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European Debt Crisis
Old 04-28-2010, 07:41 AM   #1
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European Debt Crisis

I just read a piece by Krugman about how scary the European debt crisis is becoming. We keep hearing about Greece ready to default with Portugal, Italy and others not far behind. But I haven't heard all that much about the anticipated impact on markets. Yesterday markets fell 2% on the Greek debt being downgraded to junk but that doesn't seem tooextreme. Any thoughts about the short and long term impact of a few defaults on markets? Do we have our heads in the sand or would the impact not be all that big?
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Old 04-28-2010, 08:27 AM   #2
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The impact will be in higher interest rates for everyone and tighter lending standards. Ultimately it means slower growth and probably higher taxes due to government borrowing costs. Ultimately it means that you need to save more cause your retirement stash won't grow as fast as you had hoped.
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Old 04-28-2010, 09:26 AM   #3
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Quote:
Originally Posted by MasterBlaster View Post
The impact will be in higher interest rates for everyone and tighter lending standards. Ultimately it means slower growth and probably higher taxes due to government borrowing costs. Ultimately it means that you need to save more cause your retirement stash won't grow as fast as you had hoped.
8 predictions in 3 sentences. Impressive.........
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Old 04-28-2010, 09:34 AM   #4
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It means a buying opportunity in southern Europe?
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Old 04-28-2010, 11:03 AM   #5
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I have been putting my investment money into a european index (ETF VGK) pretty much all year. I'll do it again this month, in a few days. I think both Greece and the EU will be better off if Greece drops out of the EU. Same for the other countries in a similar predicament.

As far as investing goes, I don't think multinationals have that much to do with the country they are based out of. Just like here in the US where earnings have been great, while unemployment is still very high. So, political/economic issues may be a buying opportunity.
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Old 04-28-2010, 11:13 AM   #6
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The impact will be in higher interest rates for everyone and tighter lending standards. Ultimately it means slower growth and probably higher taxes due to government borrowing costs. Ultimately it means that you need to save more cause your retirement stash won't grow as fast as you had hoped.
True - if your living in Greece. For the rest of us it probably won't matter very much.

Here is a good overview of sovereign debt defaults: Economics focus: Default settings | The Economist

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Old 04-28-2010, 12:01 PM   #7
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For us Europeans, this is hardly news. Europe was already deep in debt before the crisis and the latter has only exacerbated a long standing problem. I have always voted to lower public spending, cut Cadillac pension plans and benefits for public employees, and cut entitlement programs because it was clear to many of us that the spending was unsustainable. But I guess, in the end, nothing brings the message home like your creditors cutting you off. Maybe that's what it will take for Europe to finally make much needed changes. But it is not going to be easy. Politicians are now stuck between wary creditors and an overtaxed populace hooked on government cheese and that doesn't take kindly to rationing. No easy way out.
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Old 04-28-2010, 12:11 PM   #8
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I am a little surprised that international bond funds haven't taken it in the shorts. They are down some, but it doesn't seem like panic selling to me.
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