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Where the euro crisis could hit the U.S.

Heidi Moore Nov 28, 2011

Jeremy Hobson: Well at the White House today President Obama will host some top European Union officials. He’s expected to put pressure on them to come up with a solution to the debt crisis to calm the markets. But what exactly is at stake for the United States?

For answers, we turn to Marketplace’s New York bureau chief Heidi Moore, who is with us live. Good morning.

Heidi Moore:Good morning.

Hobson: So Heidi, what is the biggest worry for the United States right now when it comes to economic fallout from Europe?

Moore: Well of course, the biggest worry is going to be banks. We have been worried about banks forever,  and we would be again if there was a European crisis, because they help fund Europe. Another problem, though — and one closer to home — is money market funds. Those are mutual funds that avoid risky investments.

Hobson: These are funds that are supposed to be super-safe,  a lot of people have money in them. And they’re supposed to be accounts that you can’t lose money in, right?

Moore: Exactly — they’re supposed to be just like cash. They invest in the highest rated securities — which used to be government bonds.  But now, government bonds, all over the world, aren’t so secure. So, the collapse of Lehman Brothers caused a panic and some money market funds “broke the buck.” They needed government lifelines to survivel; and so investors are more easily spooked now.

I spoke to Otis Casey at Markit, a research firm. And he said that they’re worried that Europe doesn’t have a prenup.

Otis Casey: U.S. money market funds have traditionally been a large source of funding to European banks. Because of the sovereign debt problems, U.S. money market funds have been more and more reluctant to increase their exposure.

So what that tells us, of course, is that money market funds are afraid of Europe. The good part is, though, that banks and U.S. companies are far better funded than they were in 2008.

Hobson: Marketplace’s New York bureau chief Heidi Moore. Heidi, thanks.

Moore:Thank you.

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