Greece's Crisis Foreshadowing America's?

Greece is a financial basket case, begging for international help. Is America heading down that same road?

Many of the same risky financial practices that now imperil the Greeks were at the center of the all-too-recent U.S. meltdown.

As with Greece, America's national debt has been growing by leaps and bounds over the past decade, to the point where it threatens to swamp overall economic output. And in the U.S., as in Greece, a large portion of that debt is owed to foreign investors.

Not good, if these debt holders begin to wonder if they'll be paid back. A foreign flight from U.S. Treasury securities could sow financial chaos in the United States, as happened when many investors lost faith in Greek bonds.

It's something that could affect all Americans. The U.S. has never defaulted on a debt, and even the hint of such a possibility could send interest rates soaring and choke off a fragile recovery.

How long can the United States remain the world's largest economy as well as the world's largest debtor?

"Not indefinitely," suggests former Federal Reserve Chairman Alan Greenspan. "History tells us that great powers when they've gotten into very significant fiscal problems have ceased to be great powers."

After all, Spain dominated the 16th century world, France the 17th century and Great Britain much of the 18th and 19th before the United States rose to supremacy in the 20th century.

"Unless we do things dramatically different, including strengthening our investments in research and education, the 21st century will belong to China and India," suggests Norman Augustine, the former CEO of Lockheed Martin who chaired a 2009 bipartisan commission studying the nation's top challenges.

The Greek government has taken stiff austerity steps in an effort to get a lifeline from the European Union, sparking strikes and violent demonstrations.

Some of the same risky strategies used by U.S. hedge funds and other professional investors in a failed effort to profit from subprime mortgages in this country - and which led to the 2008 financial near-collapse - are now being employed by those betting that Greece will default on its debt.

Greek Prime Minister George Papandreou, who met with President Barack Obama at the White House on Tuesday, is calling for "decisive and collective action" here and in Europe to crack down on such rampant speculation and unregulated bets. He is also seeking more favorable European interest rates for loans.

Speaking outside the White House, Papandreou welcomed support from Obama and some European leaders for such efforts and for the austerity measures taken by his own government. He said it shows the "labor and sacrifices are not wasted. Of course, our struggle is not ended, it continues."

Many economists say it's a stretch to compare the U.S. economy, by far the world's largest, to Greece and other distressed small economies of southern Europe. They say many of Greece's problems are unique to that nation and aggravated by a monetary system that rigidly binds 16 nations to the same currency, the euro.

But others argue it may only be a matter of time before the U.S. faces a similar, and potentially graver, crisis.

"Someday it will happen if we don't get our act together on spending, our debt under control and our economy to grow faster," said Allen Sinai, chief global economist for New York-based Decision Economics Inc., which provides financial advice to corporations and governments.

With signs pointing to a weaker recovery than after other post-World War II recessions, U.S. consumer spending is likely to remain unimpressive and the jobless rate high for some time. Sinai said that suggests there won't be enough growth to push down federal deficits by much. "It's a political keg of dynamite," he said.

Greece's national debt now equals more than 100 percent of its gross domestic product, the broadest measure of economic activity. U.S. debt - now $12.5 trillion - is fast closing in on the same dubious milestone.

Nearly all of Greek's debt is held by foreign governments and investors. In the United States, roughly half is owned by global investors, with China holding the largest stake.

By contrast, Japan's debt is proportionately even bigger - about twice its GDP - but the impact is cushioned by the fact that most is held by Japanese households.

"The more open you are to the rest of the world, the more likely you're going to have a problem if you start running large deficits and large debt loads," said Mark Zandi, founder of Moody's Economy.com, and a frequent adviser to lawmakers of both parties.

Zandi does not see any major fallout from the Greek fiscal crisis in the United States for now, other than a possible temporary hit on potential European export markets.

However, he said, "global investors at some point are going to start demanding a higher interest rate. And that's our moment of truth. If we don't address it by cutting spending and raising taxes, some combination of the two, then we're going to have a problem."

Polls show growing public anger over deficits and government spending. The issue is a potent one for the upcoming midterm elections, and a particular liability for majority-party Democrats.

Calls have sounded from both sides of the political aisle for deficit reduction. And Obama last month set up a bipartisan deficit commission to find ways to get the country's budget deficit, now adding more than $1 trillion a year to the national debt, under control.

But the panel is a weak substitute for what Obama really wanted - a commission created by Congress that could force lawmakers to vote on remedies to reduce the debt.

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EDITOR'S NOTE - Tom Raum covers economics and politics for The Associated Press.