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.

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