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Fiscal Follies: Greece versus the U.S.

Articles & Blogs - International Commentary

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The brilliant-but-erratic (erratic-but-brilliant?) Brit, Ambrose Evans-Pritchard was at it again on Sunday, conjuring up more visions of Greece's financial immolation – with a liberal dose of doom-and-gloom as to the future of the EU, itself. As I have stated previously, there is no denying this writer's analytical prowess, when he is able to put aside his cultural biases, namely that the U.S. and U.K have magic, “Teflon” economies – where their own, enormous fiscal problems are not subject to the same economic principles which apply to all the economies of the rest of the world.


Sadly, his weekend commentary illustrates this in vivid fashion. Read on as Evans-Pritchard pronounces his death-sentence on the Greek economy:


Greece's national debt will be 120pc of GDP this year. S&P says it will reach 138pc by 2012. A fiscal squeeze – without any offsetting monetary or exchange stimulus – will cause tax revenues to collapse. Debt will rise higher on a shrinking economic base...Greece is caught in a text-book deflation trap.


By “deflation trap”, what is clearly meant is a downward spiral, from which there is no way of avoiding eventual default. Evans-Pritchard is also crystal-clear on what is the biggest factor in dooming the Greek economy:


Greece alone in Western Europe treats the military budget as a state secret. Rating agencies guess it is a ruinous 5% of GDP. Does the country really need 1,700 battle tanks, 420 combat jets, and eight submarines...?


If one needs proof that Evans-Pritchard believes that the U.S. is not subject to the same economic principles as the rest of the world, that passage provides it in abundance.


No one knows how much the United States is spending on its “War on Terror”, along with the rest of its bloated military budget – because it's a “state secret”. Of what is known, not only does the U.S. out-spend every other nation on Earth, it spends more than the next, four-largest militaries combined. Based on the “official” defense budget, along with all the “special appropriations” which are needed to keep the U.S. war-machine solvent, it is somewhere around $1 trillion per year – and likely much, much higher.


During the eight years of the Bush regime, his “official deficits” totaled $2.3 trillion, while the actual, national debt increased by $4.5 trillion – nearly double the official amounts. That works out to $2.2 trillion simply being missing from the official accounting of the U.S. government. Of those missing trillions, most of it (almost $2 trillion, exactly) was missing from the U.S. government's “off-balance sheet” accounting.


Along with observing that the whole concept of a government being allowed to have an unofficial (“off-balance sheet”) budget in the trillions of dollars is totally outrageous, I think it goes without saying that those missing trillions disappeared into the fiscal, black-hole known as “U.S. military spending”.


With U.S. military spending somewhere at or above the astronomical total of $1 trillion per year, then given the “official”, annual GDP of the U.S. (approximately $13.5 trillion) that works out to well over 7% of U.S. GDP or roughly 50% more than the “ruinous” military spending of Greece. However, before we go any further, let's take a closer look at “official” U.S. GDP.


In his ground-breaking, video series, the “Crash Course”, Chris Martenson delved into those U.S. GDP numbers. What he found was that total U.S. GDP contained roughly $2 trillion per year of statistical “padding”, for which no business transactions took place, nor was any (tangible) wealth generated. Removing this “padding” would take “official” U.S. GDP down to $11.5 trillion per year. At that level, U.S. defense spending likely totals at or above 9% of GDP – approaching double Greece's “ruinous” level.


If this was Evans-Pritchard's only blind-spot with respect to the U.S. economy, then perhaps his latest analysis would still be salvageable. However, either Evans-Pritchard is not well-informed of the extent of the debt problems of the United States, or he simply chooses to ignore them.


We know the “official” national debt of the U.S. is $12.1 trillion, because there was just a big fuss in the U.S. media that the government came within days of failing to raise the legal, debt-ceiling above that number – before reckless government spending exceeded it. As with most other U.S. economic statistics, however, the “official” numbers have little resemblance to the real world.


As I have pointed out in previous commentaries, of all the “crimes” which both successive Democratic and Republican regimes have committed against the American people, at or near the top of the list is the $4.2 trillion which these miscreants have pillaged from so-called government “trust funds”. These are the trust funds which are supposed to provide a tiny portion of the funding for massive, government entitlement programs.


These are the same entitlement programs for which U.S. politicians (of both stripes) have managed to totally ignore somewhere in the range of $60 to $100 trillion in “unfunded liabilities”. Thus, at a time when it is obvious that there is no possible way the U.S. government could ever fund those entitlements, the money which should have been invested and appreciating so that it could provide a “down-payment” on those social programs is missing.


In the fantasy-world of government accounting, it was used to “pay down the deficit”. The only thing more pathetic than numerous, U.S. governments attempting to pass-off this 'logic' on the American people is that there has been nary a peep from those same people about this travesty of common sense. You cannot “borrow money” from yourself.


And the trillions of dollars taken from government “trust funds” aren't like the trillions the U.S. government has borrowed from foreign governments – money which it has neither the means nor the intent to ever repay. The trillions missing from those government trust funds are already subject to claims from the American people, as the baby-boomers begin to retire.


Even if we allow the U.S. government to live in its Fools' Paradise, and continue to claim that the $60 -$100 trillion in “unfunded liabilities” don't count when it comes to measuring U.S. debt, at the least, the $4.2 trillion which the U.S. government “borrowed from itself” to “pay down the deficit” must be added to the official total.


This would put current U.S. government debt at $16.3 trillion. Again, if we allow the U.S. government to pretend to have annual GDP of $13.5 trillion, this puts the current U.S. debt-to-GDP ratio at over 120% of GDP – and worse than that of Greece, today. On the other hand, if we use the more plausible annual GDP total of $11.5 trillion, then this puts the current U.S. debt-to-GDP ratio at more than 140% of GDP – or worse than Evans-Pritchard/S&P's forecast for Greece's economy by 2012 (at which point the Greek economy was pronounced “trapped”).


Of course, there are some huge differences between the economies of Greece and the United States. Greece's economy amounts to about 3% of the total EU in size. This means that its “big brothers” in the European Union could easily bail-out that economy, with the amount involved being trivial. It is the precedent of such a bail-out which has made the EU unwilling to consider helping Greece.


Conversely, with the massive size of the U.S. economy only dwarfed by its own debts, attempting to bail-out the U.S. economy from its current position of hopeless insolvency would strain the entire global economy to the breaking-point, something which would never be considered for a population of spendthrifts representing only 5% of the Earth's total.


I don't want to appear to be singling-out Evans-Pritchard for criticism, indeed, quite the opposite. I frequently read his work, and as I alluded to earlier, often find his views useful and informative – unlike 90% of his peers in the U.S. and U.K. Media.


As I wrote in a previous commentary (“U.S. Propaganda-machine Continues Bashing Europe”), the game being played by the U.S. and UK media in attempting to portray the problems of other economies (sometimes it's China, sometimes it's Europe) as being worse than those of the U.S. is being played because the only way the crippled U.S. economy can be made to appear tempting to investors is when portrayed as the “least-worst option”. It's like trying to get someone to date your ugly sister, by drawing a mustache on the pictures of all the other girls.


I have a suggestion for all the “journalists” drawing pay-cheques in the United States and United Kingdom. The next time you sit down in front of your keyboards to write another “the-sky-is-falling” article about China's economy or one of the European scapegoats, take a good, long look in the mirror, first.

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Jeff Nielson
...
written by Jeff Nielson, January 19, 2010
Thank you, JsJ. At the risk of sounding HOPELESSLY immodest, that is one of my own favorite one-liners - out of all that I have written.
JsJ
...
written by JsJ, January 19, 2010
"It's like trying to get someone to date your ugly sister, by drawing a mustache on the pictures of all the other girls."

My co-workers wondered what was making me laugh so hard... smilies/cheesy.gif

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