Italian debt downgrade by S&P to drive stocks and euro lower
Posted on 20 September 2011 with 4 comments from readers
This is shaping up to be another tough week in financial markets after S&P downgraded Italian debt following the close of business on Monday. Stock futures and Asian shares tumbled, the euro sank again. Gold rallied after its big sell off yesterday.
Welcome to the volatility and turbulence of this autumn. Last week the S&P 500 had its best gain in a year but yesterday the markets dropped sharply across the board. The flight to safety was into US dollars and treasuries, the best of a bad bunch.
Eurozone woes
The Italian downgrade was hardly unexpected. Mr Berlusconi’s colourful personal life just adds to the perception of poor governance. But the downgrade drove Italian and Spanish bond yields perilously close to the dangerous six per cent level after which markets tend to overflow to the downside. Italy follows Spain, Ireland, Portugal, Cyprus and Greece as eurozone countries with ratings cuts this year.
This is also a sharp reminder of the contagion or fall-out risk from the Greek debt crisis. Greece is not an isolated country, it is a full part of the eurozone. Many other members have privately concluded that the sooner Greece is out of the club the better in the meantime the Greek disease is contagious.
IMF, EU and ECB officials are telling Greece to make 100,000 of its over-paid and idle public sector employees redundant and improve taxation collection rather than implement a new property tax. But while this is good governance it is hardly popular with those affected and they are running the country when not sat on the beach.
QE or not QE?
Eyes now turn to the Federal Reserve for a possible resumption of quantitative easing – or money printing – made easier by the rising dollar and strength of US treasuries. The Fed meets for two days today and tomorrow, a day longer than usual.
Yet the Fed will be mindful at how fleeting the impact of market manipulations are proving now. Only last week a coordinated intervention by central banks provided an injection of dollars into the eurozone banking system. It only rallied markets for a couple of days.
What obviously seems to lie ahead is a series of downgrades in the eurozone and lower euro, most likely accompanied by a major banking crisis when Greece finally defaults and leaves the eurozone. Could markets actually rally after that? Yes but we have to get there first!
4 Comments posted by readers:
QE?
- take a peek at the documovie ‘Inside Job’ … All the players responsible for lead up to plus result of 2008 are still in place – some promoted & endorsed by Obama!
Now, inter alios, we have the same duo of B & G with their vested interests deciding the future of the very constituency they Wrecked in the firstemmig place!
Just watch the evidence of ‘ Inside Job’ to understand what’s really going down …
Note ‘the club’ member who shows his true collours….. “Give it your best shot’
@ Dscartes
The David Faber CNBC TV special ‘House of Cards’ about the US sub-prime real estate lending is another classic. The sub-prime crisis didn’t just happen by accident. Wall Street bankers made a fortune on it, then transferred all their loss to taxpayers like me. Faber lays it all out in ‘House of Cards’. He did another truly shocking special about the new class of super rich that has emerged in the USA since Reagan starting reducing their income tax rates in the 1980’s. CNBC removed it from the list on their web site. Someone must have complained with talk of cuts to Medicare and Social Security being discussed. It was called, “Untold Wealth: The Rise of the Super Rich.” Even I was shocked at how much money the top .5% of the top wealthiest Americans has. Faber was interviewing one fellow who paid $40,000 for 1 flat tire on his sports car. He seemed surprised when Faber was shocked at the price.
I love the way the rich get so mad when Obama tells them that they have to start experiencing the same pain that the middle class has been feeling in the USA for the last 10 years. Even after globalization sent mom to work, their real income has been falling, even as the top 5% gets richer and richer. They are capturing more and more of the total national income. There is nothing wrong with that, but not while the National debt constantly becomes a greater percentage of the national GDP.
Faber got into a shouting match with his CNBC co-host Monday morning over raising taxes on the super rich. He told Joe Kernan things like, “I’m getting tired of you putting words in my mouth! while pointing his finger at his face. I’ve never seen anything like it on a financial TV channel. The next election over here is going to be exceptionally ugly, especially with a recession on the way. Too bad they don’t still have dueling for politicians. I would pay to see them shoot each other.
Yep, it’s the age old game of create a problem and supply the solution. The solution being global financial governance. Once that is in place national governments, be they democracies, monarchies or any kind of national leadership will cease to have any relevance.
It’s a long-term game that can only be played by institutions as it often transcends the life-span of a single individual.
The solution is Market place financial governance. Big government should go the way of the dinosaurs! De-regulate, Shrink and get out of the damn way! 10% Tax across the board, whatever you earn and higher interest rates to extinguish all the insolvent banks, companies and individuals.