Our country still has a long way to go to get our nation’s fiscal house in order, but the new tone of the debate is a step in the right direction.
The economic woes of the United States will not be solved in one budget alone. Our fiscal mess took years of uncontrollable spending by both parties, and as a nation we must make fundamental changes to our financial habits. Look no further than Greece, Portugal, Ireland, even Italy, for examples of how out-of-control spending could affect the U.S.
The ongoing Eurozone crisis should serve as a wake-up call to Americans. Like the U.S., European countries have failed to show fiscal restraint but continue to offer expensive government services and have seen skyrocketing interest rates. As a result, several European nations have been forced to adopt severe austerity measures. While some European economies have shown signs of stabilization, the situation in Greece continues to worsen, putting added pressure on the Eurozone as a whole. Standard & Poor’s downgraded Greece’s credit rating from a “BB-minus” to a “B” over fears it may require an additional bailout or extension on its debt repayments.
Economists now fear that the debt predicament, both domestically and abroad, may be far from over. If the United States does not take immediate action to rein in spending and pay down our debt, we could be subjected to financial extremes similar to those in Greece, Portugal and Ireland, where the credit markets are basically dictating this restructuring.
After watching countries in the Eurozone fall like dominos because of weak economies and exorbitant government debt, our nation must seriously consider the following: Could the United States be the next domino to teeter on the brink of collapse? Are we ready should this financial contagion infect us? The situation in the Eurozone should serve as America’s wake-up call about the need to get our finances under control.
According to information released by the Bank for International Settlements, the U.S. holds roughly $353 billion, or 17 percent of debt owed by Portugal, Italy, Ireland, Greece and Spain. That sum pales in comparison to direct U.S. bank lending to European nations, which totals more than $1.3 trillion, also according to BIS. American and other foreign banks are limiting their exposure to troubled European banks, but many are doing so by selling debt to the European Central Bank.
Late last year, the Federal Reserve extended the program to make U.S. dollars available to central banks worldwide, including the ECB. The Fed initially created swap lines with the ECB and other central banks during the height of the 2007 to 2009 financial crisis. In May 2010, the program was resurrected when financial strains reappeared in Europe. While the central banks protect the Federal Reserve against losses, it has the potential to increase U.S. exposure to the ongoing European crisis. Given the continued financial distress of Greece and its likely impact on the ECB, Germany and France (the two nations combined are exposed to Greece to the tune of $237 billion), it remains unclear whether the Fed will heed the warning from Europe and lessen its exposure by ending the swap lines on time.
Rep. Elijah Cummings, D-Md., right, hugs Harold Schaitberger, General President of the International Association of Fire Fighters, after the Congressman spoke at the IAFF's Legislative Conference General Session at the Hyatt Regency on Capitol Hill, March 9, 2015. The day featured addresses by members of Congress and Vice President Joe Biden.