How Greek Problems Will Slam US Shores

As this week’s headlines have been blaring, the financial calamity entangling Greece is spreading throughout the western world, and slowly but surely across the Atlantic. The European Monetary Union continues to weigh its limited options. It’s taking into consideration the weak mechanisms currently in place to aid in Greece’s debt problems, and also its duty to protect the integrity of the euro.

Having recently experienced our own financial crisis right within US borders, and under the not-so-watchful eye of legislators and regulators, it’s tough not to feel a bit of schadenfreude now that the tables seem to have turned. But, have they really? Is there any way the US can stand to benefit from the crisis abroad?

The Financial Times explains how it may and may not:

“The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

“Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

“Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.”

Even through the rosiest of rose-colored lenses provided by the White House there is no balanced budget on the horizon. The diminished financial stature of the US doesn’t really allow for wiggle room, nor for any additional European crises. As it unfolds, the Greek mess is only liable to make matters worse. Read more about the Greek crisis coming to America in the Financial Times.

The Daily Reckoning