The United States might not be in the same boat as Greece financially speaking, but it has to tackle its debt burdens if the economy is to improve, says Martin Feldstein, Harvard economist and president emeritus of the National Bureau of Economic Research.
"There are very, very few parallels. The situation in the United States is serious, but there is no doubt that we can, simply by cutting our growth of entitlements and by going after some of the tax expenditures, be able to close our long-term fiscal deficit. Greece cannot possibly do that," Feldstein tells CNBC.
Greece may avoid defaulting on its debt during the next three years with the help of the International Monetary Fund and the European Union, but sooner or later, it will have to work out a deal and restructure its debts with creditors.
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In the meantime, delaying the inevitable default does offer some advantages.
"That will give the banks time to unload some of this debt, the insurance companies time to unload some of this debt, sell it off to the national banks, sell it off to the European Central Bank so that when the default comes, it won't bring down the private banks and the private insurance companies," Feldstein says.
But eventually, Greece will default.
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"At some point, it will be in everybody's interest to write down the Greek debt, probably by 50 percent or 60 percent so that they can actually have a viable future."
For the United States to avoid its own debt problems, it needs to start taking debt reduction seriously.
Talk of reducing the national debt by $2 trillion during the next 10 years isn't enough.
"I think that sounds like a great headline but it's really small relative to the size of the problem. The Congressional Budget Office tells us that at the end of the decade, we're going to be looking at something more than $20 trillion of national debt, 100 percent of GDP and an increase in the national debt of about $10 trillion during the decade," Feldstein says.
"So to slice $2 trillion or $3 trillion off that really isn't enough. We really have to turn the direction of growth of the major entitlement programs, of Social Security, of Medicare, of Medicaid, otherwise this is just going to continue to deteriorate."
Others would agree that the country's deficit woes are far worse than people realize, and tax hikes alone won't help.
"There is no way to raise taxes enough to cover these problems," Lindsey Group CEO and Bush administration economic analyst Lawrence B. Lindsey writes in The Wall Street Journal.
"The tax-the-rich proposals of the Obama administration raise about $700 billion, less than a fifth of the budgetary consequences of the excess economic growth projected in their forecast."
Lindsey says $700 billion collected over 10 years would not even cover the difference in interest costs in any one year at the end of the decade between current rates and the average cost of Treasury borrowing over the last 20 years.
In addition, official growth forecasts are much higher than what the 2.5 percent economists believe we should really expect after a financial crisis.
"But the president's budget of February 2011 projects economic growth of 4 percent in 2012, 4.5 percent in 2013, and 4.2 percent in 2014 — and estimates that the 10-year budget cost of missing the growth estimate by just one point for one year is $750 billion," Lindsey says.
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