Burned by Greece

“For six years the brainiacs at the International Monetary Fund (IMF) and the European Union have devised one bailout and debt restructuring scheme after another,” writes the Washington Time’s Stephen Moore. “None of them have worked.”

Let’s try and make sense of what’s happening in Greece and how it’ll affect the U.S.

Greece’s crisis began in late 2009 and is getting worse now that the country voted not to repay their creditors. More than 61-percent voted “no” on austerity measures and other overhauls that European and International Monetary Fund officials had demanded.

Despite ongoing financial struggles, Greece spent nearly 60 percent of its gross domestic product on government benefits and programs in 2013. Because of this, their private economy shrank as government bureaucracy and ‘handouts’ expanded.

The current ruling Syriza party see’s the rejection of creditors’ demands as a ‘win.’ The collaboration of Social Democrats, Democratic Socialists, Marxist–Leninist, and Maoist claim they can now press creditors for a ‘better’ bailout deal with fewer ‘painful’ fiscal measures and ‘more’ debt relief.

But it may prove a hard sell because it’s being seen as proof that Greece doesn’t want to repay its loans at all. And because of the recent ‘no’ vote, the IMF insists debt restructuring’s needed first to make Greece solvent again.

And the situation will get worse as Greece’s European Central Bank (ECB) bonds become due. Greece must repay a $3.9 billion bond held by the ECB on July 20, and another large ECB-held bond that falls due August 20.

Officials say how the ECB reacts to the bond default depends on if there is progress toward a financing agreement between Greece and other governments. If there is, then the ECB is likely to continue supporting Greece’s banks, but if the ECB cuts Greece off, the result is a run on Greek banks.

This is where the water gets muddy for those well versed in ‘social economics,’ but who have trouble balancing a simple checking account: The ‘run’ will affect Portugal, Italy and Spain (who are all in the same financial shape as Greece,) creating a ripple effect across Europe. Its predicted that this same ‘ripple’ will affect the U.S. equity markets first then the U.S. bond market, but the average American will hardly notice it – save for a “slight dip in their 401(K)’s.”

However, these same ‘social economists’ are willfully forgetting that with the Obama administration’s Federal welfare spending continuing to grow in both the private and corporate sectors, the U.S. is well on the road to joining Greece in financial ruin.