The Real American Fear: Europe

This is going to be a crash course in the world's debt problems and fears.

The US, like the rest of the world, is undergoing major debt fears. The only reason the US won't default: we have the capabilities of raising our debt ceiling. If we were a part of the EU, you can bet we would be in bailout talks. Because we can print more money and expand our balance sheet, we constantly dodge bullets without ever fixing the problem. It is almost like we are running from it over and over while our leaders fight about where to run to. The weekend we went to the wire on raising the debt limit and the effective downgrade by the S&P caused markets around the world to fall. The global economy has become so correlated that we cannot continue to focus on news from any single country.

Europe could be considered to be in a worse position than the US. The reason is simply because of the EU. The European Union sets one interest rate for the whole zone. Every country is bound by the same set of rules. Some countries are dangerously close to debt limits while Greece has jumped well past it. Greece cannot raise their debt ceiling like we can. They cannot move interest rates or manipulate their currency to help themselves. The EU could be the whole problem to Europe's debt troubles. Unfortunately, some of our banks have a financial interest in Europe's banks and countries. Should these countries default, our financial system could see another major speed-bump.

Recently, a top official in the EU Central Bank stepped down causing further fears about the debt troubles. The most interesting part was the fact that the US markets fell further than Europe's on the news. Why? Why should we get hit more than the countries that this actually impacts? Our biggest fear has to be Europe. Just today the markets rallied back after initial fears because Italy is looking for a deal with China. Sometimes it even seems that our economic numbers take backseat to Europe. The only news we should really be watching seems to be Europe. Until that changes, keep watching pre-market news to figure out how each day will start off.