It’s All Greek to Me

Greece’s economy has been floundering for quite some time and as the government scrambles to stay afloat, the citizens are protesting those moves in sometimes violent uprisings.  What’s scary is the impact this all has outside of Greece.  In a Reuters article (6/24/2011), “European banks and insurers are scrambling” and “stocks continued to decline and credit default swaps for Greece, Italy and Portugal widened on the renewed concerns about a potential default. The Euro also declined against the US dollar for the third straight day.”

James Neuger (6/22/2011) of Bloomberg writes that,  “…European leaders’ failure to tame a crisis that is entering its 21st month and has world leaders growing anxious over the prospect of a new financial tsunami as they shake off the effects of the last one.”  He quotes Andrew Balls, the head of Pacific Investment Management Company European portfolio management, “The 256 billion euros in aid committed to Greece, Ireland and Portugal have done little more than buy time against a looming default.”  He goes on to say, “If you quarantine Greece, Ireland, and Portugal, take these countries out of the market, have them do their adjustments, then you can buy time for Spain, buy time for banks to recapitalize.”

Greece’s Papandreou and his new government is trying hard to restructure the spending and bring in austerity measures. The people don’t like it.  Protesters line the streets and police are called out to break up the mobs with tear gas.  Neuger writes about “Reform Fatigue” that is now in the streets; support of these floundering economies is fading as well. Some see a split coming for the euro.  The split is between the wealthier northern countries and the poorer ones of the south.  It is now being reported that Italy is facing serious financial difficulties after supposedly healing up from economic wounds in 2009 and 2010.  Moody’s is threatening to downgrade Italy’s credit rating.  A USA Today article (6/24/2011)  says that this “Italy’s  financial system has come under further scrutiny on fears of contagion from the Greek crisis.” The article states that, “The move comes after Moody’s put Italy’s public debt on review for possible downgrade over concerns about low growth and high public debt, which is around 120% of GDP is one of the biggest in Europe.”

It seems that, in today’s global economy, the impacts of one country stumbling are significant.  The investments of banks all over the world which hold the debt of these governments become unstable.  Countries that are stronger and hold investments in many of these powerful banks have to throw their good money after bad. Everyone suffers. An article from (6/22/2011) noted Jean-Claude Juncker, head of Eurogroup – the eurozone’s finance minister, said, “…that the Greece crisis could affect Italy and Belgium, saying that “We’re playing with fire.”” The article went on to state that “The crisis could now be spreading beyond Europe’s most vulnerable nations.  If it continues, even France’s credit worthiness could be in danger.”

So what does this upheaval in European economies mean to us? The U.S. is not far behind.  We’ve been warned about our credit rating.  We have no money left.  We spend more than we bring in.  Our debt is unsustainable.  When (and I do hope it happens) they do initiate the necessary spending cuts needed to get our budget under control, I suspect we’ll see protesters, not unlike what is happening in Europe, hit the streets.  People like the idea of fixing our budget woes but hate it when those cuts hit them.  The alarming thing is that many cities have had to cut police and fire in order to meet their budgets.  That means the cities may have trouble keeping up with the potential issues that could arise.
What do you do?  Here are just a few things to think about:

  • Pay off your own personal debt so you don’t get caught up in any interest rate hikes that are likely to come.  Live within your means.
  • Become independent: don’t rely on government hand outs in any way shape or form – they likely will go away
  • Be prepared for higher taxes, even on your 401k’s (yes, our government has even talked of that)
  • Be prepared for angry citizens who don’t like the cuts that will be required

I know I haven’t even come close to covering everything you should do to steel yourself for the economic upheaval I believe is coming our way.  These are just a few things to think about.
Feel free to comment on other good ideas.

And They Said the Recession Was Over…

I remember hearing reports in 2010 that the recession was officially over in 2009. The National Bureau of Economic Research (NBER), an independent group of economists, reported that the recession started in December of 2007 and ended in June of 2009.  Well, I didn’t buy it.  Things still looked pretty bad to me.  My gas cost more, my food cost more, many friends and acquaintances were losing jobs and homes.  And it hasn’t seemed to get any better.  In fact, since 2009, my food bill has gone up for staples like milk, eggs, sugar, and fresh produce.

A May 25th article in Bloomberg by Alan Bjerga and Leslie Patton explain that U.S food-price inflation may top the government’s forecast because higher prices for meat, dairy and energy hit large corporations like Nestle, the largest food company in the world, McDonald'’s and Whole Foods (the world’s largest natural foods grocer).

Another Bloomberg article on June 8, 2011 by Sungwoo Park said “Gold May Gain as Rallies in Corn, Oil Fan Concern Inflation May Accelerate.”

The Daily Caller posted an article by Neil Munro (June 8, 2011) with the headline, “Federal Data Shows Troubling Unemployment, Underemployment Trends.”  That article states that, “Less than half of African-American men now have full-time jobs, and less than half of all white men will have full-time jobs in 2018…”

A recent CNN poll was written about in the left-wing site Huffington Post (June 6, 2011) by James Sunshine, stating that nearly half of all Americans believe we are nearing a great depression.

Time Magazine’s June 8th cover story: “What Recovery? The Five Myths About the U.S. Economy.” 

  • Myth 1: This is a temporary blip, and then it’s full steam ahead
  • Myth 2: WE can buy our way out of all this (Kat’s note: QE/stimulus packages don’t work)
  • Myth 3: The private sector will make it all better
  • Myth 4: We’ll pack up and move for new jobs
  • Myth 5: Entrepreneurs are the foundation of the economy (Kat’s note: our current Administration’s policies have made entrepreneurship a complicated and difficult.  This suppresses that inherent entrepreneurial spirit that has long been the back-bone of the U.S. economy.)

So are you better off now than you were 2 years ago in 2009 when the recession ended?