Yellowstone Financial, Inc.

Why you should care about Europe’s woes

Economic news junkies have had plenty to chew on over the past few weeks. The national debt crisis is behind us at the moment, and now we wait on the congressional super committee on the budget to come out with its recommendations later this month.

In the meantime, our worry du jour is the Eurozone crisis.

The international press has made up its mind. This crisis is tremendously important to your personal finances. With every day comes new footage of German chancellor Angela Merkel and French Prime Minister Nicolas Sarkozy huddling in hushed tones about the fate of their spendthrift euro compatriots.

Two weeks ago stock world markets rebounded sharply with news that Greece would accept an austerity program in return for rescue loans from the European central bank.

The deal would leave Greece with a national debt equivalent to 120 percent of GDP by 2020. While this level of debt is high and could require austerity measures for years, it is conceivable that it could be serviced.

Those reveling in euro unity were roiled when Greek Prime Minister George Papandreou proposed to put the austerity measures to a national vote last week. With taxes to be raised, public benefits to be cut, and the economy shrinking, the chance of the Greek people approving such changes is close to nil.

Merkel and Sarkozy thought they were working with the decision maker — Papandreou — and now must face dealing with another government or the Greek people directly.

While the Greece political situation is fluid, the markets have made up their minds. The one-year Greek government bond pays 225 percent annual interest, a sure sign that default or at a minimum a huge haircut on the bond principal is expected.

Perhaps more concerning, Italian, Portuguese, and Spanish bonds, while not featuring the absurd yields of Greece, yield at least 4 percent more than their staid German equivalents.

This may be interesting to those who read the Financial Times and listen to the BBC World Service, but what about for those of us investing and working in our snowy enclave?

First we should accept that it is likely that Greece and perhaps other debtor countries will eventually leave the euro. By returning to a sovereign currency, Greece will be able to control the currency printing press again. With helicopter drops of drachma raining down upon the Rubicon, the value of Greece’s currency will be devalued.

Greek goods will become cheaper abroad, sunsplashed Santorini vacations will more become more affordable, and more expensive imports will create opportunities for local producers. Look at Argentina — which defaulted on its debt in 2002 — for lessons.

In the five years after default, its economy grew close to 9 percent annually while unemployment and poverty plummeted. There will be disruption for sure, but it’s not certain sovereign default will be a long-term bad event for Greeks.

For us, talk of Greece is a distraction from the economic issues that should concern you most. Interest rates on 30- and 15-year mortgages are at historic lows, if you can make it through the excruciating underwriting process.

Stocks are paying higher dividends than the 10-year Treasury bond earns in interest. Relatively low unemployment in Boulder County gives you more career opportunities than most Americans.

As always, you can spend less than you earn and take steps to legally minimize your taxes. All of these factors far outweigh the importance of the Greek crisis on your financial future.

More importantly they are within your sphere of influence in contrast to the drama across the Atlantic.