Why Americans should care about Greece's Debt Crisis
(snip)"Why Americans Should Care About the Debt Crisis in Greece
Posted Jan 21, 2010 10:52am EST by Peter Gorenstein
Is Greece about to go bust? The Greek government says they don't need a rescue package but they are exploring all options to claw out of a mounting debt crisis to cover their near-term budget shortfall.
Investors are still skeptical. Yields on Greece's benchmark 10-year bond are trading near record premiums to comparable German debt after briefly touching a record high on Wednesday. The cost of insuring that debt through credit default swaps is also near unprecedented levels.
European Union officials say they are not worried about Greece defaulting and have refused to discuss talks of a bailout.
Jim Bianco, president of Bianco Research in Chicago, isn't so sure about either outcome. If Greece does default, "this could lead to a cascading effect" among other financially vulnerable nations, he warns. And, if Greece were to get bailed out that would be bad news for the rest of the Eurozone. Not only would the Euro decline, it would create a moral hazard.
Why should Americans care?
It's simple.
"If developed countries stop paying...then we've got a whole new world" resulting in higher borrowing costs around the globe, Bianco says, drawing a distinction between Greece and emerging markets like Argentina and Russia that have defaulted in recent years. A default by Greece, or other debt-laden Eurozone nations, speaks to an even larger concern, he says: "The fear in the marketplace is there could be a limit to the amount of money that government's can borrow and we might be close to that limit everywhere."
That would surely be ominous for the United States where debt is the country's biggest export. "(snip)
from
which by sheer coincidence is followed up by
(snip)"WASHINGTON – Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $1.9 trillion to pay its bills, a record increase that would permit the national debt to reach $14.3 trillion.
The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation.
It's hardly the debate Democrats want or need in the wake of Sen.-elect Scott Brown's victory in Massachusetts. Arguing over the debt limit provides a forum for Republicans to blame Democrats for rising deficits and spiraling debt, even though responsibility for the government's financial straits can be shared by both political parties.
The measure came to the floor under rules requiring 60 votes to pass. That's an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority.
Democratic leaders are also worried that Sen. Evan Bayh, D-Ind., who opposed the debt limit increase approved last month, will vote against the measure.
The record increase in the so-called debt limit is required because the budget deficit has spiraled out of control in the wake of a recession that cut tax revenues, the Wall Street bailout, and increased spending by the Democratic-controlled Congress. Last year's deficit hit a phenomenal $1.4 trillion, and the current year's deficit promises to be as high or higher.
Congress has never failed to increase the borrowing limit.
"We have gone to the restaurant. We have eaten the meal. Now the only question is whether we will pay the check," said Finance Committee Chairman Max Baucus, D-Mont. "We simply must do so."
A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question."
Less than a decade ago, $1.9 trillion would have been enough to finance the operations and programs of the federal government for an entire year. Now, it's only enough to make sure Democrats can avoid another vote before Election Day."(snip)
from