A Likely Scenario: US Defaults On Its Own Debt Before Greece Does

Wall Street hit its biggest four-day rally earlier this month amid optimism that Greece will avoid default. The Dow Jones Industrial average was up 153 points, S&P’s 500 Index went up 13 points – even our Consumer Confidence Index registered optimistic activity in the US after a long period of pessimism. But is the US celebrating too soon?

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With news of Greek lawmakers approving the second critical legislation tied to austerity, coupled with stabilizing US housing market data, Wall Street cheered and ended the week in positive territory.

Still, the lingering fear remains that Greece would not be able to meet its international financial obligations, given its economies inefficiencies and dull recession.

What if Greece Defaults Anyway?
In the dreadful, yet plausible, scenario that Greece defaults, it spells the threat that central banks and lenders would cut back drastically on lending activity, signaling start of a slowdown of the global economy. For the US, such an external global shock would only jeopardize its recovery process as it continues to deal and grapple with the aftershocks of its 2008 subprime crisis.

According to a report from Fitch Ratings, key US funds have half of their assets held in European banks. While US banks have limited exposure to Greece, exposure to European funds that have Greek debt holdings is another cause for worry should the Greece bailout falter.

Read the full article by Michele Lin on EconomyWatch: Should Wall Street Be So Sure About Greece Deal?

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