Greek Crisis Hits the US

There is an article in The Wall Street Journal, which can be reached via this URL and read in full by subscribers.  For the rest of us there is this:

Dozens of U.S. cities and towns are being bruised by the deepening Greek debt crisis even though they are thousands of miles away and don't own any of the country's bonds.

From a skating rink in Everett, Wash., to New York City's schools to Chicago's O'Hare International Airport, interest rates on some bonds have soared since late May and could rise even further because money-market investors are less willing to buy some of the $17 billion in municipal bond deals backed by Dexia SA, a Belgian-French bank shaken by its exposure to government debts in Greece.

It is a very complicated financial world out there.

Interest rates are why sovereign debt matters.  For the US on 2 August we may not have an increase in our debt ceiling, in which case the question is who gets paid.  If we don't pay the interest on our debt our interest rates will go up as lenders protect themselves against our perfidy.  If Social Security doesn't get paid we will learn that the idea that the Social Security Payroll Tax was anything but a tax was not true.  Also, the voters will punish our elected leaders, based on how they view the actions of those elected leaders (the conventional wisdom is that the Republicans will be punished and the Democrats rewarded).  If we elect to not pay those who have provided goods and services there will be a lot of weeping and wailing and gnashing of teeth, but if we make it up a month or so later it will all calm down, but contracting for those goods and services will become more expensive as the interest rates those firms pay for money to tide them over until Uncle Sam pays will go up.  The first and third options will, of course, increase our national debt or force us to further cut services or to raise taxes.  On the other hand, just increasing the debt ceiling will cause us to eventually end up like Greece.  We should be thankful to Greece for breaking trail for us in this international financial tundra.

Regards  —  Cliff