The smallest European economy, which was once a subject of only local concern, Greece, has now become a global problem as indicated by the decline of some Asian currencies. Nervous investors have already forced Brazil to reduce bond issuance due to rising interest rates and caused a decline in currencies in Asia, such as the Korean won.
Increased global concern threatens to slow the economic recovery in the U.S., reports the NY Times. About a decade ago, it took more than a year for the devaluation of the Thai currency caused by debt to spread to Asia and then to Russia, nearly causing the collapse of Long-Term Capital Management, a giant American hedge fund. Unlike that, this crisis seems to jump from country to country within minutes, as evidenced by the withdrawal of investor investments in everything from Portuguese bonds to blue-chip stocks in the U.S.
Byron Wien, a prominent strategist on Wall Street and vice president of Blackstone Advisory Partners, warns that Greece could be an early warning sign for the U.S. ‘The U.S. is far from the position Greece is in, but the developed world is living much better than it can afford, and now the bills are coming due,’ Wien stated. The consequences of the Greek crisis on the U.S. are reflected in the way some companies are facing higher costs of financing their debt, while large exporters are facing reduced competitiveness due to the strengthening dollar. However, there are also positive aspects, such as the decline in oil derivative prices.
