Are we headed economically in the same direction as our friends in Greece?
Back in the seventh grade, I remember my sudden appreciation for “the world out there” when in World History class we learned about the ancient civilizations of Greece and Italy. It was at that point in my life where the seeds of travel to these ancient ports were planted. I’ve been lucky to have had the unique opportunity to visit most of the places where the great civilizations arose – except for Greece. I still want to visit, but Greece may be coming here rather than me going to Greece.
According to the International Monetary Fund (IMF), in recent weeks, the exuberance of the financial analysts has touted a recovery that may reach 4.2 percent in global output growth for 2010, which represents a full percentage point higher than the predictions from mid-2009. So, that’s the good news. The bad news is that certain economies – such as Greece – are in dire straits. Because they have mismanaged their budgets, artificially held taxes too low, allowed expenditures to grow in unsustained ways, and basically ignored prudent fiscal measures, the Greek economy is in tatters. The debt-to-GDP ratio has gotten out of control and is currently 113 percent of the total GDP for the country, a figure that is expected to become 138 percent in 2012. In fact, as I’ve reported previously, most economists agree that when the debt-to-GDP ratio moves past 90 percent, nations get into deep financial quagmires. Greece is leading the pack at the moment with Spain, Portugal, Italy, and Ireland not far behind.
As an attempt at solving the problem, the Greek government finally acquiesced to an urgent plea from their neighbors in the European Union and colleagues in the IMF for a needed bailout – and, the requisite rules for getting the funds. This week, the IMF announced that it would help Greece in a rescue package expected to cost about $61 billion, a move many hope will create more confidence in world markets. But, that sense of assurance was short lived when, on Tuesday, the financial analysis firm, Standards & Poor, downgraded the Greek debt rating to BB+ – an equivalent to junk status – amid fears the government might default on its loans. With the country required to offer borrowers interest rates close to 23 percent on two-year bonds, Greece is scrambling to not only to find the money but also the borrowers needed to keep the nation afloat financially. As a comparison to the astronomically high Greek interest rate, the United States’ two-year yield on Wednesday was only 1.03 percent. Meanwhile, as news spread of the downgrade, stocks precipitously declined across the world.
So, why is this relevant to the U.S.? And, what does it have to do with healthcare? Well, the U.S. holds one of the fastest growing debt-to-GDP ratios of nations in the world. Last year, we were at 83.4 percent, and now we are headed to 94.3 percent by the end of the current fiscal year, according to the White House’s Office of Management and Budget. Note that this exceeds the 90 percent level I mentioned above. At its highest level since 1952, the more ominous trend is that the United States will reach past 100 percent by 2012 – a level not seen since immediately after World War II. At that level, debt service will eat up about 20 percent of the entire federal budget, which means we will need to consider drastic cuts in programs, such as funding for education, the environment, healthcare, military expenditures, and potentially even our treasured social security benefits, to make ends meet.
Unfettered American economic growth is not on the horizon because of competition from our global partners like China where the GDP is growing at 8.7 percent in 2009 or India, at 7.2 percent. Though some economists have expressed concern about the ability of the developing economies to sustain their sharp economic growth – even going so far as to equate their economic rise to an unsustainable bubble – most would agree that the developing world is competing, and we are no longer the only economic game in town. As a result, economic prowess may not be able to power us out of this problem, as it did in the wake of World War II when the American economy powered ahead as most of Europe and the rest of the world recovered from the ravages of the war.
To that end, President Obama last week hosted the first meeting of the new National Commission on Fiscal Responsibility, a bipartisan group tasked with identifying deficit cutting proposals. The disconcerting part is that even supporters of the Commission – both Democrats and Republicans – are not very optimistic about the potential for passing solutions to the growing crisis. It is a crisis that was there, under the covers so to speak, until the Great Recession of 2009. Now, we are headed on a road to Greece. While I want to visit Greece – I don’t want to be Greece.
We have an aging population that is increasingly drawing upon the reserves of society. Social Security now has fewer workers supporting its funding base than at any time in history. We have growing costs of Medicare and Medicaid – in fact, the fastest growth of the federal budget! We still must address the way we pay for healthcare services in this country. Now is the time to step forward otherwise Greece will come to us before we all have a chance to go to Greece.