I wanted to put out a few thoughts on what is going on in Greece and how it might affect the economy. Greece would not be the first country to be in default on some loans nor would it be the first to have a huge problem in its economy. However, it would be one of the largest to do so. Greece is the 43rd largest economy when I looked last.
The biggest issue will be uncertainty. If people are unclear on if the financial crisis in Greece will impact them, then they might not spend and the ripple affect of that can be larger than the actual problem in Greece itself. On the other hand, the amount of ripple is likely to be less than it was in 2008. In that case, the way that mortgages were broken up meant that many times the number of investments were affected than the actual number of loans that defaulted. It has a lot to do with the inherent risk assumptions in those investments.
As you have probably read, there is a considerable wrangling going on between the EU (led by Germany) and Greece over how to best deal with the crisis. Right now we are talking about debt repayments that are less than Google’s quarterly profit so the amount of money needed right now is very small. All the arguments are about the future and the debt that is bigger that Greece’s Gross Domestic Product (GDP). Many of the inherent issues in Greece were covered in Michael Lewis’ book “Boomerang: Travels in the New Third World”. The book is a good read but for those that don’t want to bother, Greece’s economic system has a lot of corruption and problems in it. This included the problem of very poor accounting leading the Greek government to not actually knowing how much it owed to whom.
Going forward, there is the possibility that Greece with exit the Euro as a currency and potentially leave the European Union (EU). I think in the long term cooler heads will prevail on both sides. There has to be some way to not crush Greek’s economy and allow for some form of chance to grow. Right now unemployment is about 25% and if things don’t change it will be a lot worse. I want to remind you that Greece is very near the regions of the Middle East that are very unstable and that would be bad for all of us. The question is how this will all play out between the parties.
But for real, plan for a great Holiday and don’t get over concerned. One of the problems (and a great read on this is Michael Crichton’s book “State of Fear”) is that the media has an interest in playing up a crisis. I remember in the recent Napa Earthquake that my parents thought we might be in big problems here in Santa Rosa. CNN was playing the one burning trailer over and over again. Now this was not fun in Napa, but context is really important if you are not on the ground. News organizations have stopped providing neutral context and started providing crisis context. This helps ratings, but not knowledge.
Normally I would remind you to visit my BNI group at Legends at the Bennett Valley Golf Course on Fridays just before 7AM. This week we are off for the Holiday, but will be back next week. The “Best Networkers In Town” would be happy to have you visit. Great way to meet around 40 Business People here in Sonoma County. If you want any other information about this let me know. We provide Breakfast and you get to meet 40+ Business Owners. Ask yourself: If I do business with just one of those people, how much revenue can I make. You can find the group HERE!
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