The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
But that doesn’t mean we should be feeling overly confident, some economic experts say. If Greece does default on its debts, it could create a crisis that spreads to other debt-saddled countries like Ireland and Spain.
And that could eventually lead to real economic losses here in America.
[Article: In Jobs Speech, Obama Warns Republicans on CFPB]
“It does not bode well for the European Union as a whole,” says Sheryl Garrett, founder and CEO of Garrett Planning Network, a financial planning firm. “That could very likely translate, at minimum, to lackluster returns for Americans who are invested abroad.”
Such a default is looking increasingly likely. Even Alan Greenspan, the former Federal Reserve chairman (who, rather famously, failed to see the gathering storm clouds of subprime mortgage lending and securitization that eventually caused the 2008 financial crisis) is pessimistic, telling talk show host Charlie Rose that the likelihood of Greece defaulting on its debt is “so high that you almost have to say there’s no way out.”
Many American banks have big investments in treasuries issued by European governments, and those institutions could be “up against a wall,” Greenspan said.
Which means that Americans invested in those banks could lose out. Many Americans also invest in money market funds, which themselves are heavily invested in European debt. About 44.3 percent of assets controlled by such funds are invested in European banks, according to a report by Fitch Ratings.
There’s growing concern that many of those banks own so much debt issued by Greece and other high-debt governments that those institutions may need to be bailed out by solvent countries, possibly including Germany and France. American investors could lose out in the process.
“I don’t think this will stay isolated to Greece,” Garrett says.
Other analysts believe that even in the worst case scenario, of multiple countries across Europe declaring bankruptcy in rapid succession, the impact on Americans may be limited.
“The average American consumer will not notice it,” says Ric Edelman, a financial planner. “It’s a country on another continent, and it’s the size of Connecticut. We should be much more concerned about the unemployment rate in California, which is essentially the fifth largest economy in the world.”
[Tool: Quickly assess your risk of identity theft for free]
The effects may be especially limited for people who are already on firm financial footing. Jim Ludwick, founder of Main Street Financial Services, advises his clients to keep enough cash on hand to cover three years’ worth of expenses. For people lucky enough to be able to follow his advice, the European debt crisis should pass like a blip, Ludwick says, since it won’t have much impact on their investment results in the long-term. But even for others who are not in that fortunate position, Ludwick doubts the Greek crisis will have much impact here.
“Right now I’m advising my clients that they shouldn’t do anything about the Greek crisis,” Ludwick says.
American consumers remain pessimistic about the economy’s future, according to current Fed chief Ben Bernanke, as recent economic reports point to a slowing of the economy and raise the specter of a double-dip recession.
Rolling bankruptcies across Europe probably won’t do much to buoy consumer confidence, Garrett points out. And since the American economy’s recovery depends largely on increased spending by the middle class, the biggest threat posed by a Greek default may be further confirmation to consumers that they should continue reining in their personal purchase habits. And as for whether the crisis in Greece will lead to a jump in interest rates (which would make credit more expensive) in the U.S., it’s too soon to tell, but at this point the European Central Bank says it has no plans to raise its interest rate for now, according to the Associated Press.
“We’re living in a house of cards,” Garrett says. “People are being as conservative as possible. How can we get confident in the economy if we don’t have confidence in the corporate and government leaders?”
[Featured Product: Looking for bad credit credit cards?]
Image: Hillary, via Flickr.com
March 11, 2021
Personal Finance
March 1, 2021
Personal Finance
February 18, 2021
Personal Finance