Ask the Expert: When Will the Federal Debt Cause a Greece-Like Crisis in the U.S.?

Question: Given how fast the federal debt is growing relative to GDP, how long before the U.S. is forced into austerity measures by foreign creditors, as we see happening in Greece? Answer: You can hardly turn on the television these days without hearing a politician or pundit warning the American public that we’ll “end up like Greece” if the federal government doesn’t get its fiscal house in order soon. And it’s true that we don’t want to end up like Greece: The  global financial crisis caused its already-problematic debt to soar; financial markets began demanding higher and higher interest rates to fund that debt; which in turn undermined the economy further, again causing deficits to rise. But let’s take a step back and recognize that, for several reasons, the U.S. is in a dramatically different economic position than Greece. Perhaps the most important difference between the two countries is that the U.S. prints its own currency, meaning it can essentially create money out of thin air. (The Federal Reserve usually does this by buying U.S. government debt from banks, crediting those banks’ accounts with dollars that hadn’t existed before.) By contrast, when Greece borrows money, it borrows Euros, a currency over which it has no control. The upshot is that there is essentially no risk of default in the classic sense of the term, where markets quickly refuse to fund government operations and the government must resort to swift and deep cuts to government services. If our creditors demand we repay them, we can just print dollars. That’s not to say  the U.S. doesn’t need to worry about its debt. For developed economies that print their own currencies — like the U.S., the U.K., and Japan — the risk is not outright default, but runaway inflation. In other words, if we have to resort to the printing press to pay our debts, this may cause the supply of dollars to outstrip demand for them, and the value of our currency to plummet. What would this look like? Prices for many

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