With riots in Greece over its debt problems and deep austerity measures being put into place hurting nearly everyone, the issues there are affecting governments, banks, and investments across Europe. The US, like Greece, has one of the highest debt to GDP ratios in the world.
While one of the biggest complaints of the rioters in Greece is over the government’s corruptions–as alleged by the protesters–that’s not likely to be an issue here in the US.
A Greek default on debt is not likely in the short term since European governments agreed to another bailout, only after Greece made deep cuts Friday. But it’s the cuts that have so many up in arms and is likely to be a source of US problems as well.
Unlike Greece, the US has the largest economy in the world, $14.5 trillion annually, and without either deep cuts, a rise in taxes, or a mix of both, the government will default on its debt. That would shake stock markets and economies around the world, as the US economy, businesses and debt are involved in nearly every country of the world.
China warned GOP republicans recently not to play politics with the debt ceiling limit, and China has good reason to make the warning. China buys and holds more US debt than any other country in the world. They have upwards of $1 trillion in US debt alone. There is speculation that as the Aug 2 date nears, China is exerting more pressure on Congress and Republicans.
If Congress fails to reach an agreement to raise the debt ceiling, on August 2nd, the US will have to start choosing which bills to pay and which not to pay, prioritizing interest on the debt first according to Treasury Secretary Timothy Geithner. That would mean recipients, beneficiaries, and government payroll will have to take a back seat and some would likely see no payment. Programs, departments, and beneficiaries in jeopardy include Social Security, Veterans Administration, Department of the Interior and the National Parks, government grants for research in science, arts and student loans, along with highway funding to the states, education funds to states, and defense spending; all could suffer as a result of a default.
It would mean a massive blow to millions of Americans almost immediately crippling any recovery. Likewise, even deep cuts will result in hardships for many also if Congress agrees to raise the debt ceiling. Without an increase in the debt ceiling, the government can no longer sell debt and bonds to raise the money it needs to pay for all its spending. We currently borrow .40 cents of every dollar we spend.
As with most riots and civil unrest, the younger generations are the primary source of energy to start it, and younger Americans under 30 seem mostly unaware or apathetic to the debt situation or deep cuts and how it would affect them. Most security experts say it is unlikely there would be massive scale riots like in Greece but warn of possible small eruptions in local communities, especially in vulnerable areas like Detroit, Florida, California, and Virginia which all have sizable populations that would be affected by the targeted cuts.
In a telling move, significant hedge funds have been cashing out of holdings, converting assets into liquid cash. This could indicate they believe the US will fail to raise its debt ceiling limit and want to be positioned with large cash reserves to jump into the fray offering institutional help at significant rates and profits for them.
Lobbyist and particular interest firms have been heavily lobbying Republicans not to raise the debt limit, though it’s not clear yet if hedge funds are responsible for such lobbying, and have been careful to keep such efforts quiet.
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