Why a Greek Default Doesn't Matter - And Why Spain's and Italy's Will

Recently, I was talking to a hedge fund manager about the stock market.  I told him I didn't see how the market was holding up with the imminent default of Greece.  His comment was that he wasn't worried about Greece  since its GDP was about the size of a state in the U.S.  His point was the world economy could absorb the default of a state, so the world economy could absorb a default by Greece.

For reference, the GDP of Greece is in between Indiana and Maryland, the 16th and 15th states in terms of GDP.   I guess he's right.  If Indiana or Maryland defaulted, that would barely be a blip in the world economy.  However, the GDP of Spain is about the same as California's and the GDP of Italy is almost equal to those of California and New York combined.  

I suspect California or California and NewYork defaulting might have some impact on the world economy. So I think the lack of resolution for sovereign debt issues could still cause a major economic issue in the near future.   I plan to continue staying out of the market until there is better visibility on the EU debt issues.

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This is not financial or investing advice. Please consult a professional advisor.

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