The comparisons between the USA and Greece remain rampant with many commentators arguing that the USA is on the verge of bankruptcy and insolvency. But we should remind readers of a number of important differences here:
- The USA is effectively a contingent currency issuer meaning that the USA has control of its own Treasury and Central Bank. This means that the odds of “running out of money” is virtually zero since the Treasury has its own financing bank.
- Greece is effectively using a foreign central bank as its primary banker since the European Central Bank operates as their central bank. This means that the ECB could theoretically shut off the money flow into Greece and force them either to leave the EMU and use their own Central Bank for financing (which would very likely coincide with hyperinflation) or default as they try to raise funds from the private markets.
- The USA is a massively productive economy that has an extremely diverse source of financing.
- Greece is a tiny and unproductive nation that has a non-diversified and low quality source of financing.
These are massive differences between these two countries in both their inherent structures and their economic production. Comparing the USA to Greece is irrational and counterproductive.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.