Skip to comments.Greek exit from euro could plunge US into recession
Posted on 05/25/2012 1:57:30 PM PDT by SteelToe
If Greece leaves the euro, the U.S. economy could easily slip into recession. That cost is worth bearing, however, given the long term consequences of Europe struggling with a currency regime that makes little sense.
Essentially, Athens would exchange drachmas for euros in circulation among its inhabitants, remark private debts and bank accounts to drachma, and until conditions stabilized, limit withdrawals at Greek banks and capital outflows.
As the drachma fell in value, Greek exports would increase, reducing unemployment. consumers and businesses, with their debt re-denominated into a cheaper currency, would enjoy a windfall and spend more. All would help lift the Greek economy out of crisis, but this can only happen if Germany and other European governments cooperate.
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Well it is good to know that we are NOT in a recession right now.
Yes, it could damage the "booming" US economy. /sarc
Submitted for your perusal.
The euro was a bad idea with the best intentions, and now the sensible course for all involved is to cut losses and return to the sanity of national currencies
I don’t agree.
The Euro was a bad idea, it was started to ruin the dollar in the world market, It certainly started to do that up until countries started getting eaten up by debt.
Our own debt is going to put us in a deeper recession sooner or later anyway, We are already in recession , it never ended. All talk by Obama of our coming back from recession was and is BS.
After 0bama, Reid, and Pelosi could it even be a noticeable negative change?
It's an election year with a dimocrat incumbent for POTUS, we CAN'T be in a recession even if we are!
Sounds like the start of World War I
If a place as insignificant as Greece (or Serbia in 1914) can set off events that will turn the US and the world economy on its head, then the system is loaded and primed for explosion anyway. Doesn’t matter what the spark is.
Kinda reminds me of the trailer of a Doctor Who episode called, “The End Of Time.”
Or not. But I’m sure that Obama will try to blame it on Greece.
If Greece exited the Euro, no one in North America would notice if it weren’t reported in the press.
If Greece exited the Euro, no one in North America would notice if it werent reported in the press.
We’ll notice it... their counterparties will demand a bailout , we are already THE source of funds for Europe anyway ... this will be yet another QE and we will see it (at the least) in inflation.
“Well it is good to know that we are NOT in a recession right now.”
Darn. Just when I was starting to sit back and roll in it!
there fixed it...
Spend more on what? Olive oil? What other consumer goods does Greece manufacture? Imports would double in price -- the Greeks might spend more, but they'd get a heck of lot less for their money.
Devaluations only benefit governments. They are the ultimate inflation.
I wish that some bright individual would suggest that the way out of the pit for Greece is to use the old German
Papiermark -> Rentenmark -> Reichsmark technique.
Their fiat currency Papiermark was a hyperinflated disaster, so to move to a new, stable currency, they created an intermediate buffer currency, the Rentenmark. It was just used by banks and governments, and was backed by gold, so was extremely stable.
Once it was working at a high level, then the Reichsmark, backed by Rentenmarks, was introduced. It could not inflate, and remained stable through WWII.
In Greece’s case, when the Drachma goes to heck, the European Central Bank should introduce an intermediate stable currency, for example called the “Greco”. To leave Greece, Drachmas would have to be converted to Grecos, then converted from Grecos to Euros, all carefully managed by the ECB.
Anything Greece exported would be bought by the ECB and resold at a markup to other nations, with the markup going to reduce the Greek debt. And commodities the EU had in excess could be sold to the Greeks at a deep discount.
This would do much to strengthen the Drachma, with the goal of it eventually becoming directly convertible to Euros.
Good grief...obama's been screwing the pooch on the economy for over 3 years now. We're knee deep in a depression and the media can't hide the fact.
So now they're saying it could get worse?!? Why? greek exports? Yeah, a sea of olive oil is going to break us even further....more likely because obama will bail them out I'm thinking...
@#*$& all socialists.
Silver lining: The US economy may roar back as Europe inevitabley plunges into another of their cyclic genocidal wars.
That's it in a nutshell. They'll have somebody else to blame for the coming Big One. I half suspect they are working for that excuse right now while assuring the Euros they will be helped. The "crisis going to waste" thingy.
how do we allow ourselves to get so tightly entwined in another country’s economy that it causes our downfall??
those reponsible, even though they may be one of us, should be charged with treason - maybe a stretch but....
Spot on, good sir.
However, because of the dire consequences of a Greek exit, EU will stall until after the Greek and French parliamentary elections.
Eventually, IMO, EU will compromise with Greece.
A Greek exit from the euro would lead to a collapse of the single currency.
Who would invest in any euro sovereign debt if it could be defaulted at a whim?
Not in my book. The EUSSR still has plenty of ammo. Before Greece leaves, ECB will issue eurobonds. JMO.
The eurosocialists have not reached the end of the can kicking road, though the cul-de-sac is visible.
So, you think that they will continue to feed cash to Greece? Eventually, the “donors” are going to reach a breaking point.
Absolute nonsense. And I do mean that nonsense!!!!!
Economic situation in Europe were dire long before 2008, nobody wanted to talk about it, now it is on as if Greece is destroying Eurozone, idiocy at its best.
Greece was never a strong in EU, it was always the poorest economy in there, only reason Greece was even allowed in EU was of political reasons, and besides, Greece strongest assets were besides tourism, their food exports.
It is France and Deutschland that need to be look at, as well American Banking Institutions, like Goldman Sachs, remember folks, its all business, it is easy to put a person under the bus and pretend you are safe.
Now big doo dooo hits blading fan and people are looking for scape goats, this is nothing else but screw up what in the flue deals.
I have some news for you, sir. The Greeks have already defaulted on their Eruo based sovereign debt.
After the elections, Greece and EU will sit down and work out a compromise. Call it face saving.
This, of course, fixes nothing. Greece will get some money already promised.
That does not fix Spain, Italy, or France. For them, Euro Bonds (printing money).
Not news. But EZ still has a pot of euros for Grease when they do a little jawboning after the election.
EZ can't let Grease leave.
EZ is still doomed, just not yet.
Permit me to state the obvious:
That is bloody unsustainable and when the bill comes due, it will be damned painful.
What do you suppose will happen whe the bond market figures out, if they haven’t already, that these bonds are no more “safe” than the Euro denominated Greek bonds they already got shafted on?
Bond traders aren’t stupid, after all.
As usual, where there is a market, the big boys will make out like bandits. They can't wait.