What We Worry About When We Worry About Greek Debt

More importantly overseas, it could cause borrowing rates for Portugal and Italy to jump, pushing those much larger countries closer to defaults of their own.

That's only the beginning. A Greek default could unleash a host of larger problems. Some are already anticipated while others are likely to blindside even the closest observers, says Nick Colas, chief market strategist at ConvergEx Group. "In any complex system, you're going to have unintended consequences," he says.

He compares it to the collapse of Lehman Brothers: Analysts saw it coming, but the fallout in still caught them by surprise. A money market mutual fund found that it couldn't redeem its customers' money. Money market funds, which many considered as safe as savings accounts, suddenly looked suspect until the Federal Reserve backed them up.

At a conference on sovereign debt this week in New York, Steve Hanke, professor of economics at Johns Hopkins University, predicted that even commodity prices would plunge in response to a messy Greek default.

If Greece goes under, traders seeking safety would immediately sell euros and buy dollars, Hanke said. The dollar would soar and prices for commodities like oil and wheat, which are bought and sold in dollars around the world, would collapse. A single dollar would buy much more oil or wheat.

"If the bomb is set off by Greece, commodity prices will collapse," Hanke said.

Hanke, who has advised governments around the world on managing their currencies, argued that Greece appears bound to collapse under its debts as its economy shrinks. "Greece is doomed," he said.

So investors will be watching what happens this week in Athens. At the sovereign debt conference, Hans Humes, president of Greylock Capital Management, said this week could bring "the precedent-setting moment." He warned that if the banks and investment funds that hold Greek bonds take steep losses, then Portugal, Italy and other countries shouldering heavy debt burdens can be expected to follow Greece's lead.

It's comparable to a messy default. Traders will respond by immediately selling government bonds from those countries, Humes said. Borrowing costs will rise, and Europe's debt crisis will turn much worse.

Humes has been involved in the negotiations on the side of creditors holding Greek bonds so he has a stake in the game. But it's a scenario other money managers often cite.

"There's a fear that other countries won't negotiate at all. They'll just say, 'We'll pay you back at 50 percent or maybe less," Kleintop says.

To Colas, the deepest concern isn't how the S&P 500 reacts or whether the dollar rises if Greece drops the European currency. It's the possibility for panic, especially a run on European banks.

What if people across France and Germany crowd into banks to pull their deposits? Banks, after all, are some of the largest buyers of government debt.

"Human emotions can drive things off the rails," Colas says.