Thanks Mom and Dad...

Greece’s hostile economic climate has drawn increasing looks back the U.S. economy and our long-term balance sheet. At issue are not our current debt levels. The overall deficit should narrow to 3.9% of GDP by 2015 because of the three year freeze on discretionary spending. The problem, a mountainous one, begins at the end of this decade and rolls onto around 2035. The Congressional Budget Office estimates that current spending plans will have annual deficits of 15% of BDP while the net public debt would be greater than 180% of GDP. Both of these are larger than the current levels seen in Greece. Again national politics will be the underlying story. The impossibility of Congress to act and reform or eliminate mandatory spending programs like social security will force action to come only as the reaction to a crisis. Reforming health care costs and finding a solution to the baby boomer’s upcoming retirements have been punted to the millennial generation. We can thank our parent’s for their inability to balance a budget and force us to act swiftly so we can have a chance to live in the same United States as they did.

Where is Zeus?

Greece’s debt concerns, which levels at 115% of GDP, have all of Europe contemplating options in order to save the Euro. Leading the opposition is Germany. Frugality dominates German culture and the idea of a bailout that includes German funds has Germans increasingly irritated. The problem is without German support, the largest European economy, the result could be worse. Creditors are standing ready to help with Greece’s unprecedented 20% 10-year bonds, but hesitation by states such as Germany have investors worried Greece’s longevity. The politics are amazing. On May 9th Germany will hold national elections, after which the world will have a better idea of what Europe is going to do, but it is clear: Without cohesive European support Greece will be forced to default on its debt, the Euro will fall and all of Europe will be worse off.

More Elections

The midterm elections are looming. Both sides are maneuvering their way through many political strategies. The financial reform bill is one example of both sides looking to please their bases while appearing pragmatic. There has been a lot of agreement on the face; however, behind the scenes politics is getting bloody. Harry Reid’s tough rebid for election in Nevada has him proposing an immigration bill in order to appeal to his large Hispanic population despite a lack of interest in immigration reform for the past few years. A similar situation falls on the other side. Senator John McCain has for years been open to form of amnesty, but has recently increased his outspoken support for the recent Arizona immigration law because of his strong opposition. Unfortunately, the politics arising because of the midterm elections will most likely kill a bipartisan energy bill that was cosponsored by Republican Lindsey Graham alongside Democrat John Kerry and Independent Joe Lieberman. So, the consequence of all this will be not only the death of a pragmatic energy bill, but the midterm elections will also yield a Congress unable to solve problems because of the lack of a clear majority.