Could it possibly get any more exciting? The world’s two largest economic powers, the United States and the European Union, both on the brink of disaster. At the same time. And for the same underlying reasons. At the center of the drama is a concept called ‘default,’ generally defined as a failure to meet a financial obligation. In Europe, Greece is in imminent danger of defaulting on its debts, an event, if allowed to take place, is predicted to bring down the European Union and bring an end to the euro. In the United States, the government is in danger of defaulting on its debts, an event that would weaken the value of the dollar and tarnish the fiscal reputation of the United States as the world’s number one financial superpower and just might cause the collapse of the entire global financial system.
When individuals default on their financial obligations, the consequences can be dire. If you are one of the millionswho have lost their jobs during the current recession and you fail to pay your credit card bill or your home mortgage in a timely manner, you could have your credit card canceled or your home foreclosed. In either case, your default goes into the record and you are forever marked. You will now find it difficult to get a loan or establish credit because you can no longer be trusted to pay your bills as promised. And you may also find it impossible to land another job. No one wants to hire a deadbeat. You are caught in a downward spiral that began when you first defaulted on one of your financial obligations.
The same sort of thing awaits nations that default on their obligations. Even before defaulting, just the possibility has driven up the interest rates on Greece’s debts to an unsustainable 16% and beyond which only makes their situation more difficult. Meanwhile, mindful of the apocalyptic consequences should Greece default, the leaders of the European Union are in a desperate all-out 24/7 search for an agreement on how best to prevent the worst from happening. A similar search for a way for the US Government to avoid default is taking place in Washington. In both places, in Europe and in America, there are stubborn ideological battles being played out that make it difficult to imagine how any meaningful agreements can be reached. If default is successfully avoided in both instances, it will only result from a last-minute short-term chewing-gum-and-bailing-wire fix that only delays the inevitable. However, if either Greece or the United States does default, horrific consequences will ripple throughout the global economy. There will be pain. People will get hurt. Riots. Chaos. Blood in the streets.
Combined, the United States and the European Union represent 45 percent of the world’s economic activity. If they both default, then we will have reached that point where capitalism’s fatal contradictions have finally led to its inevitable demise.
Here’s “A Tale of the Ticker,” as sung by Frank Crumit during the dark days of 1929.