How A European Economic Collapse Would Effect the U.S.

Vanity | 10/13/2012 | Vanity

[PieterCasparzen]

Large banks, toast.

What about U.S. exports ? I hear this from the talking heads. We must be concerned about our exports ! EEEeek ! If Europe "collapses", we won't be able to sell them our goods and services !

Well, here are our top 15 export clients, according to census.gov:

Rank	Country	Exports (Year-to-Date)	Percent of Total Exports
---	Total, All Countries	1,480.7	100.0%
---	Total, Top 15 Countries	1,061.9	71.7%
1	Canada	280.9	19.0%
2	Mexico	197.5	13.3%
3	China	103.9	7.0%
4	Japan	66.2	4.5%
5	United Kingdom	56.0	3.8%
6	Germany	49.1	3.3%
7	Korea, South	43.5	2.9%
8	Brazil	42.9	2.9%
9	Netherlands	42.8	2.9%
10	Hong Kong	36.5	2.5%
11	Singapore	31.4	2.1%
12	Belgium	29.9	2.0%
13	France	27.8	1.9%
14	Australia	27.5	1.9%
15	Taiwan	25.9	1.7%

[PieterCasparzen]

Looks like Germany and France combine for a whopping 5.2% of our exports.

Oh, and exports are only about 10% of our economy.

[cripplecreek]

The fed loaned European banks trillions of phony dollars that we’re supposed to eventually turn into real money so I’d say we’re all pretty much screwed.

[driftdiver]

Simplistic view. Its a global economy and the system is heavily interlaced.

[entropy12]

Correct, even though US does not export a lot to Europe, other countries in that list do, and they are already feeling the pinch of European contraction going on as we speak. The world economy is indeed intertwined, no way getting away from that.

Every previous worldwide economic slowdown began with sudden problems erupting in a single country or area.

[himno hero]

Given that the US is the hub.... if the US catches a Obama cold, that will affect many as pnuemonia.

[entropy12]

Yap, if the radical socialist from Chicago and disciple of Frank Marshall Davis the self proclaimed communist, gets 4 more years, get ready for much more economic funk, deep recession, coal power plants going out of business, electricity rates doubling, gas prices reaching European levels of $8/gallon, 75 million on food stamps, all a prelude to economic collapse in US which will affect every country, especially 2nd biggest and export driven economy of China.

[cripplecreek]

Economic disaster is coming no matter who is elected. Anyone who believes otherwise is either lying to themselves or is a moon.

At this point its all a matter of how steep the cliff is and how far it is to the bottom.

[PieterCasparzen]

4 nations in that list that are in Europe.

They total about 10% of our exports.

If all four of them suddenly stopped buying from us completely (an exaggeration), we’d lose only 150 billion in sales. That’s only about 1% of the U.S. economy of about 15 trillion.

IMHO, the overborrowing of governments mostly hurts the holders of their sovereign bonds; mostly this is big banks, financials, funds.

Those big guys are using the scare tactic of financial collapse - in order to get the government to prop them up.

Which, of course, most governments can only do by borrowing even more which just makes the “bubble” pile of sovereign debt even bigger.

It’s like the only two players in the debt bubble are governments and large banks and some large investment funds.

The majority of the “system” being “heavily interlaced” is actually large banks and large investment funds that owe each other.

IMHO, a bank would not only survive but actually thrive in the event of such a “financial system collapse” if they have a limited amount of assets that are either:

a) sovereign debt
b) owed to them by another financial firm

and if they do not owe too much to other banks that would be collectible in the event of those bank’s bankruptcy.

As the amount of sovereign debt increases (at a faster rate than economies are actually growing), the situation only gets worse.

[arthurus]

A European economic collapse cannot effect the U.S. The U.S. already exists and it is still a marginal construction.

[himno hero]

That is the kind stuff that wars are made from!!! Kinda apocaliptical!

We needs to save the world by gittin them bass-turds outta them offices!!!

[entropy12]

I disagree based on my participation in the US corporations for 37 years. I know first hand how good American ingenuity is. All it needs is freedom from excessive regulations and excessive taxation. If R+R get elected, along with a working majority of republicans in congress, look for SPX to go north of 2000 by year 2016 and DJIA to go north of 19,000. When that happens, all boats will rise, as they always do.

SO I am not anywhere as pessimistic as you depending on who wins in 2012.

[Lonesome in Massachussets]

How much exposure do U.S. banks have to sovereign default by Greece or the PIIGS? If they try to unload European debt, they will drive prices so low that they will effectively devalue all their European held assets.

How much total U.S. debt does Europe hold, and will they not be trying off load that if their economy collapses.

Europeans are also suppliers to U.S. companies and currency uncertainly will make it harder to business with them. (We just recently negotiated a $30 million contract with a Norwegian company, and they were absolutely adamant about being paid in Nk krona, not U.S. dollars. We don’t usually do that, but in this case, we relented, I assume that we have purchased futures on Nk krona to hedge this risk. That is wasted money from the point of view of profit and loss, but that’s one of the many hidden costs of the Obama economy.

[entropy12]

You guys are forgetting history.

One Example: The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht (due to lack of foreign currency to support its fixed exchange rate)

If a lowly country on economic ladder such as Thailand can cause a worldwide crisis, you betcha European meltdown will be much harsher. But I will agree it will affect US less than South-East Asia, especially China & S. Korea.

[sharc]

I agree with entropy12. Business's have stopped any hiring for past few years because they do not know what the kenyan forced Obamacare down there throats. If Romney is elected you will see how fast there confidence will be restored by the repeal of Obamacare. My guess is the economy will start improving right after Romney is in Office.

[Vendome]

Well, we will sell them some pretty beads and cheap whine.

Their cheesey government leaders will actually take the offer and rationalize it.

[driftdiver]

Simplistic

[Soul of the South]

If the democrats retain the Senate, it will not be possible to repeal Obamacare without the consent of Harry Reid.

[BfloGuy]

That’s only about 1% of the U.S. economy of about 15 trillion.

True, but with our GDP "growing" at about 1/4% in the last quarter [non-annualized but true figure,] that 1% would put us officially back into recession.

Exporters would shed jobs, curtail capital purchases, and the cascade would build from there. Growth and decline both happen at the margin. A drop in exports of that apparently small magnitude could be very damaging.

[tbw2]

What is the risk of economic refugees? Or capital flight to the US from Europe worsening our inflation rate?

[PieterCasparzen]

What is the risk of economic refugees?

Not much, IMHO. For a variety of reasons I don't see the immigration floodgates opening for them, or very many of them desiring to live here, even if the European standard of living deteriorates dramatically.

Or capital flight to the US from Europe worsening our inflation rate?

IMHO, I don't see that being significant and not very direct.

Most of our inflation potential is because of our high standard of living relative to other nations; there is still a lot of room, from the politician's point of view, to squeeze the population with inflation before they can't afford to eat. In America, even the poor have the "challenge" of obesity. The U.S. government and it's enablers are already well on their way in pushing inflation higher. The ethanol program is a great example, as well as obammycare, dude-frank, etc. The squashing of small business and competition, and the sweetheart deals that big business cronies get (like power and phone companies having increases happily granted by their government "regulators") also help to force consumers to pay more while getting nothing extra in return.

To drive up inflation, that capital would need to snake it's way to investments that pushed commodities higher, or somehow extracted more dollars from consumers while not delivering any additional usefulness to them. It all would not end up in those kinds of investements, though. Given conventional investing wisdom, a large portion would wind up being invested in "emerging markets", perhaps helping to build another "ghost city" in China. If it actually got invested in business operations inside the U.S. and increased employment, of course, that would be good; but all this is too complex, IMHO, to say inflation would necessarily be driven higher.

Also, there are a few alternative places for Europeans to keep their money.

Of course, any capital that is invested in government debt (some undoubtedly would wind up there) is part of the TreasuryPonzi(tm). While it's technically not "creating" money, it's diverting capital away from true investments in business operations and instead by borrowing against future tax revenues not receieved by the government yet. Since surpluses that pay down debt appear to be out of the question, IMHO it has the effect of money creation since it is generating an extra trillion in current economic spending by borrowing from bondholders that, when the music stops, won't be paid back in full.

On sort of another note but sort of always related, economic success ultimatly all boils down to "real" productivity (not many economists get this, of course), on the personal, corporate and national level.