Europe's Debt Crisis And An American Double Dip Recession

No one in this country should be complacent about what's happening in Europe. If, like dominoes, the PIIGS --- Portugal, Ireland, Italy, Greece, and Spain --- default on their individually accumulated debts, the Eurodollar could easily collapse. For America, this could spell even higher unemployment and, for sure, a second recession.

40% of all American exports depend on the buying demand that comes from the 17 countries that make up the European Union. Thousands of jobs depend on those exports. As the Eurodollar weakens, our products become more expensive and less competitive throughout Europe. This fact, alone, could spell an increasing amount of layoffs in this country; slowing our economy and raising the unemployment rate. Further, as the cost of bond debt rises in each of the PIIGS countries, inflation will be sure to rear its ugly head; thereby reducing the purchasing power of the average European. This, too, could negatively impact American exports.

Additionally, our banks, brokerage firms, and individuals are holding somewhere between $600 billion and $1 trillion in European debt. No one really knows the exact amount. It might actually be higher than a trillion dollars. But, in any event, if the Eurodollar collapses, all of that debt could be easily at risk; threatening the survivability of our key national banks. Once again, the U.S. government and the taxpayers will be forced to ante up with another too-big-to-fail TARP-like bailout. As it is, we are already exposed to the debt problems in Italy and Greece. That's why, just recently, a derivatives brokerage firm called MF Global was forced to go belly up with thousands losing their money in the process.

I am personally concerned that those troubled European countries will fail to extricate themselves from their debt problems through any real austerity programs. As a result, our own Federal Reserve and Treasury -- knowing the potential consequences of any European defaults -- might decide to shore up the entire European Union by loaning massive amounts of money to the individual PIIGS. If that happens, our own economy would be hurt because our own currency will lose value; making imports more expensive for us to buy. And, we buy a lot. Around the world, governments -- including ours -- need to stop with the liberal-minded spending and make fiscal discipline the priority. Otherwise, more than just the economies of Europe and the U.S. could be a risk.