Tags: Greek | Crisis | US | Rates

Experts: Greek Crisis Pushing Down U.S. Interest Rates

Thursday, 17 May 2012 07:45 AM

Fears Greece will default and roil markets worldwide is fueling global demand for safe and liquid Treasury bonds, which is pushing long-term interest rates down and making life easier for many in the U.S., experts tell the Christian Science Monitor.

Mortgage rates are dipping to record lows, automobile loan rates are cheap and other borrowing costs are down as long as the Treasury remains a global safety play.

"Lower interest rates are a good thing," economist Richard DeKaser, deputy chief economist at the Parthenon Group, a consulting company in Boston, tells the Monitor.

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On the flip side, surging demand for Treasury bonds may signify the arrival of a global slowdown and less appetite for risk.

"But in this context, they are also symptomatic of heightened risk aversion, which means it could be more difficult for some borrowers to get loans."

Greeks have reportedly yanked the euro equivalent of as high as $900 million out of the country's banks, fearing that elections in June will produce a parliament in favor of ditching austerity measures, a tipping point to the country's ouster from the eurozone.

"It has to flow somewhere," says Fred Dickson, chief investment strategist at D.A. Davidson & Co in Lake Oswego, Ore., the Monitor adds.

"The biggest 'bank' that can handle that is the U.S. Treasury, which is kind of viewed as the universal bank of last resort."

Greece held parliamentary elections in May, which pushed enough politicians from leftist and other fringe parties into power that the traditional parties were unable to create a coalition government, thus forcing a new round at the polls.

Election results reflected widespread anger at austerity measures the country accepted in exchange for bailout money from the European Commission, the European Central Bank and the International Monetary Fund.

Many politicians say Greece has had enough with painful public-sector layoffs, tax hikes and spending cuts and are willing to scrap those policies even if it means an end to the flow of bailout money, talk the world interprets to mean Greece would rather abandon the currency and go it alone instead of endure austerity.

Leaders from Germany, the motor of the European economy, insist they'll cut off the flow of rescue funding if Greece backtracks on commitments to streamline its bloated government.

"Greece must be ready to accept the (EU-IMF) aid," said German Finance Minister Wolfgang Schaeuble, according to the AFP newswire.

"Those who win the elections will have to decide if they accept the conditions or not."

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