Home > Personal Finance > What Could the Greek Default Mean for You?

Comments 0 Comments

Here in America, the Greek debt crisis may seem far removed from our everyday lives. Not only is it happening an ocean away, it involves things like “commercial paper” and “Euros,” things that most Americans never encounter in their everyday lives.

But that doesn’t mean we should be feeling overly confident, some economic experts say. If Greece does default on its debts, it could create a crisis that spreads to other debt-saddled countries like Ireland and Spain.

And that could eventually lead to real economic losses here in America.

[Article: In Jobs Speech, Obama Warns Republicans on CFPB]

“It does not bode well for the European Union as a whole,” says Sheryl Garrett, founder and CEO of Garrett Planning Network, a financial planning firm.  “That could very likely translate, at minimum, to lackluster returns for Americans who are invested abroad.”

Such a default is looking increasingly likely. Even Alan Greenspan, the former Federal Reserve chairman (who, rather famously, failed to see the gathering storm clouds of subprime mortgage lending and securitization that eventually caused the 2008 financial crisis) is pessimistic, telling talk show host Charlie Rose that the likelihood of Greece defaulting on its debt is “so high that you almost have to say there’s no way out.”

Many American banks have big investments in treasuries issued by European governments, and those institutions could be “up against a wall,” Greenspan said.

Which means that Americans invested in those banks could lose out. Many Americans also invest in money market funds, which themselves are heavily invested in European debt. About 44.3 percent of assets controlled by such funds are invested in European banks, according to a report by Fitch Ratings.

There’s growing concern that many of those banks own so much debt issued by Greece and other high-debt governments that those institutions may need to be bailed out by solvent countries, possibly including Germany and France. American investors could lose out in the process.

“I don’t think this will stay isolated to Greece,” Garrett says.

Other analysts believe that even in the worst case scenario, of multiple countries across Europe declaring bankruptcy in rapid succession, the impact on Americans may be limited.

“The average American consumer will not notice it,” says Ric Edelman, a financial planner. “It’s a country on another continent, and it’s the size of Connecticut. We should be much more concerned about the unemployment rate in California, which is essentially the fifth largest economy in the world.”

[Tool: Quickly assess your risk of identity theft for free]

The effects may be especially limited for people who are already on firm financial footing.  Jim Ludwick, founder of Main Street Financial Services, advises his clients to keep enough cash on hand to cover three years’ worth of expenses. For people lucky enough to be able to follow his advice, the European debt crisis should pass like a blip, Ludwick says, since it won’t have much impact on their investment results in the long-term. But even for others who are not in that fortunate position, Ludwick doubts the Greek crisis will have much impact here.

“Right now I’m advising my clients that they shouldn’t do anything about the Greek crisis,” Ludwick says.

American consumers remain pessimistic about the economy’s future, according to current Fed chief Ben Bernanke, as recent economic reports point to a slowing of the economy and raise the specter of a double-dip recession.

Rolling bankruptcies across Europe probably won’t do much to buoy consumer confidence, Garrett points out. And since the American economy’s recovery depends largely on increased spending by the middle class, the biggest threat posed by a Greek default may be further confirmation to consumers that they should continue reining in their personal purchase habits.  And as for whether the crisis in Greece will lead to a jump in interest rates (which would make credit more expensive) in the U.S., it’s too soon to tell, but at this point the European Central Bank says it has no plans to raise its interest rate for now, according to the Associated Press.

“We’re living in a house of cards,” Garrett says. “People are being as conservative as possible. How can we get confident in the economy if we don’t have confidence in the corporate and government leaders?”

[Featured Product: Looking for bad credit credit cards?]

Image: Hillary, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team