For the past two years, the European Union and its many member-nations have been stumbling between near-collapse and apparent stability. It all began in the spring of 2010, when the political class of Greece admitted that its finances were, for lack of a better phrase, a complete sham. Years of gratuitous borrowing and dwindling revenues – with budget gaps filled by more debt – led to a slow rot of the government's ability to function.
Two successive bailouts numbering in the hundreds of billions of euros, as well as an all-but-mandatory "voluntary" private debt restructuring, have strung the process along. Yet, Greece remains a nation with a debt-to-GDP ratio of more than 160 percent.
As we head into the winter following the distraction of U.S. elections, Europe's systemic fiscal and monetary issues are becoming the focus of the media and, true to form, Greece is once again the center of attention.
This time the market's anxieties relate to an upcoming report about the health of the Grecian economy and the status of promises made to impose austerity: a mix of tax increases, budget cuts and public employee firings intended to balance the federal budget.
The prevailing fear is that the Greeks have been lying to their creditors – the European Central Bank, the International Monetary Fund and Germany – and could soon be ejected from the Eurozone, the group of countries that share the common euro currency.
Such an action, some economists fear, would wreak havoc on the global economy. Greek banks would surely collapse, leading to widespread losses on financial institutions that hold their debt, such as larger European banks. Consequently, the U.S. banks that wrote credit-default swaps – financial insurance on those government bonds – could see their balance sheets damaged severely as well. Or, as others claim, nothing serious will happen as banks have presumably taken the time to lower their exposure to the risk of a Greece exit, known colloquially as the "Grexit."
Regardless of the outcome, it would be wise for U.S. investors to prepare for a potential knee-jerk response to a Greek financial meltdown, which could seriously impact American stock and bond markets. One way to hedge against a global economic downturn is to invest in rental properties as a form of stable income. Cash flow real estate can provide a good source of revenue for investors, though there is a bit more work involved in this form of asset ownership. Explore GreatWealthStrategies.com and get your own "Free Game Plan Report" today to learn more.