Greece has become the proverbial country to represent a debt-fueled death spiral. Perhaps another Greece exists, but in North America. The National Post makes it sound like the Atlantic provinces in Canada are in danger of becoming another Greece. The editorial even mentions Greece as a comparable country:
The economies of these provinces are public-sector driven and are out of phase with the rest of the developed world. Atlantic region public sectors are larger than in Greece before the financial crisis impacted that country. The sense of entitlement felt by Atlantic Canadians is deeply rooted, as it was in Greece.
That does not bode well!
It appears that somehow these provinces have been subsidized by the rest of the country. But rather than foster economic growth this subsidy has fostered a growth in government services that has required even more spending, and thus massive debt: “Deficits are growing and threaten to become solvency crises.”
Why does this matter to the United States?
Quite simply the economy does not stop at national borders. A solvency crisis in one country can easily spread to others.
And in fact, there are many crises or impending crises, that might be shoved over the edge by what happens in Canada (or vice versa). Greece is not the only country in Europe that is economically problematic. And, even nearer to us, Puerto Rico is in the middle of a solvency crisis. Various states in the U.S. (California, Illinois) are approaching a solvency crisis as well.
In every case, the pattern is the same. Politicians arrange an unsustainable debt spiral to fund favors to special interest groups (pensions for public employees, etc.). The damage is not felt at first because the money is borrowed and taxes are not raised. Once the crisis starts to become obvious it is too late to do anything about it. The mounting debt means that the government has to cut services and raise taxes to pay interest. By then the politicians responsible are long gone (or at least expect to be gone before the crisis hits).
Like a house of cards or row of dominoes, just one crisis can trigger others. If interest rates rise in response to what happens in Greece, or Puerto Rico, or the Atlantic provinces of Canada, all the rest of them could suddenly have emergencies.
Our federal government is not immune. As irresponsible spending escalates, our national debt will sooner or later lead us to a solvency crisis.
Don’t think that the federal government’s central bank (the Federal Reserve) makes it immune to a financial crisis. A currency that becomes worthless is another way to run out of money. Just because our government can “print dollars” doesn’t mean that it can avoid the day of reckoning.