Will Greece Go Broke And Take The U.S. With It?

This piece's purpose is to alert you because what is happening in Greece could easily panic the market for government securities and cause interest rates to skyrocket.

To end the Greek financial crisis, the 16 member Euro Zone finance ministers told investors Greece can borrow up to 30 billion euros ($40 billion) from them, and at just 5% interest on a 3 year loan. The International Monetary Fund {IMF} may loan up to 15 billion euros more. As a result many financiers viewed the Greek crisis as over.

But market panic has set in again and the interest rates on Greek debt are rising sharply. Greece is now appealing to the Euro Zone and the IMF for a bailout.

We predicted this. In the next stage, Greece's debts will overwhelm the Euro Zone and the IMF commitments, for Greece is broke, meaning it will eventually default on its debts.

As for the bailouts, loaning them more money will only add to the debts they are already unable to pay. And that's assuming the Euro Zone and IMF will actually loan Greece the money.

Greece must confront its deep financial problems by slashing its expenses and raising its taxes. But even the idea has sent thousands of Greek protesters into the streets, and if implemented, it could cause riots and bring down the government.

As for a Euro Zone bailout, in addition to Greece there are four other Euro Zone members Portugal, Ireland, Italy and Spain, also in serious financial trouble. If need be, will they too be bailed out?

Please make no mistake, this is not just a European problem but a global one for it could easily set off a panic in government debt markets, sending interest rates all over the world, through the ceiling.

If you are American, Greece is a preview of events to come. For the U.S. is by far the world's biggest debtor nation and without loans from global investors, it could not pay its bills NOW. One of those investors, China, has been selling U.S. government debt for the last four months. For several months, so has Newport Beach, CA based PIMCO, one of the world's biggest market makers in U.S. government debt.

As America's bills mount, a day of reckoning is coming.

If this is hard to believe, think of the financial crisis that began so abruptly in 2008. Everything was going great, until suddenly it wasn't and the world was on the brink of financial collapse. The "experts" never saw it coming and they don't see it now. How bad is the U.S.'s spending? Please see: www.usdebtclock.org/

But we Americans, working together, can learn from Greece's crisis. We must rein in our government's wild spending before we sink into a financial abyss so deep that it will swallow our nation and take the world with it. The good news is if we make a concerted effort, we are capable of doing that and we can avoid this Greek tragedy.

Dick [last updated, 4/19/10]