What effect will the European Banking Crisis have on the US economy?

As regard Europe, here is what I know: Out of total US exports (about $1.8 Trillion or 12.5 % of our GDP). European Union makes up about 16.3 %  and Euro zone about 12 %. So the total % of our exports to Europe as a share of our GDP is between 1.4 to 2.0 %. Even a 10 % contraction in Europe will have minimal impact on our GDP (0.14 to 0.2 % contraction).  On the other hand we get about 2.66 % of our imports from Europe – so European recession (and a plunge in Euro) will reduce our cost of imports which will make goods from Europe cheaper (and auto parts, chemicals and airplanes) and improve profits for our companies or leave more money for consumers to spend on other goods or save.

The major issue is what impact will the financial crisis in Europe have in US capital markets. In the near term there will be a flight to quality which means more people are moving their money to US (our 10 year treasury rate is 1.57 %). This reduces our cost of borrowing which is beneficial to the US economy.  However in the longer run European banks in order to maintain capital ratios will curtail their lending to US which might raise the cost of borrowing for companies. Also a credit crunch in Europe might put some European suppliers at risk due to lack of availability of credit putting US supply chains at risk.

I feel the media (CNBC/Fox Business News) should stop beating the doom and gloom drums about Europe and focus on the US economy and the fiscal cliff. The damage is more likely due to psychological reasons than trade or fiscal reasons.