Greece and the United States

It is my last day in London and then I am back to the sunny shores of San Diego. It has been a marvelous trip and I must say that my son now has the same love for London that I do. One day I look forward to bringing him back here to share in a few pints at my favorite pubs but for now I am just enjoying showing him all the magnificent historical sites that London has to offer.


It is looking as though another historical cultural country Greece is under severe pressure. The problem for the Greeks is that they really have no way out other than to cut their spending to the bone and hope that the rest of the Euro zone allows them the time to implement the necessary austerity. Without the ability to let their currency debase the only remaining option is to cut spending in order to repay their debts.

Today Moody’s issued a warning to the United States that unless they can raise their debt ceiling before the August deadline that they would cut the coveted AAA rating for the country. This seems ironic to me. If the United States votes to increase the amount that they can owe to their creditors then they will retain their rating while the Greeks have no ability to borrow more and are forced to start to repay their debts. In the interim the Greeks have had their rating cut to junk while the United States continues their day in the sun.

In the long run the Greeks will be far better off than their American counterparts but for now they are feeling the pain well in advance of the United States. A look at the nations’ debt to GDP levels shows that the Greeks are in worse shape than the United States as they owe 144% of their GDP while the US owes around 100%. So we are in effect better off, but not by much. Consider that the United Kingdom at 75% debt to GDP is already implementing austerity measures and you can see why I am amused that Moody’s would cut the rating if we do not increase the debt level. How much more debt do we have to issue to keep our rating? Should we go to 200% of debt to GDP and would that give us a AAAA rating? Obviously this is all tongue in cheek but it does make a point.

Not that there really is much choice at this stage. If the government does not come to a compromise before the deadline and the debt ceiling cannot be raised then certainly there will be mass panic around the globe. The United States has convinced the world that more money printing is needed so while the rest of the world sorts their debt problems out the United States continues to be the lender of last resort to the world. Once the Europeans have sorted their debt problems out the world will turn its attention to the United States. This is not a good situation and one that no country in the history of global economics has worked through successfully without pain.

So while the powers that be fight back and forth in political posturing it is certain that a compromise will be met prior to the deadline. The question is why are we not looking at repairing the problems rather than pushing the inevitable down the road for a little while longer? The answer is that with a presidency at stake politicians will play the game as long as it does not endanger their own ambitions. The result will be a lot of pain to the people that they represent. My only hope is that somehow we can find a leader that will lead us out of it but for now there seem to be none worthy of the task.

Certainly in this environment there is no incentive to remain in the market. Take your final profits off the table and wait out the storm. It will require patience and resolve but in the words of Winston Churchill, “We will never surrender.” With your cash look to www.fixedratedeposits.com for an excellent rate of return on your hard fought cash deposits.