Paul Krugman, "Greece Over the Brink": Is America Next?

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"The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents - #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back -- $30,000 for every man, woman and child. That's irresponsible. It's unpatriotic."

- Barack Obama, July 3, 2008

Well, US national debt has now reached an unsustainable $18.3 trillion, amounting to $57,000 for every American man, woman and child. Care to comment, Mr. President? And although today's headlines are all about the economic woes of Greece and Puerto Rico, the United States of America is not far behind, although no one dares say anything. You will recall the frightened silence of those observing the the emperor's parade in "The Emperor's New Clothes" . . .

In his latest New York Times op-ed entitled "Greece Over the Brink," Paul Krugman declares that "the creation of the euro was a terrible mistake," which trapped Greece in an "economic straitjacket." Observing that "[c]ases of successful austerity, in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive" (something Greece cannot do to the euro), Krugman urges Greek voters to reject demands from creditors for harsher austerity:

"This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end."

Regrettably, Krugman does not bother mentioning Puerto Rico in his op-ed. As reported by Michael Fletcher in a Washington Post article entitled "Puerto Rico says it cannot pay its debt, setting off potential crisis in the U.S.":

"The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.

Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.

For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy."

Puerto Rico cannot file for bankruptcy, and no one, least of all Krugman, knows if this crisis, involving both Greece and Puerto Rico, could snowball. Pretty it won't be.