President Obama is urging calm as the United States prepares to weather economic turmoil coming out of Greece and Puerto Rico.

While the U.S. economy appears to have entered a relatively stable phase, two threats have emerged from opposite sides of the Atlantic Ocean. Top officials in both Greece and Puerto Rico have said they will be unable to meet all their current debts, and are facing default without additional assistance.

{mosads}Greece’s default in particular is largely unprecedented and could lead to significant uncertainty across the financial markets.

On Tuesday, Obama said trouble in Greece should not “prompt overreactions” in the U.S.

“In layman’s terms for the American people, this is not something that we believe will have a major shock to the system,” he said at a press conference. “It’s something that we take seriously, but it’s not something that I think should prompt overreactions.”

Questions about the trajectory of global financial markets kicked into high gear this week, with officials in Greece and Puerto Rico saying they are unable to pay back all money they owe.

In Greece, officials have said they will be unable to make a roughly $1.8 billion payment owed to the International Monetary Fund (IMF), and are pushing for a new round of fiscal relief from European officials.

And in Puerto Rico, that U.S. territory’s governor has said it cannot continue to keep up with all of its payments, and is pushing policymakers in Washington to allow it to declare bankruptcy.

The potential for a pair of high-profile defaults has dominated financial markets this week and led to questions about how economic struggles abroad might manifest in the U.S.

Throughout the ongoing drama, U.S. policymakers have tried to balance caution with calm. Officials are quick to note that the direct economic ties between the United States and Greece are fairly modest but note that, if trouble in that nation leads to broader reactions, the U.S. could be impacted.

 Federal Reserve Chairwoman Janet Yellen said earlier this month there would “undoubtedly be spillovers” into the U.S. economy if Greece’s troubles lead to unrest in financial markets or slowdown in Europe’s overall economy.

Yellen’s outlook is particularly important because she is trying to steer the Fed toward its first rate hike in nearly a decade, possibly as early as this fall.

But with the central bank trying to nail the time when the U.S. economy is strong enough to weather an interest rate increase, any new uncertainty from the global scene could push it in a more cautious direction. Yellen said that, if the U.S. is affected by offshore challenges, particularly in Greece, “that would affect our outlook.”

The Obama administration is adopting a similarly measured tone, even as top officials work behind the scenes toward potential resolutions.

Treasury Secretary Jack Lew and top Treasury officials have been in frequent contact with senior Greek officials, including Prime Minister Alexis Tsipras, over the last several weeks. They have also been in contact with top European and international officials, such as IMF Managing Director Christine Lagarde, pushing a package that would aid Greece while keeping it within the eurozone.

Obama himself has pushed his European counterparts to find some sort of agreement at the negotiating table, speaking with French President François Hollande and German Chancellor Angela Merkel in the last two days.

One of the main reasons U.S. officials are striking a confident tone is because neither Greece’s nor Puerto Rico’s economy is all that large.

At a Senate Banking subcommittee hearing held Thursday, economic experts struck a confident tone that the U.S. was not at significant risk due to Greek woes.

According to Matthew Slaughter, the incoming dean of Dartmouth College’s Tuck School of Business, Greece’s economy is about the size of Louisiana’s or Connecticut’s — substantial to the region but not a global heavyweight.

“However large a default-induced contraction in Greece might be, it simply would not be very large relative to the overall world economy,” he said.

Much of the outstanding Greek debt is in the hands of the IMF, where the U.S. is its primary contributor. While it is true that taxpayer dollars could be at risk with Greece’s default, experts said even in that extreme situation, the U.S. would not be that hurt.

Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics, estimated that the U.S. share of the IMF’s loans to Greece, roughly $6.5 billion of $39 billion, accounts for roughly 0.2 percent of all government outlays in 2014.

Puerto Rico’s situation is a bit murkier, in large part due to its position as a U.S. territory. That means Puerto Rico’s debt, which soon could come into question, is traded on the municipal bond market along with state and local debt from across the country. Municipal debt is frequently seen as a safe haven for investors, and is a common investment for pension and retirement plans; a Puerto Rican default could upset that usually sleepy market and in a way that leads to a pinch directly in some Americans’ pocketbooks.

And the notion of Greece and Puerto Rico defaulting at nearly the same time adds a heavy dash of uncertainty to an already iffy set of circumstances.

Experts say one of the biggest risks is the outside chance that the turmoil caused by one or both defaults could upend financial markets, similar to the way the bankruptcy of Lehman Brothers, a medium-sized financial institution in the U.S., set off a panic.

“There is the small but non-zero chance that default triggers another financial crisis of the magnitude of the world financial crisis of 2008-2009,” said Slaughter.

The Dow Jones industrial average posted its worst day of the year Monday, falling 350 points. But the blue-chip stock index was actually up Tuesday, as policymakers continued to huddle.

If the debt dramas do not lead to panic in the financial markets, there are ways circumstances could still adversely impact the U.S. One way would be if investors begin to leave foreign currencies, and seek out U.S. securities and currency as a safer investment. A strong dollar is already weighing on export-heavy manufacturers in the United States; a further strengthening could make matters worse.

But even then, Kirkegaard estimated that, if Greek households cut all their U.S. purchases by 10 percent, it would result in a hit of only about $20 billion — or 0.1 percent of the U.S. economy.

Tags Economic bubbles Economics Financial crises International Monetary Fund Jack Lew Puerto Rico
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