Will the United States End Up Like Greece?

The Risks of the Trans-Pacific Partnership

Will the United States End Up Like Greece

For years people have been running around Washington yelling that the United States was at risk of becoming Greece. There may actually be a basis for such concerns, but not for the reason usually given.

The standard story of the United States becoming Greece is that government budget deficits will result in a loss of confidence in the ability of the United States to meet its debt obligations. This will lead to skyrocketing interest rates, a financial panic, and rivers flowing upstream.

While this view has many adherents among respectable people in Washington, reality refuses to cooperate. Instead of skyrocketing, the interest rate on U.S. government debt has plummeted.

The interest rate on 10-year Treasury bonds is less than 2 percent, a sharp contrast from the days of budget surpluses in the late 1990s, when it hovered in the 5- to 6-percent range.

In short, the deficit hawks have been shown to be completely wrong.

But there is actually another way in which the United States could be like Greece, and the Trans-Pacific Partnership is directly connected. While Greece’s budget problems have made headlines, its economy is actually more constrained by being trapped in the euro zone than by the restrictions on budget deficits. This has prevented the adjustment in relative prices that is needed to restore the competitiveness of Greece’s economy.

If Greece had still been on the drachma when the financial crisis hit in 2008, its currency would have plummeted as investors from the rest of Europe stopped lending the country money. That would have meant an unpleasant bout of inflation for the Greek people, but it also would have quickly restored the country’s competitiveness.

The simple story is that the price of Greek goods and services would fall relative to the price of goods and services produced elsewhere in proportion to the decline in the currency. This means that if the drachma had fallen by 30 percent relative to other currencies, Greek goods and services would cost 30-percent less compared with the price of goods and services produced in Germany, France, and elsewhere.

In reality the picture is more complicated, since many inputs for Greek products are imported, but the basic story would hold. A decline in the value of the drachma would make Greek goods and services more competitive internationally. This would lead to an increase in exports and a decline in imports, which would provide a substantial boost to GDP, offsetting the effects of the crisis.

Greece could not have this sort of adjustment process because it is part of the euro zone.

This meant that there was no easy way for Greece to restore its international competitiveness. Instead of reducing its trade deficit by restoring its competitiveness with currency devaluation, it has reduced its trade deficit through economic contraction.

When the economy shrinks, imports shrink, thereby lowering the trade deficit. Greece has now endured a contraction that dwarfs the Great Depression in severity.

This story is connected to the Trans-Pacific Partnership because the United States also has had problems with bringing its trade deficit down by reducing the value of its currency. The United States began to run large trade deficits in the late 1990s, following the East Asian financial crisis. This was when countries in East Asia and elsewhere in the developing world first began to buy up large amounts of dollars in order to prop up the value of the dollar against their own currencies. Their goal was to boost their exports to the United States and other countries.

Many of these countries, most notably China, continue this policy to the present day. They deliberately prop up the dollar in order to sustain their trade surpluses. Their trade surplus is the cause of our persistently large trade deficits.

These trade deficits in turn have been a major drag on growth. The trade deficits are the main cause of the “secular stagnation” that has prevented us from having full employment except when the economy was driven by bubbles in the stock and housing markets.

This brings us to the Trans-Pacific Partnership (TPP). This deal is not only important for the countries it includes but intended to be a pact that other countries will later join. The Obama administration decided not to include any language on currency values in the TPP. This will make it more difficult for the United States to take measures to get countries to stop propping up the dollar.

The result could be the persistence long into the future of large U.S. trade deficits, with the resulting loss of demand and millions of jobs. This drag on growth may not give us the same sort of cataclysmic downturn that Greece has seen, but it is a much more real concern than the possibility that no one will buy U.S. government debt.

Find us here

Get news from the CSGLOBE in your inbox each weekday morning

The views and opinions expressed in this article are those of the authors/source and do not necessarily reflect the position of CSGLOBE or its staff.

Paid content

Putin has Banned Rothschild and His New World Order Banking Cartel Family from Entering Russian Territory

As of recently, Russian president Vladimir Putin took yet another decision for his country. "Under any circumstances", the Rothschild family is banned from entering Russian territory. Along...

Georgia House Votes To Allow Citizens To Abolish Police Departments In The State

The Georgia House backed an effort on Friday to dissolve the Glynn County Police Department and any...

Five bombshells about Trump from Bolton ‘s book

Excerpts from former national security adviser John Bolton ’s book about his time in the Trump administration...

What's New Today

Georgia House Votes To Allow Citizens To Abolish Police Departments In The State

The Georgia House backed an effort on Friday to dissolve the Glynn County Police Department and any...

Leaked CDC document contradicts Pence claim that U.S. coronavirus cases ‘have stabilized’

Even as Vice President Mike Pence wrote in a Wall Street Journal op-ed published Tuesday that coronavirus...

Five bombshells about Trump from Bolton ‘s book

Excerpts from former national security adviser John Bolton ’s book about his time in the Trump administration...

Don’t Listen to Fox. Here’s What’s Really Going On in Seattle’s Protest Zone.

It seems I live in a city undergoing a “totalitarian takeover” that will lead to “fascist outcomes”...

MOST READ

Complete List of BANKS Owned/Controlled by the Rothschild Family

What’s the significance of having a central bank within a country and why should you concern yourself, your family and colleagues? Central banks are illegally...

What Is Agenda 21? Depopulation of 95% of the World By 2030

Most people are unaware that one of the greatest threats to their freedom may be a United Nations program which plans to depopulate 95%...

Putin has Banned Rothschild and His New World Order Banking Cartel Family from Entering Russian Territory

As of recently, Russian president Vladimir Putin took yet another decision for his country. "Under any circumstances", the Rothschild family is banned from entering Russian territory. Along...

Putin has Banned Rothschild and His New World Order Banking Cartel Family from Entering Russian Territory

As of recently, Russian president Vladimir Putin took yet another decision for his country. "Under any circumstances", the Rothschild family is banned from entering Russian territory. Along...

Washington State starts legal pot sales

Legal marijuana sales begin in Washington, 2nd state to allow pot without prescription Legal weed sales are about to start in Washington State as retailers...

Breaking: Dutch Citizens Successfully Sued Their Own Government

The changing face of democracy: Who needs leaders when you've got lawyers? “You have been negotiating all my life!” This powerful cry from a 21...

One third believe police lie routinely

Breaking down the numbers: One third of Americans believe police lie routinely Do police officers “routinely lie to serve their own interests?” Thirty-one percent of...

Russia Is Giving FREE farm-land Away To Any Citizen Willing To Work It

The Russian government has made an interesting decision to give away free land to anyone willing to farm it. In Russia’s Far-East Federal District, that...

Chemically Altered

Synthetic chemicals permeate the environment to such an extent that they have changed the chemistry of our planet. We are in the midst of a...

It’s Official: Weed Legalization Advocate Could Head Up The FDA

In December of 2016, Bloomberg News reported that Jim O’Neill, a managing director at Peter Thiel’s Mithril Capital, was being eyed by Donald Trump...

US-Led Forces Now Using White Phosphorus in Populated Areas of Syria and Iraq

Iraq claimed credit for videos earlier this week showing the use of white phosphorus munitions in densely populated parts of the Old City in...