Well, hindsight is 50/50, and after the fact that the Greeks voted to reject the bailout terms of the European and International Monetary Union — and potentially abandon the euro — the world has seemed to accept this, going forward without falling into a financial abyss. Although things have yet to fully play out, I’m going to chime in with my opinion on this right here and now. The reality is the Greek story has been news for a number of years now, and even new bad news, in my opinion, will fail to shock the world markets the way many are predicting would happen. A big shock to the markets will come when something extraordinary or unexpected happens, and I don’t believe that what is happening in Greece has not already been priced into the markets.
Greece as a Foreshadowing, Rather than a Catalyst
The facts are the facts. Governments like to make bad decisions at the expense of their citizens, and foreign governments are no exception. Greece should never have been allowed into the eurozone from the start. The nation has a long history of out-of-control spending, weak revenues, union dominance, budget deficits, and debt defaults. Richer countries like Germany and the Netherlands are tired of bailing Greece out. The Greeks, in turn, are angry that monetary policy has been outsourced to Frankfurt and that they have had to adopt harsh austerity measures.
Greek Unemployment is Already at Depression Levels
Here are some startling numbers…
- Greece’s economy has shrunk by a staggering 25% in five years.
- Unemployment is above 25% (and 50% among young people).
- The country’s debt-to-GDP ratio has jumped from 120% to 180%.
- Suicide rates are skyrocketing, up 35% in less than two years. The economy is one-quarter smaller than it was before the world financial crisis. And a move out of the euro will only send the Greek economy into a deeper hole in the short run.
As many look towards Greece as a catalyst for the global collapse, I see it more as a foreshadowing of how things are headed here in the states. The U.S. is in no doubt being bailed out by its own Federal Reserve, and for that matter, it’s helped by the rest of the world that still purchases treasuries because they are the known safe haven people have been conditioned to trust.
Profligate spending, weak revenues, union dominance, large budget deficits, and government shutdowns are very much a reality here in the states, and to ignore this is something I believe will be a detriment to those who don’t prepare.
One thing many people aren’t talking about is U.S. foreign debt, which as of March 6, 2015, U.S. public debt reached $13.08 trillion (74% of fourth-quarter 2014 GDP). Of that sum, $6.1 trillion (47%) is owned by foreign investors. China owns the biggest chunk of U.S. foreign debt, at $1.3 trillion, followed by Japan, at $1.2 trillion. Just one month prior, Japan gained the lead for top holder of U.S. debt, but China snatched that title back almost immediately. These top two creditors constitute 59% of U.S. foreign debt. If you ask me, I would speculate that the U.S. will really start to see its issues come to a head when foreign bond holders really start to dump U.S. debt and flood our market with currency that nobody wants.
Sadly, when you compare the U.S. to the Greek situation, it may not look as bad on the surface, but know that we are on a course for destruction and we can look to Greece to see how it might eventually play out for the U.S. in the future. At that point, one can hope that they are properly diversified and educated on their own personal financial plan. Be sure to check out our resources for ways to further your education and plan for your future.