The Greek Tragedy that unfolds daily in the media is a sad drama and commentary on the long-term effects of largesse. They have given until it hurts and in the process created an uncertain future for one of the oldest and largest economies in the human history.
Euros were created as a way to bring the trading partners of Europe together so they could act more like the United States of America and do commerce without boundaries. However, someone neglected to account for the differences in culture between these geographically close traders. What has unfolded over the past year is a drama of historic proportions.
Greece is emblematic of how giving away social programs without consideration can cripple a country and create a wave of doubt about the entire Euro trading zone. How does this effect teacher, you ask? Primarily it has lowered our interest rates for just about every type of interest related investment or financial instrument. Additionally, it has created an aura of doubt whereby investors don’t know whether to shit or get off the pot.
Doubt=Indecision and indecision cripples economies, not decimating rather slowing them down to a crawl. For a teacher that means lower interest rates on your investments and on your loans. It suggests a type of economic limbo and until all the issues surrounding the Euro based trading partners are resolved this limbo will continue.
Here are my suggestions for dealing with the Euro dilemma.
1. Refinance and be ready to do it again in a year.
2. If you invest in bonds, look for rates to ratchet down again, which can cut your income and cause appreciation in value.
3. Stay away from the riskiest assets like gold, oil and many other commodities, unless you are willing to be a trader and stay close your computer.
4. If you are planning a vacation, stay away from areas where emotions are high, Athens, Greece for example.
5. Look for opportunities in US based multi-national companies that pay dollar denominated dividends and have most of their money coming from the USA, China, and Brazil.
A few years ago, the USA was in a very similar predicament to Europe today and it found a way out by driving interest rates down. This effort by the Federal Reserve drove the dollar’s value down and shifted people’s focus to riskier assets like junk bonds. Along with this strategy the Federal government printed billions of dollars and loaned it to big banks so they could in turn lend it to their clients at lower interest rates, in effect allowing the struggling companies to refinance their debt and save billions on interest charges. Of course the small investors saw their interest payment s from bonds drop dramatically as well.
Today, I have heard elder retirees say things like, “How can I pay for anything, I am getting under one percent for my CDs.” Elders, who only buy conservative investments like bank guaranteed CDs, and did not want any risk, have suffered the most. As a consequence of the federal government lowering rates the smallest block of voters has been the most effected. What’s new? In the case of Europe, the pensioners and elderly will most certainly feel the most pain due to the crisis in Greece. Greece is not the problem; it is the canary in the mine, when it dies the other Europeans will run for the cave’s maw. Put another way there will be an exodus from risk (Euro) and a flight to safety (dollars). Which may drive rates lower since most people agree the USA is still the safest haven as long as our banks don’t load up on more high yielding European debt!