For an example of what a government debt crisis looks like, see Greece. That nation’s debt stands around 120 percent of its gross domestic product, and it’s looking more and more like Greece won’t be able to pay its creditors absent foreign intervention.
That, of course, makes it very risky for creditors to lend Greece more money – indeed, on April 27, the country’s credit rating was downgraded to “junk,” the lowest possible level. Like individuals with poor credit, what Greece can borrow, it will have to pay back at higher and higher interest rates. If Greece can’t borrow enough, it won’t be able fund its obligations. You get the picture of the downward spiral the debt problem unleashes.
Greece is a developed nation, yet finds itself in a position where it might default on its debt to other nations. Other European countries find themselves on the precipice as well after years of runaway public spending and expansions of the welfare state.
Here in the United States our debt is approaching crisis levels, and the situation in Europe provides a cautionary tale about what happens when profligate spending combines with a lack of fiscal restraint. The United States needs to get its debt under control in order to avert serious consequences in the years ahead.
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