Get free help preparing your taxes from AARP Foundation Tax-Aide. Find a location


You Could Choose Your Dream Vacation

Contests and

AARP’s Superstar
2015 Contest

Sing for a chance to win $5,000! Enter AARP’s Superstar 2015 Contest!
See official rules.

Driver Safety

Piggy bank on the road - AARP Driver Safety

Take the new AARP Smart Driver Course!

AARP Books

Visit the Money Section

Enjoy titles on retirement, Social Security, and becoming debt-free.

Jobs You Might Like

most popular


What Is Happening to My Money?

Like it or not, your 401(k)'s health is tied to a turbulent world at large

Adding to the economic fears was Washington's new obsession with cutting spending. While closing the deficit is necessary in the long run, doing so won't fight off recession now. By focusing entirely on austerity, many economists say, Washington is throwing away its best tools for boosting growth.

"The most effective fiscal policy action to generate activity and jobs would be a major program of public works to re-employ unemployed construction workers," wrote Nigel Gault, chief U.S. economist of HIS Global Insight. "But we can safely assume that is not on the agenda."

And what's all this about Europe? What does that have to do with my money?

For all the talk of a U.S. debt "crisis" in Congress last month, there was never any doubt that the United States could pay its bills, once Congress renewed its permission to do so. If worse comes to worst (and we're not anywhere near worst), the Federal Reserve can always print dollars to pay, since all of our debts are denominated in our own currency.

That's not true of, say, Greece, Portugal or Spain; all three have slow economic growth, debt burdens worse than ours and have to borrow in a currency they don't control, the euro. Last week, fears rose that the problem was spreading to Italy, where government debt stands at 120 percent of GDP (compared with 75 percent in the U.S.).

"If the crisis were to hit Italy, it would spread also to France, to the rest of the euro area," Domenico Lombardi, a senior fellow at the Brookings Institution told CNN. "And the contagion would spread to the U.S.," because U.S. banks have extensive holdings in European banks.

To fend off that scenario, the European Central Bank — the continental equivalent of the Federal Reserve — began to buy Italian and Spanish bonds, and European stock exchanges stopped speculators from betting on further declines in European bank stocks. Over the Aug. 12 weekend, Italy's cabinet agreed to a plan to cut spending and raise taxes to bring debt under control.

So far, those stopgap measures have helped restore confidence. And that's very important — if anything is likely to bring back a 2008-style financial crisis in the near future, it's not the U.S. downgrade. It's Europe.

So, we're going to have that kind of catastrophe all over again?

For now it seems unlikely. The 2008 collapse was triggered by sudden, massive defaults on private loans, starting with mortgages and the complex securities that depended on them.

Today, by contrast, it's government loans that have people scared. The problems are serious, but they're not coming as a surprise, and authorities have time to work on fixes.

In addition, the financial system is better prepared for trouble this time around. Banks have raised capital, notes Seth Masters, chief investment officer of asset allocation at money manager AllianceBernstein, and U.S. corporations have $2 trillion of cash on hand.

Next: Is another recession in the future? >>

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts


Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

The Cheap Life

Jeff Yeager Cheap Life Ultimate Cheapskate AARP YouTube web series save money

Catch the latest episode of The Cheap Life starring Jeff Yeager, AARP's Ultimate Cheapskate. Watch

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

membership benefit financial college aarp

Advice on saving for education from AARP® College Savings Solutions from TIAA-CREF.

AARP Credit card from Chase

Members can get cash back rewards on purchases with the AARP® Credit Card from Chase.

member benefit aarp financial service auto insurance

AARP® Auto Insurance Program from The Hartford offers members no-cost quotes.

Member Benefits

Join or renew today! AARP members receive exclusive member benefits & affect social change.

Advance your skills. Transform your career.

Explore your learning possibilities.