When Greece joined the European community in 1981, the nascent democracy’s prospects looked promising: it was stabilizing after a seven-year military junta and had a debt-to-GDP ratio of 28 percent with low deficits.
In the same year, Greece elected the free-spending, populist Panhellenic Socialist Movement to power; they used this mandate to establish a system of lavish state welfare programs. Debt soared as productivity declined and taxes went unpaid — by 2007, debt reached 103.1 percent of GDP. When the 2008 financial crisis came, Greece collapsed into crippling recession and almost brought the global economy down with it. Even after implementing austerity measures, Greek debt today is 179 percent of GDP and GDP is just 55 percent of what it was in 2008.
Greece should serve as a sobering lesson for the United States. Social Security owns 30 percent of the federal debt and could become insolvent in 17 years barring reform. When it does, it will redeem the Treasury bonds it owns in bulk to pay for expenditures. These bonds get paid before national debt held by the public; as such, a Social Security conversion of its special bonds to cash large enough to threaten payments on regular U.S. Treasury Bonds would cause a crisis of confidence in U.S. Treasury bonds. A crisis of confidence in Greek bonds is what caused the Greek debt crisis; the United States could be heading towards a financial crisis.
This is within the realm of possibility. American debt-to-GDP levels are higher than Greece’s were in 2007 interest alone on America’s $20.4 trillion debt is $458 billion a year and rising, straining the central government’s ability to make payments on debt. Although the United States possesses a much friendlier central bank than Eurozone-member Greece did, Federal Reserve balance sheets remain high as interest rates and inflation remain low; it may be difficult for a central bank to save the American economy the way it did in 2008.
If this American sovereign debt crisis occurred, it would be devastating. As demonstrated by 2008 and the Great Depression, American economic crises rapidly become global crises. The dollar is the world’s reserve currency, American treasury bonds are still seen as the world’s safest investment and America is a crucial pillar of multi-lateral trade organizations like the World Trade Organization. An American sovereign debt crisis would decimate the global economy in a way Greece never could.
With the stakes this high, our democracy needs to eventually have a genuine conversation on how we will confront this debt challenge. From one side of the problem, Democrats and Republicans alike support strengthened revenue-enhancing infrastructure. Combined with deregulation, a tax structure that repatriates corporate profits, and an increase in income taxes, we can potentially turn the deficit into a surplus and encourage economic growth. From another side, a crackdown on wasteful bureaucracies combined with across-the-board cuts in discretionary spending and a restructuring of entitlements like Social Security could substantially reduce the government’s $4.1 trillion annual budget. Any combination of these policies or others unmentioned would be a massive step towards budget stability for the United States. As participants in a democracy of, by and for the people, we all must begin to think about how we will respond to the building debt crisis.
We cannot look to our leaders to begin this conversation. As Republicans are busy trying to pass a Trump tax cut estimated to add $2.2 trillion to the debt over the next ten years, Democrats are vying to establish debt-free college and single-payer healthcare. The political establishment, in attempting to add more to the country’s debt, has not yet made the realities of this crisis a top priority. As a people, we must therefore begin the dialogue and demonstrate our collective will to tackle one of the toughest issues of our time. If we generate the momentum, our elected officials will take note.