Sunday, November 6, 2011

Europe's Ills Could Torpedo U.S. Recovery

Is it possible that a tiny little country like Greece could set in motion an economic Tsunami that could hit the U.S. like a tons of bricks - and torpedo our economic recovery?

Absolutely. After all, it's the global economy, stupid. The United States and Europe are close trading partners - the two biggest economies in the world. The problem is not just Greece, which the Europeans have enough money to keep afloat. The problem is that the debt burden in other countries, like Italy, is a far greater risk - and there's not enough money in Europe to fix it.

If Italy goes into the tank, or Spain, Portugal, etc. the United States will take a big economic hit. Don't take my word for it.

"there is the same fear now that a meltdown in Europe this time tied to sovereign debt, the debt of countries that are collectively known as PIIGS in an affectionate way - Portugal, Ireland, Italy, Greece, and Spain. That debt is sitting on bank balance sheets in Europe. And there's a fear that the problems tied to the debt will bring down the banks and bring down the financial system in a way that cascades around the world again." Source: Wall Street Journal Reporter Sudeep Reddy via NPR.

"The economic health of Europe is vital to the prosperity of the United States," says Daniel Price, managing director at Rock Creek Global Advisors, who was President George W. Bush's top deputy for international economics."

And this:

"Our big banks are tethered at the hip to their banks," says Mark Zandi, chief economist at Moody's Analytics. "They're all at risk. They're all exposed."
(Source: USA Today:

And the problem is not just American bank exposure. A Europe crash would also cut jobs in the U.S. from our exports:

"More than 20% of all U.S. exports go to Europe, making it the nation's largest trading partner. About 14% go to the 17 eurozone countries, behind only Canada and Mexico. Total exports to the European Union were $177 billion in the first eight months of 2011, up 15% from last year."

"(American) Industries that are most dependent on European trade include chemicals, transportation, computers and electronics. Companies such as Microsoft, IBM and Hewlett-Packard are heavily invested in Europe, as are aerospace companies such as Boeing.

If orders in Europe slow for aircraft or computers, "that can ripple right back into economic activity here," says Kent Hughes, director of the Program on America and the Global Economy at the Woodrow Wilson International Center for Scholars."

Another example: "The eurozone is the biggest market for U.S. companies with direct foreign investments. More than half the sales of American-owned foreign affiliates are in Europe.

Even now, "a lot of companies are sort of battening down the hatches in terms of their capital budgets," Orszag says.

The European crisis has been a drain on U.S. automakers for most of the year."

So, pay attention. Unlike Vegas, the problems in Europe will not stay in Europe. They could impact your job and investments.

And not one GOP candidate has addressed how they would deal with it in their economic plan (of those who actually have one).

Pass it on. And stay tuned...

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