and Greece depressed American savings in 401(k)s and
college and retirement accounts this week and then
healed much of the loss by the weekend.
for awhile, but that doesn’t mean over for good.
over Greece eased Friday when it looked like it would
get an emergency European bailout this weekend. China
calmed after its government wrapped a tourniquet around
a hemorrhaging stock market that’s been bleeding away
the savings of regular Chinese people caught up in a
recent stock market mania.
Greece has the potential to infect all of Europe, and
since China is the world’s second largest economy,
there is little distance between the overseas economies
and U.S. turf. So if the week’s episodes flare again,
the U.S. stock market and, consequently, American
retirement accounts will surely feel it.
YOU NEED TO KNOW ABOUT GREECE
is in a worse depression than the U.S. Great Depression.
It cannot repay more than $300 billion in debts, 25
percent of workers are unemployed and 50 percent of its
potential young workforce is without jobs. The economy
has shrunk 25 percent in the last few years.
wealthy Greeks have moved their wealth out of the
country. Banks would be bankrupt if it weren’t for the
aid they’ve been getting, and that aid is about to
cease unless Greece agrees to conditions Europeans want
claims Europe has imposed such strict restrictions that
it cannot grow enough to ever repay its debts.
sizable majority of the country recently voted to reject
Europe’s conditions for a new bailout, but without aid
banks will collapse and the nation won’t be able to
pay for everything from food, to medicine and oil.
DOES THIS MATTER TO THE U.S.?
is a country of 11 million people, and on that basis,
its fate isn’t critical to the global economy or the
if Greece can’t get the aid it needs, the concern is
it will leave the eurozone and potentially pave the way
for heavily indebted countries such as Portugal, Spain
and Italy to also leave without paying their debts. This
could destroy lenders and could cause a cascade of bank
failures because in a global system, banks are
intertwined. Analysts say Europe has implemented
safeguards against such a dangerous financial spiral.
they also use the word, "contagion," a
situation in which sick banks would make other banks
sick worldwide. If that occurred and Europe sank into a
recession, the U.S. economy would be impacted.
companies get about 11 percent of their sales in Europe,
and troubled economies buy less. Further, the euro would
sink in value and the dollar would be stronger. That
would make U.S. products more expensive in Europe and
potential buyers would purchase cheaper products
Greece doesn’t get aid from Europe, it might turn to
Russia, and allow Russia a key foothold in Europe.
perspectives will all be at play this weekend as finance
leaders from the Eurozone meet to decide if they will
grant Greece aid.
HAPPENING IN CHINA?
stock market plunged more than 30 percent from its high
on June 12, a tremendous drop in such a short time, and
could portend an economy about to crack.
analysts see evidence of slowing in the form of falling
commodity prices, some blame the stock market plunge on
crazy investing behavior.
the banking system under pressure, the government
encouraged working-class people to invest in Chinese
stocks, and for the first time allowed investors outside
China to buy stocks.
result: Stocks soared about 130 percent, then collapsed,
wiping out life savings for many Chinese.
types of developments leave painful memories," said
Steven Roach, senior fellow at Yale University’s
Jackson Institute for Global Affairs. The risk is that
individuals who have lost savings will not consume as
needed and will avoid investing in the future, he said.
he expects China’s economy to grow at about six to 6.5
percent, which is slower than the recent 10 percent but
not a recession.
IS THE IMPACT ON AMERICANS?
investors sold stocks last week rather than waiting to
finding out the impact of China and Europe on the United
States. Caterpillar, which depends on China for
machinery sales, fell 2.64 percent last week.
China goes into decline, "it will hurt U.S.
corporate profits because there will be an excess of
stuff around the world — too many hogs, steel, shoes
… and that would lead to price declines," said
Citigroup analyst Tobias Levkovich.
the U.S. remains primarily dependent on U.S. consumers
— only about 33 percent of the $11 trillion sales by
large U.S. companies are foreign.
funds in 401(k)s and other accounts, however, may show
signs of worry in the weeks ahead as investors wonder
about the fate of Europe and China. Last week the
average U.S. stock fund tracked by Morningstar lost 1.3
percent, while foreign funds on average lost 2.8 percent
and those focused on emerging markets — including
China and other countries that depend on China purchases
— lost 4.25 percent.