Local expert talks debt problems of Greece, Puerto Rico
SAN FRANCISCO (KTVU) - While Greece's debt problems have captured the headlines as well as worries on financial markets worldwide, much less attention has been paid to the impending debt default of Puerto Rico, a U.S. Territory that potentially has greater impact here in the U.S.
Greece's problems can become a problem for our economy if there’s an impact on our vast trade with Europe. Puerto Rico's problems are ours right now.
Being only two percent of the overall European economy, the Greek economy is not much to worry about.
"The money the Greeks owe is really now owed effectively (to) the governments of Europe instead of the banks of Europe," said Terry Connelly The Dean Emeritus of the Golden Gate University School of Business.
But, Europe's currency, the Euro, could be damaged.
"Greece has nothing left to lose, but Europe does have a lot left to lose including its prospects for ever getting paid back," says Dean Connelly. The only real immediate risk to American investors is panic thinking that Greece's fall would cause a worldwide recession. "Right now, there's no reason for that fear just yet," says Connelly.
But, if on July 20th Greece doesn't pay several billion Euros to the European Central Bank, then Greek banks would lose the Central Bank's support and likely collapse.
Then danger to the U.S. would come if the Euro suddenly experiences a sudden, huge drop in value against the dollar, because Europe is a major trading partner. "Unless that happens, the U.S. market should be able to ride through it and your 401(k) will have a little dip but it will tend to find its own equilibrium soon enough," says Connelly.
On the other hand, Puerto Rico owes $73 billion it simply cannot repay. Much of that debt is held by U.S. hedge, pension, money market and mutual funds. "They're selling on the open market at big discounts already," advises the former business school Dean. That could impact retirement, pension and other consumer held financial instruments.
"It shouldn't be a problem as big as say if Illinois had a problem, which has got its own problems with its pension but nothing of the immediacy of Puerto Rico. They've got some debts they've got to pay now," concludes Connelly.
While it's also true that China's stock market has lost about a third of its value in the past three weeks, it's still 70 percent higher than it was a year ago.
If it keeps plunging, that would be a big problem for the world economy.