Greek Debt Crisis: What Could it Mean for the U.S. Economy?

How is the U.S. economy doing, despite the Greek debt crisis?

Pretty good, based on these factors:  

• job creation picked up in April and May, according to data provided by the U.S. Bureau of Labor Statistics
• housing sales increased in the all-important spring selling season (National Association of Realtors, U.S. Commerce Department)
• consumers are more willing to spend (U.S. Bureau of Economic Analysis)

That's a plus for S&P 500 company profits, which are predicted to rise a modest 2.2% in Q2 versus one year ago, compared to an estimated decline of 2.8% expected at the start of the quarter (Thomson Reuters).

This month, the U.S. economy hasn’t received quite as much press as the economy of an increasingly unstable island nation: Greece.

Few countries are as rich in history and culture as Greece. Economically speaking, however, Greece won't have any effect on the real U.S. economy. The U.S. exported $773 million in goods to Greece in 2014. Compare that with a U.S. economy that totals $17+ trillion (U.S. Bureau of Economic Analysis).

The worries that are bubbling to the surface are squarely focused on the credit markets, the financial markets, and the banking system. This could have an impact at home.

An Economic History Lesson

Since 1829, when Greece became an independent nation, it has been in default or rescheduling its debt 51% of the time through 2006 (First Trust). This most recent Greek debt crisis started in 2009, so, according to prevailing wisdom, financial markets have had plenty of time to prepare.

What's different now is that Greece no longer uses the drachma – an independent currency. In the meantime, it has become part of the 19-nation European bloc that shares the euro.

At this point in the Greek debt crisis, the country is facing the unprecedented circumstance of either tearing up its contract with the euro or being forced to give the currency up entirely. Were either of those scenarios happens, it could create heightened uncertainty because so many markets are interwoven.

Understanding the June 29 Drop in Stocks

Added uncertainty usually affects stocks, and I attribute it to a nearly 2% selloff in the Dow on June 29 (MarketWatch).

Of course, context tells a different tale. Compare the 350-point daily loss in the Dow with the 4.4% drop registered the day after Lehman Brothers collapsed in September 2008 (Wall Street Journal). Not to mention, the dollar was little changed against the euro, although we might have expected it to surge on safe-haven buying.

How Will Greece’s Instability Affect the U.S. Economy?  

Greece is too small to affect the global economy, financially speaking. But if it does contribute to significant tremors in credit markets – think the fallout from the collapse of Lehman Brothers in September 2008 – it could leave a mark. Skeptics, however, argue that this unprecedented situation could indicate something more serious.

The facts?

About $350 billion of Greek debt (in the aggregate) is at risk, but only around $40 billion resides in commercial banks. Out of that $40 billion, $14 billion is owed to U.S. banks (Guggenheim Investments, MarketWatch).

The bottom line?

The U.S. economy probably doesn’t have a lot to worry about, but we can't really be sure because this is truly an international financial anomaly.

The Role of ValueAligned? Partners

As a Monmouth County financial advisor and stock analyst, I’m here to help investors nationwide keep their financial plans in focus and not be deterred by stock market volatility caused by the Greek debt crisis or any other economic event. Learn more at www.valuealigned.com.