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In Greek Downgrade, Lessons for the United States

May 9, 2011 3 minute Read by James K. Glassman

Standard & Poor’s cut Greece’s debt rating further this morning.[1] It’s now “B” for long-term credit and “C’' for short term. Greece’s rating is five notches below investment grade and the same as Belarus, Ghana, and Lebanon.[2] If you’re willing to risk it, Greek two-year notes are yielding 25 percent.[3] In March, European leaders cut the interest rate (to just 3.5 percent) on the emergency $160 billion in debt they extended to Greece and lengthened maturities from three years to seven.[4] In their book, This Time Is Different, economists Carmen Reinhart and Kenneth Rogoff, examine eight centuries of financial crises and conclude that they inevitably lead to more debt, slower growth, higher unemployment and, for weak economies, either sovereign default or a debasement of the currency (so that governments can repay creditors at a lower rate).[5] Greece has had five separate instances of default or rescheduling of its debt since 1826; Germany, eight; Spain, thirteen. The decline of Greece has multiple causes. I explored one of them in a long piece in Commentary last year: Membership in the European Union allowed Greeks to borrow at low rates and live far beyond their means, preferring, as many other Europeans have, leisure over work.[6] Another way to understand Greece is that policymakers in that nation forgot that growth is the most important economic goal, and you can’t get significant growth when government spending is out of control and taxes represent 40 percent of GDP.[7] As Louis Woodhill, a software entrepreneur, recently wrote in Forbes, “The lesson for America is simple: economic growth now or debt default later.”[8] Greece’s debt problems are further evidence that the U.S. needs to get on a growth track immediately, or suffer the consequences. We can’t thrive — in fact, we can’t even get out from under our debt burden — if we grow at a sustainable rate of just 2 percent or 2.5 percent, as the Congressional Budget Office and leading economists are predicting. We must set 4 percent growth as a goal and direct public policy and private practice toward achieving it.

[1] The Wall Street Journal [2] Standard & Poor’s [3] SFGate [4] Bloomberg Business Week [5] This Time Is Different: Eight Centuries of Financial Folly [6] Commentary Magazine [7] Forbes [8] Ibid.


Author

James K. Glassman
James K. Glassman

James K. Glassman is the Founding Executive Director of the George W. Bush Institute and the interim Director of the Military Service Initiative.

He served as undersecretary of state for public diplomacy and public affairs from June 2008 to January 2009, leading the government-wide international strategic communications effort. Among his accomplishments at the State Department was bringing new Internet technology to bear on outreach efforts, an approach he christened “Public Diplomacy 2.0.”

From June 2007 to June 2008, Glassman was chairman of the Broadcasting Board of Governors (BBG). He directed all non-military, taxpayer-funded U.S. international broadcasting, including Voice of America, Radio Free Europe, and Alhurra TV.  Glassman was a senior fellow at the American Enterprise Institute in Washington, D.C., from 1996 to 2008, specializing in economics and technology.

He has been moderator of three weekly television programs: Ideas in Action and TechnoPolitics on PBS and Capital Gang Sunday on CNN.

Glassman has had a long career as a journalist and publisher. He served as president of Atlantic Monthly, publisher of the New Republic, executive vice president of U.S. News & World Report, and editor and co-owner of Roll Call, the Congressional newspaper. Between 1993 and 2004, he was a columnist for the Washington Post and the International Herald Tribune and continues to write regularly for Kiplinger’s Personal Finance and Forbes. Shortly after graduating from college, he started Figaro, a weekly newspaper in New Orleans. His articles on finance, economics, and foreign policy have appeared in The New York Times, The Wall Street Journal, the Los Angeles Times, and various other publications.

Glassman has written three books on investing, and in April 2012 was appointed to the Investor Advisory Committee of the U.S. Securities and Exchange Commission. He was formerly a member of the Policy Advisory Board of Intel Corporation and a senior advisor to AT&T Corporation and SAP America, Inc.

Full Bio

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