[Begin VIDEO with Kristin Arnold, Bankrate.com anchor introducing the video topic]
Kristin Arnold: Debt issues in Europe continue to dominate the headlines. While these problems stem from countries an ocean away, they can have a very real impact on American consumers. To walk us through some of the consumer impact, we're joined by Greg McBride, senior financial analyst with Bankrate.com.
[Cut to a double screen of Kristin Arnold and Greg McBride]
Kristin: Let's start with the financial impact of Europe's debt woes on American consumers.
Greg: The good news is that all European nasty headlines have helped keep fixed mortgage rates near record lows. But LIBOR rates, that is rates that banks to pay to borrow from each other overseas, have moved higher ... and they're higher now than they were both six months ago and 12 months ago. So, homeowners who have adjustable rate mortgages pegged to LIBOR may see those monthly payments begin to creep higher. All the interconnectiveness of financial markets also means that stock market volatility quickly circles the globe and that can do a number on the 401k and IRA balances as we've seen when markets fall three percent one day only to rebound the next.
Kristin: We live in a global economy, so how do American consumers feel the economic impact?
Greg: The European union accounts for nearly 20 percent of U.S. exports, so a slow down on the other side of the Atlantic and the accompanying strengthening of the U.S. dollar puts a dent in U.S. exports ... that's a drag on the U.S. economy. That being said, a recession in Europe doesn't necessarily mean that the same fate awaits us here in the U.S.
Kristin: What is the downside risk to American consumers?
Greg: If things go really wrong ... if there's a sudden default or a sharp spike in the odds of a default among somebody like Italy or Spain then that could produce a global credit crunch. As we saw in 2008, that's something that could quickly hit U.S. consumers through higher unemployment, plunging retirement account values, sudden spike in some interest rates as well. While that's a possible scenario, and it's certainly a worst case scenario, it's not one that I'd say is overly likely at this point.
Tag: To keep track of interest rates, exchange rates or financial markets, just go to Bankrate.com. I'm Kristin Arnold.