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Why Debt Crises Destroy Banks
After the U.S. downgrade by S&P, many pundits simply guffawed that the downgrade was a sideshow—a simple distraction from the true issues of debt and default. And that’s true to a certain extent—but if people actually think the downgrade is an issue—it may actually become one. A nation’s debt and the state of its banking system are intimately related. When there is a problem in one, you can be pretty sure there is a problem in the other. Any old notion of a “risk-free” government bond has quickly been laid to rest.
In the wake of Standard & Poor’s downgrade, the stability of other “AAA” sovereigns like the United Kingdom and France has been called into question. This, of course, has repercussions in the financial markets, where countries may suddenly find that their costs have gone skyward.
France, with the worst financial Read more…
Second U.S. recession could be worse than the first
A second recession, what many are calling the double-dip recession, could be on its way, economists warn. And should it come, it will probably be even more devastating than the previous period of economic woe.“It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” Conrad DeQuadros, senior economist at RDQ Economics, told the New York Times.
The Standard and Poor’s downgrade of the U.S.’s credit rating bodes ill for the world’s financial markets as well as the domestic market.
President Barack Obama, once the debt deal with Congress to avoid a debt default was struck, announced a pivot to focus on jobs.
“I’ll continue also to fight for what the American people care most about: new jobs, higher wages and faster economic growth,” Obama said in a statement to press after the debt deal was passed last week.
While the working age population has grown 3 percent in the past four years, the economy has 5 percent fewer jobs — or 6.8 million less than four years ago. Unemployment stands at 9.1 percent.
Economists don’t think another stimulus package will do the trick, either.
“There are only so many times the Fed can pull this same rabbit out of its hat,” Torsten Slok, the chief international economist at Deutsche Bank, told the Times.
Dow plunges 635 points as downgrade fuels market turmoil
The Dow Jones Industrial Average closed down 635 points Monday, dropping below 11,000 as the impact of an unprecedented downgrade to the U.S. credit rating reverberated through financial markets.
The downturn came on the heels of a brutal week for the market, capped off when the Dow lost 512 points on Thursday. That gave the blue-chip stock index two of its 10 biggest point losses in the last three trading days.
The S&P 500 and NASDAQ stock indices were both down nearly 7 percent at the close of Monday’s trading.
The dramatic point drops followed the first-ever downgrade of United States debt by Standard & Poor’s late Friday evening. The credit rating agency, citing increasing concern over the nation’s political infighting and the relatively small amount of deficit reduction included in the deal to raise the debt limit, knocked America down from its top rating for the first time, moving it down one notch to AA+.
In an ironic twist, the financial product that was downgraded reaped the Read more…
China Boldly Goes (Again) Where Moody’s Has Never Gone Before, Downgrades US From A+ To A, Outlook Negative
As was predicted last week, China’s rating agency Dagong, unlike its worthless western counterparts, has come through on its threat to downgrade the US in the event a subpar debt ceiling deal was hammered out. As Xinhua reports, ‘Dagong Global Credit Rating Co. said Wednesday it has cut the credit rating of the United States from A+ to A with a negative outlook after the U.S. federal government announced that the country’s debt limit would be increased.” Confirming that not being branded a NRSRO is the only thing that allows a rater to still think straight (and not in terms of lost client revenue if one goes ahead and tells the truth), Dagong’s decision was spot on: “The decision to lift the debt ceiling will not change the fact that the U.S. national debt growth has outpaced that of its overall economy and fiscal revenue, which will lead to a decline in its debt-paying ability, said Dagong Global in a statement.” So while Moody’s, which is now certified as the Read more…
China ratings house says US defaulting: report
BEIJING — A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.
“In our opinion, the United States has already been defaulting,” Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.
Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies — eroding the wealth of creditors including China, Guan said.
Guan did not immediately respond to AFP requests for comment.
The US government will run out of room to spend more on August 2 unless Read more…
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