Word: debt
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After a decade of overspending, Greece has fallen into a debt crisis. The country--which along with Portugal, Ireland, Italy and Spain is a member of the so-called PIIGS group of troubled European economies--is carrying a deficit close to 13% of GDP, more than four times the E.U. limit. Part of the blame for Greece's economic woes has been placed on padded public-sector wages and rampant tax evasion. Proposed austerity measures, which include a pay freeze for government employees, prompted thousands to go on strike. European leaders, who fear that Greece's troubles will trigger widespread...
...Greek Drachmas would get you $3.33. By May 2000, that was down to 27¢. That's the way the currency crumbles in a smallish, less than rich nation beset by government budget deficits, inflation and a spotty record of economic policymaking. Convincing foreign investors to buy your debt is a struggle. Financial life is difficult in ways scarcely imagined by inhabitants of the lucky (and not large) club of nations with solid currencies...
...fiscal behavior than Greece, but they suffer from the same disconnect between their dire local economic conditions and the monetary policymakers in Frankfurt with other things on their minds. Meanwhile, a core euro-zone country, Italy, has also fallen out of favor with investors because of its high government debt. In a sure sign that these troubles are serious, market analysts have assigned them a catchy acronym: PIGS, for Portugal, Ireland, Greece and Spain (or PIIGS if you include Italy). In early February, the panic began to spread beyond their borders, with markets flailing in Europe and then around...
...only when the tide goes out that you learn who's been swimming naked," investor Warren Buffett has said. The U.S. has none of the currency difficulties of the PIGS. We do have a government deficit expected to hit 10.6% of GDP this year and a total federal debt that will cross 100% of GDP in 2012, according to White House projections. The rolling crisis of the past three years has been an embarrassing exercise in exposing the financially underclothed. It doesn't appear to be over--and the U.S. isn't what you would call well dressed...
...China's holdings of U.S. government bonds did drop by 4% to $755 billion, the U.S. Treasury Department reported this week, but those numbers are from December, before the recent downturn in ties. China's vast holdings of U.S. debt give it only limited leverage, because any partial sell-off would harm the value of its remaining U.S. assets. Dumping Treasuries would also undermine the American economy, further dampening the market for Chinese exports. So even as the U.S. and China find a growing number of issues over which to argue, their economic interdependence helps keep the disagreements from spiraling...