The only major difference is that European nations are farther down the path to fiscal collapse. The welfare state was adopted earlier in Europe and government spending among euro nations now consumes a staggering 49 percent of economic output. This heavy fiscal burden, especially when combined with onerous tax systems, helps explain why growth is anemic.
But the United States is only a couple of decades behind. According to long‐run forecasts from the Congressional Budget Office, the burden of federal spending will reach European levels as the baby boom generation retires.
At some point, investors are going to realize that the United States is on an unsustainable path. Whether that’s 10 years from now or 20 years from now is anybody’s guess.
What we do know, however, is that Greece, Portugal, and Ireland already have stuck their snouts in the bailout trough, and it’s probably just a matter of time before Italy, Spain, and Belgium are in the same category. Heck, they’re already receiving indirect bailouts from the European Central Bank, which is buying up their dodgy debt in hopes of postponing the day of reckoning.
The one silver lining to this dark cloud is that the United States still can turn things around. Greece, Italy, and other welfare states have probably passed the point of no return, but it’s still possible for American lawmakers to fix the entitlement crisis by turning Medicaid over to the states , modernizing Medicare into a premium‐support system, and transitioning to a system of personal retirement accounts for younger workers.
If those reforms don’t take place, the consequences won’t be pleasant. To be blunt, there won’t be an IMF to bail out the United States.