Three Greek Lessons for US Bank Rates

Much of the financial news in recent weeks has concerned the budget crisis in Greece and efforts of the European Union to shore up the Greek government's finances. All of this may seem far away from personal finances in the US, but there is a link.

Do events in Greece really affect your savings account or money market rates, or what CD rates your bank will offer next month? To some extent, all financial events around the globe are interconnected--but in this case, perhaps the best reason to pay attention to the budget crisis in Greece is that it serves as a cautionary tale for the United States and its budget policies.

Think US Savings Accounts Are a World Away from Greece? Think Again

Here are three big lessons from the situation in Greece:

1. Nobody is too big to fail. Greece isn't the only country lately to have found itself with debts it couldn't repay. Governments are not immune to many of the same financial principles as individuals and businesses--they should not borrow money without a plan for how to repay it.
2. Failure is painful. As a result of its problems, Greece has had drastic budget cuts forced upon it. It's an important reminder that the US can cut spending in an orderly manner now or have harsher measures forced upon it later.
3. Failure is expensive. Greece is raising money by issuing bonds at a 6.4% interest rate--twice what the more financially sound German government would have to pay. Bad credit means higher interest rates for governments as well as individuals. If you think the silver lining would be higher bank rates, keep in mind that this scenario would also be likely to play out for the US with a weaker dollar and higher inflation, which could wipe out the gains from higher yields.

Greek history is still taught in many US schools because key aspects of modern Western civilization has followed the example of Greece. With any luck, that won't extend to the US following Greece into financial crisis.

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