How Greece's Debt Crisis Affects America

From USNews.com:

Earlier this week, Greek Prime Minister George Papandreou traveled to the United States to promote a message: We're in this together. The debt crisis that has threatened the Greek economy and the stability of the European Union's monetary policies "very much involves America's interests," Papandreou stated in a speech at the Brookings Institution in Washington.

The prime minister—who was born in St. Paul, Minn.—even connected the current crisis to the Great Depression as well as the Great Recession. "If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago," he said.

But the path from a Greek crisis to a U.S. crisis is not a direct one. The European Union is hoping it can contain Greece's debt crisis before the problems spread across the continent—threatening the stability of all countries that use the euro, or the euro zone—and then over the Atlantic.

The crisis began shortly after the election last fall of the new socialist government led by Papandreou. State officials revealed that Greece's budget deficit was at 14 percent of GDP—almost twice what the official Greek government statistics had reported. Two months later, Moody's downgraded Greece's debt to A2, raising the possibility of Greece defaulting on its debt.

If Greece defaults, "it risks exacerbating the economic downturns and could even reignite an acute financial crisis" through higher interest rates, Marc Chandler, global head of currency strategy at investment firm Brown Brothers Harriman, wrote in a report.

U.S. In Recession That Began Last December

From Washington Post.com:

It is official: The United States is in a recession—and it started a year ago.

The nation's economy peaked, and the recession began, in December 2007, the National Bureau of Economic Research announced today.

The group's Business Cycle Dating Committee, the semi-official arbiter of these things, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."

While analysts have been all but certain that a recession has been underway for months, there has been some debate over exactly when it began. Last winter, employers started cutting jobs and growth slowed significantly, but the decline appears to have accelerated over the summer.

The committee concluded that the start of the recession was December 2007 -- due in large part, it said in a statement, to the decline in jobs that began that month. But it noted that many other data points confirm the diagnosis.

"The committee determined that the decline in economic activity in 2008 met the standard for a recession," the group said in its statement. "Evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months."

The NBER committee could eventually conclude that the recession has already ended. However, economists outside the group think that is unlikely, given that most economic data released in recent weeks have been getting worse, not better.

The NBER is a private, nonprofit group based in Cambridge, Mass. Its Business Cycle Dating Committee currently includes seven leading macroeconomists, and they made the recession call in a conference call Friday night, according to the group's statement.

An eighth member of the committee, Christina Romer, an economist at the University of California at Berkeley, resigned last week; she has been named chairman of the Council of Economic Advisers in the Obama administration. Her husband, fellow Berkeley economist David Romer, remained on the committee.