Is the U.S. like Greece?

@CNNMoney June 19, 2011: 11:15 AM ET
Is the U.S. like Greece?

Demonstrators stand in front of Greek Parliament in Athens during a protest on Wednesday against plans for new austerity measures

NEW YORK (CNNMoney) -- Deficit hawks often cite Greece's debt nightmare as a cautionary tale for the United States.

But is the United States really like Greece?

The differences between the countries, after all, give the United States some built-in advantages when it comes to managing its debt.

The U.S. economy? Gargantuan. Greece's economy? Tiny.

Plus, the United States' earning capacity is greater since it has a more diverse economy than Greece does, said Barry Anderson, who used to run a budgeting and public expenditures division at the Organization for Economic Cooperation and Development.

The pain of Greece's crisis

There are also big differences in the countries' currencies.

The dollar is the world's reserve currency and is managed by a single government.

The euro, by contrast, is used by 17 sovereign countries. Therefore, Greece's monetary policy is set not according to Greece's needs but by the needs of stronger economies -- especially Germany -- that prefer higher interest rates as a bulwark against inflation.(See correction below.)

The OECD, meanwhile, estimates that U.S. net debt will reach 75% of the country's economy this year. That number includes federal, state and local debt but excludes debt owed to government trust funds such as Social Security.

Greece's debt, by contrast, will be around 125%.

So what's the concern for the United States exactly?

"The real fundamental similarity is trend. Both [countries' fiscal situations] are bad and getting worse," Anderson said.

That's because both the United States and Greece have aging populations and mature economies that aren't likely to grow as much as they have in the past.

Simply assuming that the United States will remain forever immune from the perils of too much debt is not a winning strategy, deficit hawks warn.

Of course, that's a hard case to make when investors embrace Treasuries every time they get spooked by turmoil in Europe. Events in Greece in recent days have driven the 10-year Treasury yield below 3%.

In other words, the United States continues to get the benefit of being a "safe haven" compared to the rest of the world.

But experts believe that investors won't always give Americans the benefit of the doubt.

"The markets do react late, but when they react they react pretty sharply," said Carlos Cottarelli, director of fiscal affairs at the International Monetary Fund, during a Committee for a Responsible Federal Budget conference this week.

A little over a year ago, investors' fears that Greece would ever default were considerably lower than they are today. So it's not surprising that the yield on 10-year Greek bonds is now pushing 18%, up from 6% at the start of 2010, according to Bloomberg markets data.

But even if U.S. rates don't rise soon -- and some say they won't because investors fear slower economic growth -- that doesn't mean markets can't find other ways to hurt the United States, Anderson said.

Investors might choose to punish the dollar if they start to believe Congress doesn't have the political will to do what's required to put the U.S. budget on a more sustainable track.

And a substantially weaker dollar would have all sorts of negative repercussions, including a possible credit downgrade from ratings agencies, said Michael Pond, managing director of fixed income strategy at Barclays Capital, at the CRFB conference.

The bottom line: The U.S. is not Greece in many ways. But it's also not immune from the punishing effects of debt.

--'s Colin Barr contributed to this report.

Correction: The original version of this article incorrectly stated the number of countries that use the euro. To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.88%
15 yr fixed3.20%3.23%
5/1 ARM3.84%3.88%
30 yr refi3.82%3.93%
15 yr refi3.20%3.23%
Rate data provided
View rates in your area
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
  • -->

    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.