The Collapse of Greece – When Countries Go Bankrupt
The markets are such that efficiency is the key component. That being said, the story of Greece shows what happens when countries go effectively bankrupt.The markets can be brutal. Let’s assume you are a company selling the proverbial widgets. Well, if you sell them in an efficient manner, you probably will make a profit. If you do not, the market will pass you by and bankruptcy will often be the end result.
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The same process does not really work with countries. Countries can print money and thus efficiency is an often forgotten issue. This is the story with Greece. It has promised massive amounts of benefits that it simply can’t afford. The collapse of the country has resulted in a huge bailout from the EU, but comes with massive cuts in those benefits. Thus, we see the social unrest.
This process is effectively one of a country going bankrupt. The question now is how it will work with large countries. Consider the United States. Yes, the US of A. People are currently alarmed at the nearly $13 trillion dollar debt the country has. In truth, this is a drop in the bucket. The country is really looking at a total debt of nearly $100 trillion when you add in the unfunded liabilities from the Medicare, Social Security and underfunded pensions. It is a disaster and the country is effectively bankrupt in that if it was a private company, it would’ve been sunk long ago.
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The real question is how the situation is dealt with? Greece can get a bailout because it is relatively small. The US is the largest economy in the world. Who has a hundred trillion dollars to bail it out? No one! Thus the conundrum. The bond market continues to show faith in the ability of the United States to grow. With an aging population, however, that faith may come to be significantly tested in the future.