Is a Greek tragedy in store for the US economy?
June 16, 2011
The democracy on which the United States government is based has its roots in Greek history - the word democracy is even of Greek origin. Judging from the state of the two countries' finances, there may be a less enlightening import on its way from Greece to the U.S. - a national fiscal crisis.
Trouble in Greece
Workers in Greece went on strike, and protesters took to the streets to express frustration with austerity measures being imposed by the government to help solve the country's fiscal crisis.
Protesters vented their rage against the government, but the price for the crisis - and the popular rejection of austerity - could be the private creditors who are being called upon to forgive some of what they are owed to help ease Greece's debt burden.
When fiscal problems become a national crisis, it is bound to pit the interests of borrowers against those of savers. Given the condition of the U.S. budget, it is natural to wonder if a similar fate awaits this country.
Implications for savings accounts
A national fiscal crisis could force interest rates sharply higher. With average rates on savings accounts well below 1 percent, depositors might welcome the idea of anything that drives interest rates higher, but this is one of those cases where you have to be careful what you wish for.
For one thing, financial difficulties on the part of the federal government could threaten FDIC insurance, the safety net that protects savings accounts. That safety net could become especially relevant in a financial crisis. As is happening in Greece, savers could be asked to sacrifice some of what they are owed for the sake of the national good.
Responsible people agree that solving America's fiscal problems is going to take some degree of shared sacrifice. Many treasured government programs will have to be cut, and some people may have to pay higher taxes. No one is expected to be happy about that, but better sacrifices on that scale than letting things get to a crisis level that threatens the security of savings accounts.
