Why the U.S. (and the U.K.) is not Greece

I have been having a good discussion about the US versus Greece on Twitter with my favourite Canadian blogger MoneyEnergy.

Our disagreement has now spilled into the comments on an old post of mine that she was kind enough to take the time to read about how Wall Street caused the credit crisis. (I wrote it in March 2008, but it’s taken on new relevance in the light of the alleged Goldman fraud.)

The discussion first began on Twitter after MoneyEnergy (real name Clare) posted these thoughts:

Clare: Anyone else think it unfair that S&P, Moody’s haven’t downgraded US credit rating yet even a notch? They obviously have the bite for others.

Maybe it’s completely ok to take advantage of the USD reserve status? = only reason US can keep printing its debt. Not better than Greece.

It’s really sad to see such a small nation punished and self-punishing (its workers striking, etc –> can they do anything else?).

Putting aside thoughts of Greeks working 40 weeks a year, retiring at 50, and generally living high on the hog, I soberly replied:

Monevator: US can print money. Greece can’t coz in Euro. Also cant devalue (as US has). Key differences.

I thought that was that: I had spoken.

But Clare read my tweet, digested…

…and struck back!

Clare: Right; US can only print so much $ b/c USD is the world reserve currency and other countries need to hold it.

On a fundamentals basis, US has a similar ratio of debt.

The real point of blame is the financial “innovation” that allowed toxic assets to be sliced and rebundled, ***then given AAA ratings.***

Fair comments that I know others agree with, but I personally don’t think it’s true the US is only escaping a downgrade because of its reserve status.

• The US is an incredibly dynamic and valuable economy that is still top of the world.

• Greece’s better days are 2,200 years behind it.

Also, the UK is doing exactly the same thing with its own currency – printing money, and also like the US using own-currency status to allow a devaluation that makes its exporters more competitive. And yet the only place that Sterling is a reserve currency is in the fantasies of septuagenarian former Army generals.

I said so! Sort of.

Monevator: Technically there’s no way the US would default cos can print currency. What you’re describing is why people still buy $$$…

…despite what you believe are similarly poor fundamentals. But Greece faces 2 issues: fundamental/confidence, and also…

…the concrete fact that it CANNOT physically print money, so can literally run out. UK is same as US (debt but own currency)

Before I bored Clare to sleep, I also decided to extend an olive branch. 😉

Monevator: Agree about subprime tho. From 03/08: https://monevator.com/wall-street-made-this-mess-wall-street-must-pay-for-it/

MoneyEnergy struck back!

Clare: Poor fundamentals aren’t my “belief,” though, it’s fact. But I know we both know the same argument; it’s just too bad for Greece.

At which point Clare graciously followed the link above and took the time to read the article and add more of her thoughts on Greece in the comments.

And I ungraciously argued with her again. (I’m a terrible host, I know. )

Anyway, it’s a good debate. If you’d like to join in our discussion, I’d love to have more comments on that thread about the US versus Greece!