The ripples from the European debt crisis have been felt even in America. That's no surprise, considering the butterfly effect of the global economy, but the ongoing Greek debt issues will continue to impact America.
While America can count on the revenue from income taxes to help pare down its national debt, Greece's ability to do the same may be greatly compromised in the future if the country is not successful in redefining its disability codes and definitions.
The Greek plan calls for compulsive gamblers, sadomasochists and exhibitionists, among others, to be labeled as disabled. Considering that a Greek who is both unemployed and blind gets 700 euros (or $896) worth of disability benefits per month, expanding the pool of people eligible to file for disability—and who will not be paying income taxes—will further strain a country already deep in debt.
While America's economy continues to endure stops and starts as it tries recovering from the Great Recession, the situation is less dire than the European debt crisis because the American workforce is in much better shape than Greece's. Employed people not only pay their income taxes but also other vital bills such
as property taxes and utility bills, all of which help communities either emerge from debt or turn a profit.
The United States and its financially secure cities and states, in turn, are more attractive targets for investors—particularly those who are seeking tax-free municipal bonds because they are frightened by the possibility of Greece defaulting on its bonds and/or exiting the European Union.
The United States has never defaulted on one of its debts. A state municipal bond hasn't defaulted since 1933, when the State of Arkansas endured defaults during the Great Depression. And more than half of the over 8,500 local municipal bonds to default from 1920 through 2010 did so during the Great Depression.
For generations now, tax-free municipal bonds have been the foundation of a good and sound investment strategy. The European debt crisis has only strengthened the appeal of these bonds, because people around the world are looking for something safer and more reliable in which to invest.
In addition, countries such as Greece do not offer these types of tax-free municipal bonds, so even if the economy was better in Europe, such bonds would not be as appealing to investors as the ones offered in America. People of all ages rely on the interest from these bonds as a steady revenue stream.
The relative predictability of American bonds helps the economy on these shores, as well. The more people who invest in bonds, the stronger the economic base becomes in the United States.
The debt crisis in Europe is certainly cause for concern for those monitoring the global economy, but continuing to invest in tax-free municipal bonds in America can reassure investors as well as minimize the tremors the country feels from the troubles in Greece and Europe. Contact your broker for more information today!