A lot of investors I talk to are so discouraged by the mess the American economy is in that they're looking to put all their money overseas. Doesn't matter where. As long as it's not America.
That's a real mistake. It's a form of myopia. Sure we've got problems. But because we all live here, we see those problems up close and personal. What we don't see is that right now everyone has problems. It's just that the problems in other economies seem smaller because they're farther away.
So if you invest outside this country -- for no better reason that it's not here -- then you're at risk of going from the frying pan into the fire, without even realizing it.
Look at what's happening now with Greece. Sure, you're probably not investing in Greece. You're investing in Europe! And you're telling yourself you're okay. You're not. The problems in Greece are revealing deep problems in the very structure of Europe -- problems that have been there all along, waiting to bite investors in the butt, but you weren't aware of them because Europe is so far away.
Let me explain.
We know that the problem with Greece is its government debt, and the debt is growing every year because government spends more than it collects in taxes. The risk is that investors will shun Greek government bonds, sending interest rates sky-high, making the problem even worse. The endgame would be default on Greece’s sovereign debt.
Unthinkable? You're not trying hard enough. Try this on for size. Since Greece won its independence as a nation 180 years ago, it has been in some form of default on its government debt more than half the time. So what are you going to try to tell me? This time is different?
Oh sure, sure. This time there's the European Union making sure everything will be OK. They have a common currency, the euro. They have rules. Right? Wrong.
The rule for a nation to qualify for use of the euro is that is has to have a budget deficit of no worse than 3% of gross domestic product, and an accumulated debt of no more than 60%. But get this. Greece joined the currency union in 2002 -- and in every single year, from 2002 through the present, it has been in violation of the rules.
Why was Greece admitted to the euro in the first place? Who knows? No doubt the bureaucrats who dream of a Europe with the size, scale and interconnectedness of the United States just couldn't resist. And now they're paying the price.
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Defaults on government debt causes problems oversees & in the #UnitedStates #Barrons warns against investing abroad: http://tiny.cc/Ko0jw
Defaults on government debt causes problems oversees & in the #UnitedStates @Barrons warns against investing abroad: http://tiny.cc/Ko0jw
From @smartmoney Thinking of Investing in Europe/Greece? Think Again http://ow.ly/1a6gg
Thinking of Investing Abroad? Think Again http://bit.ly/ceNiGo
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