Tags: Greece | Emerging Threats

Changing the Future

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Monday, 06 Jul 2015 10:23 AM Current | Bio | Archive

A number of years ago Ben Affleck made a movie called “Paycheck.” The plot revolved around his involvement in the creation of a machine, which could see into the future. The machine was, of course, fiction. We don’t have and are unlikely to ever have such a device.

Still, we can see the future, or at least one possible future, if we wish. All we have to do it to look at Greece and Puerto Rico.

Greece is imploding. The Greek government has defaulted on its obligations. Banks are closed and may not reopen for a month. ATM machines in Greece can dispense no more than 60 Euro a day to customers. That’s the equivalent of about $66.

Unemployment is hovering around 25 percent. Amongst Greek youths it is about double that. Middle class Greeks, many of them unemployed, are increasingly turning to rummaging through dumpsters for scrap metal to sell and food to eat.

All of this is the product of unsustainable public debt. Put simply, the Greeks have been living on money borrowed from the rest of the European Union for years, allowing them to support a bloated public sector, a massive social welfare scheme and huge infrastructure projects.

Economists typically use a measure of debt to gross domestic product (GDP) to calculate the sustainability of a nation’s debt. Greece now carries debt equivalent to 177 percent of its GDP. To put that in perspective, that figure for Germany is around 74 percent.

The bill for all of this borrowing has now come due. The rest of the European Union and the International Monetary Fund are demanding reform and dramatically reduced spending, in a word, austerity. The Greeks are balking and demanding new terms. Negotiations have broken down.

What happens next is unclear. Unless Greece knuckles under to European Union demands, the nation may simply slide off a fiscal cliff. If that happens, Greece will almost certainly leave the European Union and be forced to begin to print new currency. What value that currency will have and who will accept it as payment outside of Greece are unknown.

For a nation hugely dependent on imports, the likely result will be widespread shortages of basic necessities and social unrest. When people cannot feed their families, things get very serious, very quickly.

Closer to home, Puerto Rico is headed in the same direction. The U.S. Commonwealth is carrying $73 billion in debt. Its economy is in a downward spiral, and continued tax increases have depressed economic activity and driven many of the island’s most productive citizens to flee to the mainland.

The government of Puerto Rico now says it cannot continue to pay the interest due on its massive debt and is planning further huge tax increases to bridge the gap. The death spiral continues.

More taxes mean less economic activity and more people moving elsewhere. Uncertainty and delays in making payments on current debt mean fewer lenders willing to do business with Puerto Rico and higher interest rates charged by those that are.

Whatever happens in the months and years ahead in Puerto Rico and Greece it will not be pretty. We would do well to pay attention and heed the warning, because, as the saying goes, “There but for the grace of God go we.”

In 1981 the debt owed by the government of the United States reached $1 trillion. It had taken 205 years since independence for us to reach that mark.

Recently, our national debt surpassed $18.2 trillion. In the thirty-five years between 1981 and 2015 we added $17.2 trillion dollars to the debt. We are now borrowing an additional $4 billion each day. The deficit is growing by $1 trillion every year.

Last year the federal government paid well over $200 billion just in interest payments on the federal debt. That’s not reducing the overall amount owed. That’s just servicing the debt. A decade from now we’ll be paying over $700 billion a year, more than our entire defense budget.

Our debt to GDP ratio is now north of 102 percent and rising rapidly. As that rate increases the implications will become more dire. The cost of servicing the debt will crowd out other expenditures.

Tax increases to pay for more borrowing will further depress an already weak economy. Investors will put their money elsewhere, in economies that are on more stable, sustainable footing. The cost of borrowing will continue to spiral upward.

At some point, all of this becomes math. At some point the size of the debt, the scope of the interest payments and the arithmetic lead to only one possible result. The debt becomes unsustainable.

We have already seen the warning signs of sequestration and furloughs of federal workers. These will be as nothing compared to what happens the day the federal government cannot make payroll. That day will bring not short term hardship but a cataclysm.

To balance the federal budget, put the federal government on a sound fiscal footing and begin paying down the debt will not be easy. It will require a host of hard decisions be made. There will be a great deal of pain involved and a lot of shared sacrifice.

Continued delay in confronting this challenge, however, only makes the problem that much more difficult to confront. Every single day we are borrowing more money and digging the financial hole deeper. Every single day we are making the problem worse.

We have seen the future. We can still change it. But, if we want to change the future, we need to act now, in the present.

This column appeared first in Epic Times.


Charles S. Faddis, president of Orion Strategic Services, LLC, is a former CIA operations officer with 20 years of experience in the conduct of intelligence operations in the Middle East, South Asia, and Europe. He is the senior intelligence editor for AND Magazine and a contributor to a wide variety of counterterrorism and homeland security journals. His nonfiction works include "Operation Hotel California," a history of the actions of his team inside Iraq from 2002 to 2003, "Willful Neglect," an examination of homeland security, and "Beyond Repair," an argument for intelligence reform. For more of his reports, Go Here Now.
 



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CharlesFaddis
Whatever happens in the months and years ahead in Puerto Rico and Greece it will not be pretty. We can still change it. But, if we want to change the future, we need to act now, in the present.
Greece, Emerging Threats
1038
2015-23-06
Monday, 06 Jul 2015 10:23 AM
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