Greek Economic Crash- How does that affect us? (Need Answer)

18 Replies

Hey BP!

Now given, before you read this, I am no economic genius, and most likely even ignorant as far this goes, but I have some questions. So with that said, here you go.

I've been watching and reading lately about Greece and it's economic struggles and it makes me wonder. Since our economy seems to be interconnected with other economies, especially the European Union which Greece is a part of, wouldn't what is happening in Greece affect us? I may just be hearing the bad side of things, but I'm curious about each side; especially the good and bad side in real estate.

I know I'm asking some pretty big questions, but if any experienced investors (or young economic prodigies) have any advice, I'd really appreciate it. 

Thank you!

Regarding "wouldn't what is happening in Greece affect us?" I'd say their default would affect us about the same way the last few times they defaulted. Not much. Unless of course you live there, vacation there, have real estate there, etc.

Greece's economy is about the size of North Carolina's.  

If they default on their entire debt, which is almost inevitable, it will mean short term a bit of pain and the EU will be better off in the long run.  Their nation is run by a bunch of people who have the fiscal responsibility levels of children.

The only thing I know is what my mortgage broker has said. If Greece defaults look for lower rates in the short term. 

Focus on the micro, not the macro!  

If you are a real estate investor in South Carolina and you are finding good deals in which the numbers work, you will do well irrespective of what goes on in Greece.

If this is more of a hypothetical question, if everything blows up in Greece and Europe, then look for more monetary easing by the US Fed (i.e. lower interest rates) to fight contagion spill over effects.

Originally posted by @Tyler Stamets :

The only thing I know is what my mortgage broker has said. If Greece defaults look for lower rates in the short term. 

My rudimentary understanding of economics agrees with this.

Instability in the Euro will push people towards safer assets like US bonds.  Greece is actually just a very small reason among a big pile of reasons that people want safe assets like US notes or US property (perceived to be very safe among foreigners) at the moment.  Chinese stock market took a nosedive (~25%) this week and last.

The events in Greece didn't sneak up on anyone. Their default has been in the news for years. 


The events in Greece are of incredible concern if you live or are heavily invested in treasuries of one of the other Piigs. But I don't think it will tip off Financial Armageddon.  For me, one of the key lessons to learn from Greece is how long things can go before actually hitting a breaking point. Greece has not been paying its debt obligations for years. They would restructure with a new set of promises, and none of the new promises would be kept, so then they would restructure with another new set of promises. It was pathetic. But they got away with it for years.

I agree with all the comments here.  But I think there is one macroeconomic long term ramification to this worth tracking.  As others have said, Greece has been involved in this hand waving non-action, in which they assure the EU they are going to reform and stop overspending, then they turn around and tell their voters they won't have any austerity as then they continue to do absolutely nothing about the problem, this is exactly what @Gene Hacker has said.  However the big farce is that the EU, especially Merkel, who represents their biggest debtor buys into this farce for political reasons.  In fact the Obama administration just said last week  something ambiguously implying we should backstop Greece and the Euro as if in it's our economic best interests to keep this failed experiment known as the EU solvent. 

 As the Euroskeptics have been pointing out across the pond, we have these global elitists world government types, which the administration is fully part of, setting aside their domestic best interests, and taxpayer money, chasing some goal of a unified economy in which the rich and responsible help the poor and reckless (ala Greece).  So the real danger is that we end up printing more money and floating more debt chasing this dream.  We already have massive amounts of debt which are going to be triggered by any real drop in unemployment, so we now have a prime opportunity to make this situation even worse by getting entangled in a mess in Europe we have been extremely fortunate to avoid thus far.

Well that all helps very much! Thanks guys. I reallh appreicate your answers. We will see how it all pans out soon. 

If Greece goes broke, it won't affect a thing in the US. US banks have very little exposure to Greek debt, and the US probably doesn't export much to Greece either.

And if Greece goes bust, then the ECB picks up a lot of debt, which in turn will be paid for the the Germans and Dutch. The British won't be helping the ECB as it's not their central bank being stitched up, the French help no one, Italy/Spain/Ireland/Portgual have no money and are just as broke, which leave the Germans and Dutch on the hook for about 240Bn Euros. Which frankly, the Germans can easily afford - and frankly - they need to pay because out of the European project they've done the best out of it, much to the decline of nearly everyone else.

The problem is that if Greece goes bust, then Italy/Spain/Portugal/Ireland are all in such dire financial straits, that people might start bailing on those economies as well. And Germany cannot afford Italy going broke, let alone Italy+Spain+Ireland+Portugal. Although the Brits will be guilted into helping Ireland as they have before, the Brits would happily watch Spain go down the toilet.

It's the exposure to Italy and Spain that really counts.

Now Spain two years ago managed to kick the can down the road a few miles, but Italy hasn't yet......

But having said that, I really don't see US banks having much exposure to either Italy or Spain either.

I think the more significant story in the Greek economy is the possibility of another bail-in. It's been used in Cypress already and it looks like Greece is next which is causing a bank run of sorts. That strategy for bailing out banks is being floated around in the US and elsewhere in the event of another banking meltdown.

I think GREXIT it will put even more pressure on US real estate prices and especially commercial real estate.  My hypothesis:

1.   US is perceived as a relative safe haven therefore all asset types and especially real estate will see increased dollars chasing deals.

2.   The US dollar as a consequence will continue to strengthen.

Originally posted by @Dana Whicker :

Greece's economy is about the size of North Carolina's.  

If they default on their entire debt, which is almost inevitable, it will mean short term a bit of pain and the EU will be better off in the long run.  Their nation is run by a bunch of people who have the fiscal responsibility levels of children.

 Sounds very similar to ours, unfortunately!

Hi @John Tucker

The situation in Greece is changing every day. The current consensus is that the Greek ATMs will run out of cash within a few days (lots of withdrawals and no deposits). Today and tomorrow European leaders will be frantically trying to agree a new bailout. This would enable the European Central Bank to start giving them emergency loans again. Click here to read a useful blog from the BBC this morning (a far better source than US equivalents). 

Whatever way it pans out, Europe and Greece both face horrendously expensive choices. That will probably cause a flight to US assets in the short to medium term and a strengthening dollar. 

The consequences are fascinating from a political and economic perspective, but not hugely relevant for regular US house flippers and investors. In terms of my day to day business buying and selling houses in Tampa, I won´t be changing anything.

I remember Brandy Alexanders on the beach in Nicosia back in the mid 70's & apart from their political issues at the time with Greece both seemed to be a thriving economies.

But unsustainable debt & the following should be a wake up call to any scholar of GDP regardless of the size of the respective economy !!!

 http://widerimage.reuters.com/story/ghost-factorie...

I am signed up for "Mortgage News Daily" (http://www.mortgagenewsdaily.com/) daily interest rate reports because I'm considering a refinance. That group has been discussing Greece in relation to mortgage interest rates. Last week it looked like interest rates were bouncing higher and would stay that way, but if anything the event in Greece has slowed down this occurrence. 

Their daily posts are informative as to the way various finance experts view various political and economic activity in relation to interest rates.

I'm hoping interest rates will move slightly lower before I lock! Anyone who wants to provide a reason that this is foolish, please do. However, from what I understand, economic stability in US and in Europe were supposed to create a rise in interest rates, however things haven't turned out to be quite as stable as expected.

Originally posted by @Andrea W. :

I am signed up for "Mortgage News Daily" (http://www.mortgagenewsdaily.com/) daily interest rate reports because I'm considering a refinance. That group has been discussing Greece in relation to mortgage interest rates. Last week it looked like interest rates were bouncing higher and would stay that way, but if anything the event in Greece has slowed down this occurrence. 

Their daily posts are informative as to the way various finance experts view various political and economic activity in relation to interest rates.

I'm hoping interest rates will move slightly lower before I lock! Anyone who wants to provide a reason that this is foolish, please do. However, from what I understand, economic stability in US and in Europe were supposed to create a rise in interest rates, however things haven't turned out to be quite as stable as expected.

 Bond rates and thus mortgage rates tend to bump up in June, coincidentally (not really) when house sales peak.      

When Greece goes...and it will...the other periphery will not be far behind. The problem with Greece is not that its economy is big or anything like that. Its the issue of contagion. 

It will create a chain reaction that will push the dollar higher and stock markets around the world lower. Bonds will be OK in the short run so rates will be low until the FED decides to "fix" things again and starts up the printing presses again. Then we may see a large fall in the dollar, bonds rates may creep up, stock market would start flying along with commodities...especially gold/silver. 

Although, everyone above has done a very good job of answering this questions, I'll put in my two cents.

The stock market will freak out and overreact to every piece of news that comes out of there.  (One of the biggest reasons you have intelligently decided to invest in RE.)  This will cause minor blips on interest rates over the short term.  

But what really matters to us is; How is RE doing?  If you think the market is strong, then it will continue to be so.  If you think it is OK then there will be a few very small issues, but won't cause any major break downs.  If you think the RE market is in a weak position, then this could be the thing that sets huge negatives in motion. (But I don't think so.)

My local market seems to be in a very good state.  The biggest problem to my investors here is finding quality rentals.  There just isn't enough inventory.  So IMHO we have very little, with regard to Greece, to worry about.

On a grander scale though, we are looking at what can happen to the US if we continue to follow some of the same policies the Greeks did.  (Buying votes with favors.)   Greeks affect on the US economy is minimal and unless it brings down the EU it won't give us much of a concern, unless we don't learn from it and follow the same path.

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