Beware of Greeks bearing debt…
The current spate of bad news coming out of Greece is adding more unsettled feelings all over world financial markets. But how does the potential default by Greece on it’s national IOU’s affect the small investor here in the U.S? Let’s take a brief look at what’s been going on of late first…
A quick look back…
It would appear the rent is now coming due for the prolongation of the Greek subsidization of its middle class for lo too many years. And it’s those subsidies that make our mess of a social security situation look financially rosy by comparison. But so many other countries across Europe are poised for the same fate, setting up a potential domino effect of national financial collapse. Spain may be next – Italy and France are also in rough shape. The fact that all are on the same monetary unit of the Euro also greases the wheels of this runaway train careering down a precipitous slope.
Who can come to the rescue?
In a more than ironic twist of fate, it would appear that Germany is the main player in the European community that is poised to help bail out Greece. And there is mounting political pressure on the German government and banking system to do so. One of the main proponents of this pressure is President Obama himself, who’s administration has a great deal to lose if Greece defaults. The domino effect of an unsettled world economy will quite rapidly affect the U.S. stock market. Which in turn will affect our banking system, even though the U.S, is not directly affected by a Greek default.
The latest positive news coming from Europe though, is that the European Central Bank (with Germany as one of the main players) will allow more funds to be borrowed by the Euro zone rescue fund, also known as the European Financial Stability Facility. This facility would be allowed to pump rescue funds directly into Greek and other floundering European banks, thereby increasing their liquidity if they are in severe danger of defaulting on their debt.
Currently, Greece’s lawmakers are poised to vote on a property tax law that would help reduce it’s overall debt, thus enabling the country to receive its next bailout loan installment. Greece is working closely with Germany to work on further debt-reduction measures for the troubled country.
The major problem for U.S. investors
It’s the U.S. banking system running scared that could have the most deleterious effect on small property investors. Credit markets, already tightened from the past several years by new, strengthened banking laws and individual bank regulations designed to protect further mortgage fraud, have produced incredibly steep standards on lending for investors. A credit default by Greece could have a trickle down effect of further tightening credit here in the U.S.
So it is hoped that Greece can make the painful cutbacks to a system that protects its middle class. In this way it can avoid any bailout need spurred on by Germany – and any other strong European set of banks, as a way of putting a stopgap in a European economy that could have many countries default in a rather large domino effect
photos courtesy of shamel-doodleorc.blogspot.com, friendlymantis.com, venitism.blogspot.com, world-countries.net