What does Greece’s money trouble have to do with you?
Today the DOW Jones Industrial Average dropped 350 points just because tomorrow, Greece is probably going to default on their loan payments to the International Monetary fund. The European Central Bank froze funding to Greece, forcing them to close banks to keep them from collapsing, and to prevent money from leaving the country. Greeks scrambled to get cash out of ATMs all over the country after standing in lines for hours.
Account holders had strict limits on what they could withdraw. The Greek banks will remain closed for 6 business days. Those kinds of controls are called “Capital controls” and are used only in emergencies.
Greek Prime Minster Tsipras withdrew his negotiators from bailout talks late Friday. He then said he would send the decision to the people of Greece about whether they wanted to continue…a referendum to be conducted on July 5.
Across Europe, stock markets are shaking.
Greece’s financial woes are caused by overwhelming debt in a small country. They also may have to exit the “Eurozone,” which may mean a crunch for the Euro currency. Any downturn in the Euro could mean trouble for the United States in the long term. Greece would be the first country to exit the Euro, if indeed that occurs. (They are calling it a “Grexit”).
What does that have to do with you?
The United States has exposure to $12.7 Billion of the Greek debt. According to the National Debt Clock, the total debt of the United States is over $61 Trillion…while the national debt continues to grow from $17 Trillion.
While our economy is obviously much larger than the Greek one, the debt problem is also much larger.
If you have a credit card, for example, and you don’t pay it off every month, the minimum payment will continue to grow. Eventually, if you haven’t been able to pay it at all, the interest rate will finally outpace your ability to pay even the minimum. Pretty soon your creditors will be calling, demanding their money.
The United States currently pays nearly $3 Trillion in INTEREST alone on our debt. It’s not a pretty picture. We just print money to cover it, which works for the short term, but not as a solid fiscal policy.
Most analysts think Greece will not cause the United States a big problem. But it IS a harbinger of what may be in our future. Overwhelming debt causes overwhelming problems… it’s a fact of life. When spending out-paces income, a country, or an individual is going to run up against a problem.
Just like Greece.