greece improves almost automatically in July and August as the urban population heads en masse for family villages in the islands or mountains. There are few human woes that cannot be eased a little by exposure to the dreamlike beauty of the Aegean. But this year may yet prove an exception, especially if politicians and protesters alike insist on behaving as if they lived almost anywhere except on planet Earth.

On a planet, that is, where the abstractions of “credit ratings” and “defaulting” on debt are all too real.

 

Related Care2 Coverage

Money Talks, Cantor Walks — Where Are We On The Debt Ceiling Negotiations?

Why Should You Care About What Happens in Greece

Learn What’s Wrong With The U.S Economy In 135 Seconds

 

Photo by Images_of_Money.

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48 comments

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7:57PM PDT on Jun 29, 2011

They will never be able to pay all of that back... not if the rich don't pay their taxes anyways.

2:17PM PDT on Jun 28, 2011

I totally disagree with Robin that we need to end the Bush tax cuts. If you think people have pulled in their wallets now wait until you do something as dumb as giving people higher taxes to pay. The Bush era taxcuts are 10 years old so this would be raising taxes and anyone with any semblance of understanding economics knows what happens in America when taxes go up.....this will put us in a double dip recession for certain because we have such a weak and fragile economy due to the mishandling of this recession by the incompetents in Washington DC. Sorry, folks, but this is the way it works whether we like it or not.

2:13PM PDT on Jun 28, 2011

and we need to do it now.

2:13PM PDT on Jun 28, 2011

It's a sad day for Greece and soon Portugal and Spain. I'm not convinced that the US is in the same category not by a long shot. We already know what we need to do to turn the economy around and that is to now, finally, give our small businesses a hand up with payroll tax cuts and other incentives to let them restore confidence in their future. This will unfreeze everything because our small businesses employ the majority of Americans. President Obama has had a strangle hold on them since he first took office and look at the mess we are in today. Once the leash has been removed from the small businesses everything will fall into place and large corporations and small will begin hiring again. When an administration delivers uncertainty to Americans they pull in the wallet and sit on it. It has always been this way. Our debt ceiling needs to stay right where it is simply because we have no money to pay for what can be considered a third mortgage and republicans understand that. The liberal congress spent their wad in Obama's first year and boxed themselves into a corner. They have to be the dumbest people yet to not think beyond their noses throwing money at bandaid remedies when facing a recession.

We aren't like other countries but we are starting to lean that way. We need a budget from the democrats and we need a hard look at cutting spending across the board where everyone feels the pinch. That's the only fair way to cut our spending and we nee

2:01PM PDT on Jun 28, 2011

Austerity is more likely to tank the economy even further than to do any good. We need higher taxes on the rich. And we need to bribe at least one oil company with fat juicy contract to actually make bio-diesel from algae to refill our strategic reserves. And we need more wind and solar. And we need more improvements in energy efficiency.

12:04PM PDT on Jun 27, 2011

Talk about being between a rock and a hard place. Of course it's not good to raise the debt ceiling, we don't want even more debt. BUT...... to not do so is to live like I'm living at the moment and I'm not sure if America is capable of doing that. I consider myself relatively lucky, I am maintaining the roof over my head and a survival amount of food on the table while my neighbors houses are up for sale "bank owned". And that is truly it. God help me if the boiler breaks or the well-pump gives out. I already can't afford to have my car serviced or buy new tires let alone buy gas to go anywhere other than the supermarket. Can the average American live like that? This way of life is the equivalent of having the Golden Gate or Verrazano Bridge fall down and not being able to fix/rebuild it. Unimaginable, isn't it? But that is how it will go if we don't raise the debt ceiling. But then we are on the brink anyway and I think it's more a choice of should watch it start to crumble on August 2nd this year or wait 'till next year. I am really scared.

8:46AM PDT on Jun 27, 2011

Greek jobs are being outsourced. I was in Athens last November and happened to be at the port of Pireaus. There were mass demonstrations against Cosco, the company that has purchased the dockyard and port infrastructure. You can bet that Cosco will be importing cheap Chinese labour on those dockyards to increase profit margins and hand out fatter bonuses to the big boys, at the expense of already struggling dock workers.

For the people who think it sad to be compared to Greece, don't fret, your country's turn will come. Thanks to Goldman Sachs and other oligarchs, each country in the EU will lose its sovereignty, its nationalism, its assets and its soul. Once the Bilderbergers have accomplished this task, they will move on to your countries and do the same so that the poor will come poorer and the majority of the world's wealth will be in their hands.

Don't snigger yet!

7:51AM PDT on Jun 27, 2011

what is going on in Greese and no one seems to notice it is the banks lent money to them knowing they could not pay it back like the housing industry here several years ago and now they are wanting to force a fire sale of the countries prize possesions and still make them go bust. they would be better off to keep what they have and let the banks eay the bad money. After all Buisness has Billions they are refusing to invest in jobs. and the same goes for her in the US let the banks and forign countries eat the losses. we walk away with less debt and who cares. cant get any worse except for the ritch.

5:58AM PDT on Jun 27, 2011

I am sure that Greek jobs are being out-sourced as well. Cutting spending on so called entitlements is near worthless for addressing the deficit. Those that advocate this, also advocate that the wealthy and fictional entity corporations not pay taxes. The only justification is the creation of jobs. But where?

Corporations have over-powered all industrialized governments which now believe that out-sourcing and off-shoring is inevitable and necessary with expectations that the middle class in each country should just fall on their swords.

The underlying cause of the financial collapse, is from out-sourcing and off-shoring of jobs and borders on national security with the loss of the middle class tax base. And yet, every nation does nothing, not even protest against out-sourcing and off-shoring and demand it be restricted by whatever method.

International businesses are doing the un-American activity of destroying U.S. salaries, U.S. businesses that hire within this country, and destroying the U.S. marketplace as an end result.

Infrastructure spending and tax breaks will not create enough jobs to keep up with out-sourcing and off-shoring.

Cutting programs that support the lower and middle class will further strain the non-wealthy classes who will not even receive the benefit of lower prices as a result.

Neither party will do anything about it and unless we begin grass roots efforts to protest out-sourcing and off-shoring of U.S. jobs we will deserve wha

3:41AM PDT on Jun 27, 2011

Need large deficit tax on the rich.

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