As the European debt contagion continues to rattle world markets, some wonder if the United States will soon be facing a similar predicament.
Greece, Portugal, Spain, and Ireland, all of whom have been downgraded by credit rating agencies, possess budget deficit to GDP ratios of approximately 9-14%. These excessive debt levels far surpass the maximum EU benchmark of 3%.
To stave off panic, the EU and IMF have been forced to guarantee an unprecedented $1 trillion bailout package. A number of riots and protests have already broken out as governments promise to enact punishing budget cuts and tax hikes in order to tap into the rescue fund.
Likewise, the United States is currently facing a budget deficit to GDP ratio of approximately 10.6%, putting it right in the range of debt-laden EU countries. And since late 2008, the US has spent trillions on bailout and stimulus packages in an effort to revive the economy.
As a result, the minority of pundits who accurately predicted several aspects of the current recession, like Gerald Celente, Nouriel Roubini, Marc Faber, Robert Prechter, Peter Schiff, and Dr. Ron Paul, are forecasting an even more severe economic downturn in the not-too-distant future if the US does not alter its current fiscal course.
And while the vast majority of Americans are worried about the record deficits and exploding national debt, voters, by a whopping 2:1 margin, reject cuts to Military, Social Security, and Medicare spending. Yet, these three areas make up about 75% of the federal budget.
If such a high level of resistance to meaningful cuts endures, it seems difficult to imagine America avoiding Europe's current debt crisis. For the last ten years, both Republicans and Democrats have refused to make any tough decisions on the $13 trillion national debt.
But, if Europe serves as any lesson, it demonstrates that at some point, those decisions will be forced upon us, whether we like it or not. The longer we wait, the more painful the consequences are sure to be for all Americans, rich, poor, and middle class.